Nigeria’s Finance Minister Kemi Adeosun is undermining the independence of the Securities and Exchange Commission (SEC), and its ability to effectively regulate the capital markets to the detriment of shareholders, by interfering in the current probe of a listed indigenous oil and gas firm, Oando Plc, an ongoing investigation by BusinessDay has found.
BusinessDay has seen documents showing that following the striking out of a case brought by Oando against SEC on November 23 by the Federal High Court in Lagos and referral of Oando to the Investment and Securities Tribunal (IST), the Nigeria SEC was preparing to go ahead with a planned forensic audit of the firm.
The next day on Friday, November 24th, the now-suspended Director-General of SEC Mounir Gwarzo was invited to a meeting with the Ministry of Finance, where he met with the Permanent Secretary and other top officials of the Ministry and it was agreed SEC could go ahead with the forensic audit. SEC had earlier constituted a team to conduct the Forensic Audit led by Akintola Williams Delloitte, following its investigations which showed Oando Plc in numerous breach of the Investments and Securities Act (ISA).
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However on Monday 27th November just as the audit was to commence, sources tell BusinessDay that the Minister of Finance, Adeosun invited Gwarzo to another meeting, in which she informed him verbally that the investigation should not be carried out but rather a penalty be imposed on Oando. Documents seen by BusinessDay show that the next day Tuesday 28th of November, Gwarzo the SEC DG wrote a letter addressed to the Minister of Finance highlighting implications of not carrying out the planned investigation.
In his letter which was stamped as received by the office of the Minister of Finance at 1:27 p.m. on Nov, 28, Gwarzo said: “I am compelled to advise you ma on the implication of the verbal directive issued to me in which you stated that the Securities and Exchange Commission should discontinue the Forensic Audit on Oando Olc and hold a Tripartite meeting with Legal Officers of the Commission, Oando Plc and Federal Ministry of Finance with the purpose of coming up with penalties which would be issued to top officials of Oando Plc in their personal capacity for payment.”
Gwarzo’s letter continued : “Honorable Minister, it is important to stress that an action such as that proposed above would definitely put to question the independence and integrity of the Commission, while also completely eroding the confidence of both local and international investors in the Nigerian capital market.”
It concluded :
“One major infraction alleged against Oando Plc is Financial Mismanagement. Honourable Minister, given that the consequent effect of such allegation is being borne by the over 274,000 shareholders of Oando Plc, it is only proper that a process which would reveal the status of this allegation to ascertain its veracity or otherwise be embarked upon in a transparent manner. This in my opinion would put to rest the question of how the shareholder funds of the company have been managed by the persons appointed to do so for the shareholders.”
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Gwarzo argued in his letter to Adeosun that reneging on carrying out the Forensic Audit of Oando Plc would ridicule the regulator (SEC) and project it to the global investment community as inefficient and lacking in integrity, discourage domestic and foreign investors by sending a wrong signal and portray the regulator as not independent.
Gwarzo in his letter also sought a written directive (to stop the Forensic Audit of Oando) from the Minister of Finance Adeosun, arguing that every decision or directive of the Board to the Management of the Commission are always documented to enable ease of implementing such a directive, adding : “Given your capacity as the Board of the Commission, it is only proper that you be guided on the necessary procedure to adopt.” The letter was signed by Gwarzo and copied Mahmud Isa Dutse, the Permanent Secretary of the Federal Ministry of Finance.
A day later on Wednesday 29th November, the Ministry of Finance announced to the media that the DG of SEC Gwarzo had been suspended. Later a letter of suspension signed by the Minister of Finance was sent to the DG. Capital market sources BusinessDay spoke to while conducting its investigation, questioned the Minister of Finance in its timing of the suspension of the DG while raising concerns about the damage such an action could have on the Nigerian capital markets due to the appearance of state capture by a firm and inability of an independent regulator to conduct investigations on a firm it regulates.
One operator with over 15 years’ experience in the Nigerian markets speaking anonymously because of the sensitive nature of the situation said: “Gwarzo brought a lot of initiatives and dynamism in the operations of SEC. He was the architect behind the Capital Market Master Plan implementation Council (CAMMIC), e-dividends and share certificate dematerialisation. He was also very accessible and gave SEC a human face.” Sources tell BusinessDay that the genesis of the ongoing saga was two petitions SEC received from shareholders of Oando, Ansbury Investments Inc and Dahiru Barau Mangal alleging fraud and mismanagement by Directors of the company.
BusinessDay has documents to show that an Investigative Committees set up by SEC found : genuine concerns raised by the Independent Auditors of Oando Plc, Ernst & Young about the going concern status of the company, suspected insider dealings and that Oando Plc acquired Oando Exploration and Production Limited (OEPL) in 2013 without the prior approval of the Commission in breach of the Investments and Securities Act (ISA), 2007.
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Other findings by SEC include misstatements in the 2013 and 2014 Audited Financial Statement of Oando Plc which is a breach of the ISA 2007, misleading information contained in Oando Plc’s 2014 Rights Issue Circular another breach of the Investments and Securities Act, evidence of related Party Transactions, and declaration of dividends in 2013 and 2014 from unrealized profits. Further infractions detected by SEC include violation of SEC rules on remittance of dividends to the registrars, observed discrepancies in the shareholding structure of the company, and breach of SEC Code of Corporate Governance.
Shareholders who bought and held Oando stock since its most recent peak of N28.45 per share hit in June 2014, have now lost about 80 percent of their money as the stock was trading at N5.99 per share as on Friday. Oando had total borrowings of N229.6 billion and negative retained earnings to the tune of N181.82 billion as at September 2017, data from its financial statement show. Negative retained earnings imply a long-term series of losses for a company over time than accumulated net income. This is a problem for any business and can be an indicator of bankruptcy.
Oando shares remain on technical suspension.
The Federal Government on Sunday announced the appointment of Abdul Zubair as acting Director-General, Securities and Exchange Commission (SEC). Efe Ebelo of the commission’s Corporate Communications Unit said in a statement released in Lagos that the appointment was with immediate effect.
Ebelo stated that the appointment followed the suspension of Munir Gwarzo, the commission’s boss. Provisions of the Investments and Securities Act (ISA), 2007 section 8 (1 & 2) on disqualification and cessation of appointment, provides that no full-time member of the Board of the Commission shall be removed from office without the approval of the Senate.
Sources tell BusinessDay that based on the ISA, 2017 the minister probably does not have the power to suspend the DG of SEC without the approval of the senate. The Ministry of Finance sent a query to the suspended DG Gwarzo on November 3rd on allegations of infractions numbering six (6) items and the DG responded via a letter dated November 9th 2017, BusinessDay findings show. Until his appointment, Zubair was the Director in charge of External Relations in the SEC.
PATRICK ATUANYA & BASHIR HASSAN
