Milost Global Inc, a purported US-based private equity firm, is facing six different charges in the United States after being sued for fraud by one Alexander MacGregor, according to a document filed at the New York Southern District Court and obtained by BusinessDay.
In the Case No. 1:17-cv-06691 filed on September 1, 2017, MacGregor through his counsel {Law Offices of Nolan Klein} sued Milost for damages bothering on wire fraud, common law fraud, conversion, breach of contract and civil conspiracy.
The charges also include violation of the US securities exchange law by making material misstatements of fact related to a filing with the Securities and Exchange Commission.
MacGregor, the President and CEO of Canada-based KGIC Inc., (a publicly traded company on the Toronto Venture Exchange), seeks the refund of some $560,000 (N201 million) paid to Milost under the deceit of a financing deal worth $25 million. The Plaintiff is also seeking punitive damages against Milost, and all reasonable attorney’s fees, litigation expenses, and costs.
Two phone calls to a number on Milost’s website and an email seeking comment went unreplied.
MacGregor’s company, KGIC, had been experiencing significant liquidity problems and needed to raise funds to recapitalize its operations.
After a plan to raise some USD$20.2 million from Canadian lenders in August 2016 failed, the company got commitment from Milost, which contacted MacGregor with a proposal to provide funding through a friendly take-over bid worth $25 million.
Milost proposed a buy-out using a U.S. OTC publicly traded company called PHI Global.
To execute the transaction, an agreement, called “Milost Equity and Subscription Agreement” (“MESA”) was entered into between both parties on October 30 2016.
After execution of the MESA, Milost requested that MacGregor form a special purpose private company to acquire the assets as well as to purchase an existing U.S. OTC Form-10 Company identified by Milost as KMRB II Acquisition Corp, owned by one Florida-based Brian Kistler.
In this regard, Milost requested that MacGregor pay a retainer of $80,000 for its services in locating KMRB and facilitating the transactions.
MacGregor paid Milost the retainer of $80,000 and would go on to pay a total $250,000 in two separate payments for the acquisition of KMRB.
He also coughed up $70,000 as payment to complete the financial audit of the company (KMRB) as directed by Milost.
The total amount received by Milost from MacGregor, excluding any sums received pursuant to the earlier KGIC–Milost agreements, was $560,000, the court document showed.
MacGregor then got what appeared to be stock certificates issued by KMRB’s owner- Kistler- through an email sent by Milost, but they turned out to be fraudulent and were not reflected in any of the US Securities Exchange Commission (SEC)’s filings.
MacGregor has since requested a full refund of all monies paid to Milost, but is yet to receive any refund to date.
One Nigerian company confirmed to BusinessDay that Milost made a similar proposal as was made to MacGregor, as criteria to invest in his company.
The company’s CEO said on condition of anonymity that he pulled out from the deal when Milost asked he paid “about 20 percent of an unstated amount Milost was to provide his company.”
He said he got confused when the proposal stated that his company was liable to a “huge penalty fee” if the company’s share price did not jump to an agreed higher price.
“Share price movement is down to market forces and is not something a company can control,” the person said. “That penalty, as well as some ludicrous fees Milost asked of us, made me question the ingenuity of the deal and eventually opt out.”
BusinessDay, in a March 12 article titled “The Math does not add up with Milost,” laid bare the incongruity of some of the proposed investments by Milost.
While Milost’s propositions are impacting the stocks of target companies and causing investors to lose money in some cases, critics lay the blame at the feet of the Nigerian Stock Exchange and Securities Exchange Commission (SEC), who they say are failing in their role to protect equity investors.
Questions are also now being raised over the role played by faceless insiders in the companies which Milost targeted.
“The regulatory inertia in the capital market has made the SEC and NSE unable to recognise that Milost is a Teflon entity which has no substance and genuine origin,” an informed source at the Securities Exchange Commission (SEC) told BusinessDay.
“The SEC and NSE should have easily spotted Milost before they started making the noise that triggered a bubble and deceived investors,” said the source, who lays the blame on “leadership incompetence” at both organisations.
BusinessDay contacted the Nigerian Stock Exchange (NSE) for comment but no response was given at time of filing this report, and several calls and emails went unanswered and unreplied.
When contacted, Olumide Orojimi, head of corporate communications said he was on leave, directing BusinessDay to contact one Temitayo Ade-Peters who neither picked calls nor replied an email.
Joseph Kadiri, media relations officer of NSE was also contacted but he referred BusinessDay to Orojimi, who is on leave.
Clifford Akpolo, the Brand and Digital Marketing Manager at the NSE, is acclaimed to also be on leave.
Meanwhile, other sources at SEC said, “the Milost bubble is another manifestation of leadership failure at the Commission, which was not proactive to correct and neutralize such deceitful investment proposals.
The critical role of SEC in building confidence just exists on the bridge, as regulatory oversight has been thrown aside.
“How can SEC know what is going on when you hardly find their representatives in critical summits where knowledge and information sharing applies. Nepotism reigns in at the SEC. It is harmful to our market,” one person familiar with the matter said.
Bloomberg reported on March 19, 2018 that the same Milost is looking to inject as much as $1 billion (about N360 billion) to recapitalise Nigeria’s Unity Bank Plc, which is also down financially after a slowdown in Africa’s biggest economy.
Interestingly, on March 21, Unity Bank Plc in a letter to the Nigerian Stock Exchange (NSE) notified shareholders and other stakeholders of the bank that it has not reached any agreement with Milost to warrant such speculation.
“Unity Bank is in talk with a number of potential investors and has not concluded any investment transactions at the moment,” according to the letter filed at the NSE and signed by Mohammed Shehu, company secretary at Unity Bank Plc.
The common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital; but all private equity investors are number-driven.
From a 52-week low of 50kobo per share, the bank’s share rose to N1.92 per share before declining to N1.2.
Unity’s share price gained 1.67 percent to trade at N1.2 Friday, according to Bloomberg data.
In all, the market value of Unity Bank Plc is just N14.027 billion with 11.689 billion shares outstanding.
Japaul Oil & Maritime Services Plc, a Nigerian oil-services company said it signed an agreement with Milost for $350 million (N126billion) in shares and loans for business expansion.
Japaul said Milost will invest $250 million (N90billion) in equity and add another $100 million (N36billion) in convertible loans.
After hitting a 52-week high of N1.06, Japaul Oil has been the worst performing stock for two straight weeks.
As at Friday March 23, the stock tumbled further by 30.9percent to 63kobo.
Japaul Oil Plc is valued at N3.945billion on the stock exchange and has 6.262 billion shares outstanding.
“We informed the Regulatory Authorities that we have signed Milost Equity Subscription Agreement (MESA 1) and Milost has not asked for any upfront fees from us until disbursement takes place, even the facilitation fees to Palewater who are advisers to the transaction is technically agreed to be paid when we start to drawdown on the facility despite agreement signed”, said Japaul Oil chairman, Jegede Paul.
According to Paul, “An escrow account agreement is being worked upon to trigger the drawdown on the facility. We don’t really know where the dailies got their variables that do not add up mathematically about Milost math. They should have watched and see what happens about the issue of performance.”
He faulted BusinessDay report against Milost saying that it has been wrongly perceived by the investing public “and this is terribly affecting our share price on the stock market. This is simply sad.”
Japaul’s oil and gas operations suffered a setback with the 2014 plunge in crude prices, which forced exploration and production companies to scale back their activities. The company has not been able to fix its grounded vessels and finance new contracts.
The unaudited management account of Japaul Oil and Maritime Services Plc for the third-quarter period ended September 30, 2017 shows a paltry turnover of N472.418 million, a 115 percent decline from N1.016 billion turnover in same period of 2016.
A $250 million (N90 billion) equity investment in Japaul Oil imply valuing each share at N14, a huge premium by any standard. And for what?
The company made a total comprehensive loss of N1.8 billion in the period, from N5.28 billion in the third quarter of 2016.
Japaul’s consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2016 shows the group loss nearly tripled to N22.010 billion from N8.036 billion in 2015.
There are four subsidiaries under the group – Japaul Shipping & Offshore Services Limited, Japaul Mines & Products Limited, Japaul Dredging Services Limited, and Japaul Gulf Electro Mechanical LLC Dubai UAE.
The group revenue in 2016 slumped by as much as 165 percent to N3.078 billion from N8.148billion in 2015, according to a financial statement filed at the NSE.
Resort Savings and Loans is another company to be linked with Milost over a deal worth $250 million.
At the NSE, the mortgage provider is a delinquent filer of audited accounts with a raft of MFR (Missed Regulatory Fillings) for non-rendition of audited financial statements for 2015 and 2016, according to X-Compliance report of the NSE.
The financing agreement with Milost Global is that it will invest $250 million in the bank comprising $100 million (N36billion) as equity capital and $150 million (N54 billion) as debt.
Resort Savings said the transaction will take place through a private placement, subject to the approval of the NSE, SEC and the Central Bank of Nigeria (CBN).
Resort Savings, last December, had notified stakeholders that it was in talks with a local investor to attract investment worth N8 billion.
The talks are yet to be concluded.
Olayemi Rabiu the chief executive officer of Resort Savings & Loans Plc, said, “The investment will enable the company to assume the leadership role in the mortgage banking business in Nigeria, the West African sub-region and Africa as a whole as well as contribute excellently to the growth in African economies.”
Sunday Fajinmi, the chairman of the mortgage bank also took his turn at calling out BusinessDay’s effort to expose the fragilities in Milost’s dealings that would ensure investors and affected companies are well informed.
“It is sad to realise that a few grumbling, half educated individuals are against the recovery of the Nigerian economy through resuscitation of dying businesses,” Fajinmi said.
However, the mortgage bank’s market capitalisation is just N5.6 billion, according to data on the Nigerian Stock Exchange (NSE).
Resort Savings and Loans has not published financial statements since the third-quarter (Q3) of 2015 when it reported net profits of N34.2 million on revenues of N1 billion and shareholder funds of N2.92 billion.
Total assets for the mortgage provider for the period came in at just N10.1billion.
Given that Resort’s share price is only 50 kobo and it has 11 billion outstanding shares, Milost’s N36 billion equity injection values each stock at N3, six times more than the current price.
According to Fajinmi, Milost Global Incorporated of USA “has been verified to be a very credible investor in developing economies like Nigeria. Their track record which speaks for itself, attest only to their credibility. Their understanding of the peculiarity of developing economies in Private Equity financing is amazing when compared to others who are the paymasters of the journalist, the author of the fake news.”
Fajinmi is probably unaware of Milost’s fraud charges in the US, or if he is aware, whether he is still knowingly entering an agreement with an unknown company charged with fraud in the US.
“The ingenuity and financial engineering behind our Milost Equity Subscription Fund (MESA), as well as the Milost structure of engagement makes it easy for us to invest heavily in companies with high growth potential, whilst reducing our risk of investments through the checks and balances that are part and parcel of our framework of engagement”, Solly S. Asibey, Senior Partner & CIO of Milost, stated.
“Our aim is to make investments in companies that will have a high impact within the vertical industry in which they operate, thus increasing the potential for the companies to be counted amongst the best in their industries globally. Our modus operandi has always been to invest in companies that will add value to the country and its citizens in terms of wealth and job creation, as well as the ability to contribute positively towards stepping up the economic transformation of the country. Our success is intertwined with the success of our investee companies; and from a corporate governance perspective, we subscribe to the rules and regulations of the Stock Exchange, Federal Reserve Bank, and the SEC in terms of all our engagements,” Asibey said.
Asibey was hired as Chief Investment Officer on February 1, 2018, following the retirement of James S. Kuo last year. This may not be unlinked with the suit against Kuo and his Milost partners.
“Kuo participated in numerous conversations with MacGregor wherein he and/or the other individual Defendants demanded money on behalf of Milost Acquisition Corporation”, the court document in the fraud case against Milost shows.
Other individual defendants in the suit against Milost are Mandla Gwadiso, Jerry Choate, Egerton Forster, Brian K. Kistler, and Harold Martin.
Mandla J. Gwadiso, also known as MJ, founded Milost Global Incorporated in 2015 and serves as its Managing Partner. Previously, he served as the Chief Executive Officer and Chief Investment Officer at the firm.
Gwadiso serves as the Chief Executive Officer and Chairman of the Board of Directors of Precise Acquisition, Incorporated.
Forster resides in California and was Chief Executive Officer of Milost Global. He is currently the senior partner and chairman of the Milost Board of Directors.
Click Here To Download Full Court Document: MacGregor v. Milost Global, Inc.
LOLADE AKINMURELE & Iheanyi Nwachukwu
