· Stockbrokers defraud investor N10bn
· SEC intervenes as investors’ confidence wanes
For the Nigerian investing public, it is a season of nightmares and dashed hopes as critical operators of the Nigerian Stock Exchange (NSE) mismanage and deny them returns on their hard-earned resources through dubious transactions.
Both individuals and corporate bodies which stake their funds in shares and other investment openings have lost them to fraudulent stockbrokers who appear to enjoy the support of some officials of the industry’s regulatory agencies.
In the few cases where the regulators struck and sanctioned the offending stockbrokers, the losing investors were never reinstated to their original positions.
An extensive investigation carried out by The AUTHORITY have revealed that a particular bank (names withheld) lost over N1 billion investment to a stockbroking firm and upon the intervention of the Securities and Exchange Commission (SEC), it returned only N300 million to the bank.
In the same vein, the fortunes of the NSE have continued to dip as market capitalisation this year dropped to an all-time low of N9.6 trillion from N14.8 trillion in 2008.
It was also discovered that part of the causes of the huge losses beside the current economic challenges, is the “huge corruption and shady deals” which have dominated the capital market for a long time. The development kept many shareholders on the edge as their stocks continued to lose value in terms of price.
Documents available to The AUTHORITY showed that in spite of the measures adopted by the Council and the management of the NSE and the Securities and Exchange Commission (SEC), some stockbrokers have continued to shortchange their clients through questionable transactions that run into billions of naira.
A case which generated serious heat in the sector, after it was let out, involved a securities’ company and three of its subsidiaries, where about N10 billion belonging to one of their clients was mismanaged.
The scandal came to light from petitions written by some of the shortchanged companies.
One of the companies, a sub-regional bank, whose 96,077,872 shares valued about N1.2 billion and additional $80,000 (N40 million) from accrued dividends was allegedly diverted. These shares allegedly belonged to a former chief executive of the bank.
Incidentally, the offending company admitted through a letter signed by one of its top officers (names withheld) that “the shares were sold by us for a total sum of N1.537 billion, of which N300 million has been paid.”
It however did not say when the outstanding balance of N1.24 billion and $80,000 will be paid back to the client.
Inspite of this, what has become of this case is not clear as the regulatory body is yet to sanction the defaulting firm, after its own investigators confirmed that the diversion was true.
Indeed, a report accessed by The AUTHORITY, quoted the defaulting company as saying through a letter to the regulatory authorities: “We confirm that outstanding proceeds from the sale have been misappropriated by us” with a promise to pay later.
SEC had in a memo dated November 18, 2016 to the managing director of the offending stockbroking company, indicated that the amount involved could be over N10 billion which was the original figure mentioned.
The commission had constituted a “Joint Target Inspection” to investigate the matter which stated partly in its report that: “Findings of the Special Examination conducted on the company between 7th and 11th November, 2016, confirmed alleged shady activities of the company.”
The fact also showed that many other companies have converted their clients’ sales into their pockets.
Chief Abel Nkemjika, a top investor in the stock market and a member of the Shareholders’ Association of Nigeria, told The AUTHORITY in Abuja that the problem had been there and all efforts by the regulatory authorities to stem it had failed.
He said: “The rule is there and the punishment is also there in the rule book but nobody has been punished severely because of this kind of infractions”, lamenting that many investors had been defrauded by stockbrokers and the money not recovered after the fraud was discovered.
According to him, “Many of our members have fallen victims of some of these crooks operating in the market. Shares are sold without authorisation and even unclaimed dividends not properly accounted for have been reported severally in spite of many innovative policies, but no serious action to stop them has been undertaken”.
Nkemjika therefore called on the NSE and SEC to check the ugly trend if it is not eradicated.
Further findings showed that under the Central Securities Clearing System rules, cash payments from the NSE’s Automated Trading System (ATS) are automatically made to the client’s account, except if declined by the client and then paid into the broker’s account in compliance with Rule 16.3 of the Direct Cash Settlement.
“Many stockbrokers have breached this rule and nothing has happened and it will continue to occur whereby sales go into the broker’s account in some cases instead of the investor’s account. This has eroded confidence of many stockholders in the country in stock market,” Nkemjika said.
It was however discovered that two securities’ firms which were found guilty of breaching this rule were sanctioned recently as their dealing licences were revoked. The companies were allegedly involved in unauthorised sale of their clients’ shares.
Confirming the development, the Head, Legal and Regulation Division of the NSE, Ms. Tinuade Awe, told our correspondents that the NSE “is committed to restoring investors’ confidence in the capital market.”
She pointed out that “the NSE will not hesitate to bring the full weight of its regulatory powers to bear on any dealing member that commits regulatory infractions.”