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IST, SEC and BGL

By Kenneth Ezea
06 July 2015   |   11:27 pm
A few weeks ago, the media carried news of the take-over of one of the leading stockbroking firms in Nigeria by the apex regulator, Securities and Exchange Commission (SEC). We also read news that the President of the Chartered Institute of Stockbrokers (CIS), Mr. Albert Okumagba, who is also the Group Managing Director of the…

court.jpg-citynewsA few weeks ago, the media carried news of the take-over of one of the leading stockbroking firms in Nigeria by the apex regulator, Securities and Exchange Commission (SEC). We also read news that the President of the Chartered Institute of Stockbrokers (CIS), Mr. Albert Okumagba, who is also the Group Managing Director of the BGL Plc group had been asked to step aside by the CIS in relation to the management take-over of his companies.

The BGL group made up of BGL Plc, BGL Asset Management Limited, BGL Securities Limited and BGL Capital Limited, is rated in the top ten stockbroking firms in the country and variously act as portfolio managers, broker/dealers, issuing house and financial advisers.

While handing over the CIS presidency, Okumagba was said to have reported an accounting surplus of N64 million he left in the books of the CIS. From the slant of the news reports, he is apparently being hailed or he is celebrating himself as being transparent.

Concerned stakeholders however feel that none of these two related events calls for noise making or celebration for reasons that appear rather obvious. The SEC in exercise of its functions responded to complaints by investors whose monies were trapped with the BGL by conducting target investigation of their accounting books. Some disturbing details were uncovered and the SEC took steps to resolve the matters as the BGL group was finding it difficult to meet their obligations to their investors.

As a pre-emptive enforcement step, the SEC approached the Investments and Securities Tribunal (IST) which has the mandate to settle all civil disputes and controversies arising from transactions in the Nigerian capital market, sought and obtained an Ex-parte order to take over the management of the companies pending the conclusion of investigation into their operation.

The SEC appointed an interim management board for the group to forestall more adverse effects on the investors’ interests such as willful concealment or damage to records. This became exigent as the company’s obligation to investors is over N6 billion while only N110 million was found in their account.

Before then, BGL was prevailed upon by the SEC to dispose of its purported illiquid assets to be able to pay their debts but this proved a grim prospect that came to no avail. This set off the alarm bell ringing in the head of the regulator. No one has yet forgotten Bernie Madoff who cooked the biggest accounting books in the history of investments fraud in the United States and came crashing down in December 2008 when his Ponzi scheme was blown. Madoff is presently serving a 150 years prison sentence in North Carolina.

Neither can we quickly gloss past the melt-down of the Nigerian capital market in 2009 due to the fraudulent schemes perpetrated by some bankers and stockbrokers. So, no matter how anybody views the SEC enforcement action, it was the best decision to take in the interest of investors in the capital market.

What will surprise industry stakeholders about this saga is that rather than sticking with the SEC and the interim management team to navigate the companies out of troubled financial waters, the owners of BGL have instead taken the unusual step to sue not only the SEC but also the IST that granted the interim order for the take-over at a Federal High Court purportedly seeking an order of certiorari or judicial review of the status of the Tribunal.

What makes the law suit somewhat bizarre is that instead of focusing on the merits or otherwise of the findings of the regulators (SEC) on the integrity of their finances, their promoters curiously want to divert attention from the main issue of investors’ funds to the legalism of and contest for jurisdiction between the Federal High Court and the Investments and Securities Tribunal. This is a familiar decoy contrived by characters that commit offences and run into the Federal High Court where they buy time with constant delays and adjournments while they enjoy the loot made from peoples’ sweat. Since 2003, the applicable adjudicatory framework for the Nigerian capital market has been that appeals against the decisions of the IST lie at the Court of Appeal and then to the Supreme Court.

For the avoidance of doubts, the Federal High Court had been here long before the Federal Government created the IST as a specialized executive court with exclusive jurisdiction to settle all capital market disputes within a period of 90 days. This is aimed at ensuring that fraudsters do not hold investors to ransom as was the tradition when business cases languished at the High Courts for decades without end. By its very nature, the IST’s mandate is to close out fraudsters who build investment skyscrapers on a foundation of inflated balloons because when the bubbles burst the edifice comes crashing down and taking surrounding buildings with it.

The IST has coordinate jurisdiction with the Federal High Court but is not yet listed in the Constitution. However, in recognition of national interest, some Judges of the Federal High Court had declined trial and referred capital market cases filed with them to the Tribunal for expert adjudication. This has in the last 12 years buoyed confidence of investors in the Nigerian capital market. The Court of Appeal has affirmed the jurisdiction of the IST in a similar dispute but the appellants still appealed to the Supreme Court where the case is still on queue.

If capital market jurisdiction is so vital to the existence of the Federal High Court, we should ask what they had achieved with the Nigerian fraudsters of 2008/2009 who were arraigned there for criminal trials in comparison with their United States counterparts that handled the Madoff case.

Even the BGL Group has had at least five of their cases settled at the Tribunal. In those instances, they never remembered to question the legal cum constitutional status of the Tribunal.

This particular case appears to be an act of desperation to evade fiduciary obligations. The nagging concern of investors and market analysts is whether or not the SEC had not acted rather too late since the last three years when the distress signs started showing. There is also the question if this would not have been mitigated had the affected investors filed their cases directly with the IST instead of first going through the SEC as provided by the Investments and Securities Act 2007.

Will this set a new stage for operators in the capital market to seek to exploit the issue of jurisdictional concurrence between IST and the Federal High Court to pick and choose which court to patronize when they are caught with their fingers in the till? It is hoped our Judges will not lend themselves to this kind of charade. Mr. Okumagba must come clean on the integrity of his business as the capital market is in no mood for needless legal pyrotechnics.
Ezea, spokesman for the IST writes from Abuja.

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