Capital market reforms on trial


It has been quite busy for the Nigerian capital market in the past few days. Equities continued their rally to hit a new high of N16 trillion at the weekend. The Administrative Panel of Inquiry (API) constituted by Finance Minister Mrs. Kemi Adeosun to investigate the suspended Director-General of the Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, submitted its report. The House of Representatives Committee on Capital Market also waded into the Oando-Gwarzo-Adeosun crisis with a public hearing that snowballed into fireworks between Gwarzo and Mrs. Adeosun.

Oando reached a “solution” under a truce brokered by the Emir of Kano, Muhammad Sanusi II, with one of the petitioners – Alhaji Dahiru Mangal, who is a major shareholder.

The oil company has since appointed a non-executive director and an executive director, who are believed to be related to the Mangal truce. But, beyond the personalities involved, the underlying allegations that triggered the crisis are at the core of the capital market integrity and investors protection, especially minority investors. These, many argued, must not be dwarfed by underhand arrangements and inconclusive investigations.

Festus Keyamo (SAN), in a January 24 letter, noted that Nigerians deserved to know the truth in the allegations and counter-allegations that have characterised investigations into the activities of the SEC director-general and Oando Plc.

The establishment of the veracity of all the claims, Keyamo noted, is necessary so as not to send a wrong perception that the anti-corruption crusade has been bedevilled by politics and ethnicity.

Public hearing

At the public hearing by the House of Representatives Committee on Capital Market & Institutions, led by Tajudeen Yusuf, it was allegations and counter-allegations by Gwarzo and Mrs. Adeosun. Gwarzo insisted that his suspension was due to his insistence on the forensic audit of Oando.

Gwarzo, who appeared at the hearing with a counsel, James Igwe, a Senior Advocate of Nigeria (SAN), faulted his suspension on the point of law and Public Service Rule (PSR) that the minister lacked the constitutional power to suspend him.

He pointed out that the issues of payment of severance package of N104 million to himself as well as awarding SEC contracts to companies in which he has interests as alleged by the minister for his suspension, were untrue.

According to Gwarzo, his suspension was triggered by his resolve to conduct a forensic audit of Oando despite several attempts by the minister to stop him from going on with the investigation.

He also wondered why the minister interfered in the case of Oando and Oasis Insurance while citing about five other investigations carried out by SEC in the last two years which the minister never interfered in.

Gwarzo said: “I strongly believe that anybody or group of persons that do not want a forensic audit to be undertaken on Oando Plc does not believe in the anti-corruption war of Mr. President.

“The forensic audit is yet to take place almost two months after my suspension and more than four weeks after Mrs. Kemi Adeosun told the nation that the exercise will commence.

“There is no court order, as at today, restraining SEC from undertaking the exercise. Oando has filed an appeal at the Court of Appeal and the matter is yet to be heard not to talk of issuing any order and SEC only obeys court orders and not filling of papers as was the case in Gombe Bond, BGL and Partnership, and the board of the Nigerian Capital Market Development Fund has since approved the engagement of the investigators and also approved the sum of N160 million for the exercise.

“Therefore, SEC has no right to vary the decision of the Board and no reason not to continue with the forensic audit.”

On the allegation of payment of severance package to himself, Gwarzo said the payment was in accordance with the rules governing such matter.

He noted that though he was a Commissioner for two years before being appointed by the President, subject to the approval of Senate, he still went through the process of a new appointment and as such, he was entitled to two years of severance package.

He said all heads of government agencies like the Central Bank of Nigeria (CBN), including commissioners, are entitled to such packages, adding that all the commissioners as well as the Head of Legal & Enforcement of the Commission, agreed that the payment be made to him except the acting Head of Legal Department at the time who disagreed.

On his interest in certain private companies and award of contract to one of them, Gwarzo said he duly resigned his membership of the companies but found out that the resignation letters were not filed.

But to Mrs. Adeosun, Gwarzo’s was only playing up emotion on the issue, stating that she could not have endorsed the investigation of Oando by SEC if she has other motives despite being informed after Oando has been suspended by Gwarzo

According to her, there was the need to establish the payment of severance package to a serving officer of the Commission, in addition to ascertaining the allegation that Gwarzo was still running private companies as a public officer.

The minister said: “But on the 27th of October 2017, we received a bundle of documents delivered to our whistle-blowing unit making allegations not only against Mr. Gwarzo but, also against two other officials of SEC. On that basis, I asked the head of the whistle-blowing unit to investigate. We did not immediately suspend Mr. Gwarzo because every allegation is just that – it is allegation. It must be subjected to some scrutiny.

“The policy of the whistle-blowing unit is they have two levels of investigation – One is cursory, the other is detailed. Due to the seniority of Mr. Gwarzo in the market and the potential impact of the matter, I asked them to go straight to level two, which is, you either prove the case or we throw this out.

“They came back with evidence that suggested that there was a very real need to issue a query to Mr. Gwarzo which is the procedure. Mr. Gwarzo was then queried. He responded. But unfortunately, his response contradicted the evidence that we had at hand.

“For example Mr. Gwarzo claimed that he had resigned from the company, but the evidence we had from the Corporate Affairs Commission (CAC) showed him to still be a director and a shareholder. So, on that basis we felt there was a need to do more work.

“I sent the team back again. This explains then the delay between his response and his eventual suspension. Because when you have two conflicting evidences…he attested that he had resigned in 2012, meanwhile, CAC was still showing him to be both a director and shareholder.

“So, we needed to get other evidence…we then went into bank records and found that Mr. Mounir remains a signatory to that account and we acquired evidence of banking transactions where he signed as a Director

“That then for me became conclusive evidence that the position he had maintained earlier was incorrect or at least unreliable. And on that basis, we had an internal meeting where we looked at all the evidence.

“At the same time, we were receiving information from the staff of SEC that documents were being removed. We knew that we needed to do a thorough investigation, of course, that investigation could not be done with Mr. Mounir still at the helm of affairs at SEC, and that was when we took the decision to suspend him.”


Mrs. Adeosun told the public hearing that the API had submitted its report to her. In what might be termed an ambush of the public hearing, the API report made the news the second day, with the full report ostensibly leaked to the press before a conclusive review by the Presidency.

The API recommended the dismissal of Gwarzo from service. The panel, headed by the Permanent Secretary in the Federal Ministry of Finance, Mahmoud Isa-Dutse, also recommended that Gwarzo be referred to the Independent Corrupt Practices Commission for further investigation of the allegation of using his position to influence the award of contracts to Outbound Investments Limited.

Besides, the panel directed Gwarzo to refund the N104.85 million paid to him as severance package on the completion of his term as executive commissioner of SEC.

In the dramatic ping-pong style that had characterised the Oando-Gwarzo-Adeosun saga, Gwarzo had also carefully provided his responses to all the issues raised by the API in its report in his submission to the House of Representatives, with the exception of the “Golden Handshake” incentivised policy implemented by Gwarzo at SEC.

A source close to Gwarzo described the inclusion of the “Golden Handshake” in the API report as tantamount to a blow below the belt as the embattled director-general was not at any time confronted with such allegation or given opportunity to defend himself.

Some documents obtained by The Nation, indicated that the “Voluntary Retirement (Golden Handshake) Proposal” was approved by the SEC board at its 79th meeting on March 2015. The policy sought to address the top-heavy nature of the agency’s workforce by providing incentives for early retirements.

“The source argued that the “Golden Handshake” policy, its funding and procedures were in line with the extant laws guiding the operations of the Commission-the Investment and Securities Act (ISA).

Section 4 (1) (d) of the ISA 2007 empowers the board of SEC to consider and approve the annual budget of the Commission as may be presented to it by the management.

Also, Sections 19 & 20 of the ISA empower the Commission to establish and maintain a fund, the proceeds of which it may apply to meets its financial obligations.

In effect, the Commission is empowered to cater for all of its financial obligations from its funds. However, such amounts must be expended from a budget, which must be approved by the board of the Commission.

The SEC, under Gwarzo’s watch, had made adjustments to certain vote heads within the 2015 budget to accommodate the cost implication of the “Golden Handshake” with the reasoning that votes in majority of the heads adjusted were either meant to be disbursed for the welfare of members of staff or fund certain allowances of its employee.

The action of the Commission’s board in adjusting certain heads in the 2015 budget was derived from the provisions of Section 12 (b) of the Interpretation Act (Appendix IV), which provides that where an Act (ISA 2007) confers a power to make a subsidiary instrument-the budget, proclamation or notification, the power shall include power, exercisable in the like manner and subject to the like consent power, conditions (if any), to vary and revoke the instrument, proclamation or notification.

Political solution to

regulatory issue

Oando appeared to achieve a major breakthrough in late last month with an announcement that it has reached a truce with Mangal one of the petitioners that triggered the SEC investigation. The company affirmed Mangal’s substantial shareholding and offered him the privilege to appoint a director into its board. The truce was brokered by the Emir Sanusi under a peace accord concluded on January 7, 2018.

In a regulatory filing just submitted to the Nigerian Stock Exchange (NSE), Oando stated that in accordance with the Companies and Allied Matters Act, Cap. C20 LFN 2004 (CAMA), an individual or entity with direct or beneficial share ownership of more than 10 per cent constitutes a substantial shareholder in the company.

“The company has been officially notified by Alhaji Mangal that he is a substantial shareholder in the company. In addition to confirming his status as a substantial shareholder, all the issues raised by Mangal in his petition to the SEC have been successfully addressed and clarified by the company,” the oil and gas company stated.

Oando noted that it has always encouraged oversight over its affairs by all shareholders adding that it has encouraged Mangal to exercise such rights to enable him gain a better understanding of the company’s business development plans, initiatives and operations.

In the regulatory filing by its Chief Compliance Officer & Company Secretary Ayotola Jagun, Oando said: “In addition, subject to the provisions of the SEC Code, Companies and Allied Matters Act (‘CAMA’) and Oando’s Board Appointment Process, Oando’s Board of Directors will consider the appointment of representation for Alhaji Mangal to the Board. The representation will take the form of Directorship from qualified individuals nominated by Alhaji Mangal.”

The Emir said he intervened to support indigenous entrepreneurship, especially participation in the domestic oil and gas sector.

The Emir said: “I have watched Wale Tinubu from his days in Ocean and Oil and I am extremely proud of his growth and the company he has built. Oando is proudly a Nigerian company whose impact has been positively felt by every Nigerian.

“The company is evidence of the progress we have made from an IOC-led sector to one that is thriving with a mix of indigenous and international players. I call on Alhaji Mangal and Wale Tinubu to see themselves as partners focused on achieving one goal; attainable only if they have confidence and trust in one another.”

Brushing aside the brewing crisis, Mangal said that he has received clarifications from Oando’s management team and he has withdrawn his petition to the SEC.

He said: “I invested in Oando because I could see its potential. It is therefore with excitement that I concur to this peace accord, signifying the renewal of our relationship; one that gives me more insight into the company’s operations and aspirations and involves more dialogue.

“I am confident in the company’s leadership team and trust that with the right support it will continue to grow from strength to strength, returning real value to all its shareholders including my good self.’’

Minority investors’ rights

With the withdrawal of Mangal’s petition, the SEC now has only one subsisting petition, by Ansbury Incorporated, which had also raised serious allegations of insider dealings, corporate governance abuses and financial mismanagement against Oando.

Minority shareholders have criticised the settlement between Mangal and Oando and the Emir’s role without the resolution of the substantial issues that pertain to capital market integrity and investors protection.

The President, Trusted Shareholders Association, Alhaji Muktar Muktar, said the intervention by the Emir was a major volte face for the Emir who had, as the Governor of Central Bank of Nigeria (CBN), presided over the sacking and trial of several managements of banks, including the takeover of many publicly quoted banks.

According to Muktar, while the petition was the whistle that led to the investigation, the findings of SEC Investigative Committee on Oando have taken the issue away from Mangal and Oando to the general interest of all shareholders and capital market protection.

He said: “Why didn’t he allow for such settlement in the case of the bank director? If the Emir acted to protect indigenous people, what about the foreign investors involved in the capital market, shouldn’t they be protected?”

Muktar called for the continuation of the investigation into the allegations raised by the petitions in order to reach a conclusive position in line with capital market regulations.

Many other stakeholders shared Muktar’s position. Keyamo said: “Whilst Nigerians anxiously await the Report of all the investigations into the SEC, I also urge the relevant agencies to continue the transparent and thorough probe of the issues surrounding Oando Plc.

“The Oando Plc probe should not be scuttled on account of the investigation of the suspended DG of SEC because the Oando probe and the SEC investigation are mutually exclusive despite the attempts to link them together.”

Findings on Oando

Market operators, who sought anonymity for fear of being victimised, said the insider-related transactions and dealings contained in the SEC technical committee report on Oando need to be fully resolved in order to protect the market integrity. Key extracts of the voluminous report-more than 100 pages, had claimed that Oando directors took advantage of insider information to sell shares once they discovered that the oil and gas company was in huge loss.

The report drew information from a concluded report by the Nigerian Stock Exchange (NSE), which had conducted an investigation into trading in the shares of Oando between January and October 2015.

The NSE indicted Oando for failure to disclose material information, major changes, and significant occurrence including the fact that by January 31, 2015, when Oando’s senior management learnt it was going to take significant impairments, even when the size of those impairments remained certain, Oando should have disclosed this fact to the market and that by April 1, 2015, when the likely size of the impairment was known to Oando, it should have disclosed this fact to the market.

Curiously, the NSE, which prides itself as champion of corporate governance, did not disclose the investigation and the fact that it has placed Oando on its regulatory watch-list to the market.

The report also found that between 2012 and 2016, several related party transactions running into several billions of naira were carried out by companies owned or related to top management and directors of Oando.

As noted by stakeholders, there is a need for a high-level independent review of all the reports and investigations by the Federal Government to be done by unbiased experts to ascertain the truth and falsehoods.

Such a committee of experts under the auspices of the Presidency should exclude interested parties and be well-endowed to carry out conclusive resolution of the Oando-Gwarzo-Adeosun crisis. This crisis can be a standpoint for the reform of the capital market.

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