Wednesday, May 09, 2012
 

The decision to refrain from commenting on the on-going investigation into developments in the capital market in order to find a lasting solution has had to be reviewed in the light of disclosures at today’s hearing where the nation was confronted by a verdict of a regulatory comatose.
 

The revelations as to how the capital market regulatory function operates and the incestuous relationship between the regulator and the market on the one hand through its non-transparent ‘Project 50’ and the dysfunctional state of administration gives a new meaning to world class standards.  
 

It is quite appalling to hear and witness the disintegration of a system from within. We thought that after the focus on the corporate governance challenges at the Nigerian Stock Exchange, the SEC under a new leadership would finally own up to its own part in the maladministration that characterized the pre-bust period.  
 

Fact is that the market crash was precipitated by a climate of regulatory inertia, negligence and collusion with operators who conducted their affairs with impunity. Today, it has sunk to an all-time low.  

A much deeper analysis would be required but suffice to say, the representations made by the Director General of the Securities and Exchange Commission (SEC) with regards to her market development drive with the ‘Project 50’ engagement clearly indicates an organisation lacking in corporate governance and ethics. 

Recall that we had stated that the involvement of the SEC in secondary market activities – something the US SEC does not engage in, creates a conflicted situation for the institution in its regulatory mandate. Further, the role of the DG as a board member of AMCON, giving the benefit of hindsight, clearly reflects a conflict of interest and role when decisions taken with regards to listed companies are reviewed. The primary mandate principle of investor protection was abdicated for reasons yet to be known – from the discontinuance of APC proceedings on the five banks on 06 July, 2010, the handling of the Diamond Securities Limited transaction, the abdication of the SEC’s role in respect of the nationalised banks, the management of the APC/IST functions and the 260 entities sued at a go; all through to the issues related to the investor protection fund; clearly does not suggest the change the market sought. 

Writing this is not an easy endeavour but it is believed that we have reached a point where ‘observing’ will offer no hope. We have been investigating a ‘scam offer’ for over a year and the SEC has been evading action on this clear and apparent abuse of process and market rules. Now that it has come to light that the key facilitator of the scam is alleged to have contributed millions of naira to the Project 50; the reluctance on the regulators part becomes clear. This definitely undermines the institution and eliminates/deters any recourse to them for a resolution. 

The expectation was that the capital market probe/process will allow for a healing of wounds, a platform for the resolution of significant infractions which has affected the psyche of investors and stakeholders, and a consolidation of energies and resources to build momentum towards the task ahead. Alas, this has been a huge eye opener as to the rot that exists given the twists and turns that brought us to this point. 

From our viewpoint, we had made representations to the effect that the market regulator can engender confidence by keeping a safe distance from secondary market transactions in order to avoid complicity in its infraction deterrence and management function. This turned out to be a pipe dream as the regulator - SEC was exposed to have sought for, and obtained funding from donor agencies, market operators and quoted companies to deliver on a project for which it had a board approved budget. This certainly closes the door to a regulator desirous of enforcing a higher standard of conduct, relationship and authority. This is a huge let down and quite frankly, disappointing. 

Equally recall that on Monday, the DG had evaded questions on the project promising to provide information and a detailed list of donors to the house. Today, she denied ever saying such and went on to deny that there was never a list. 

We find this rather confidence and trust shattering.  

We know for a fact that not only did ‘interested persons and firms’ contribute to the project but that in certain instances, the SEC actually sent invoices to a financial institution (one of those acquiring a bank under the M&A scheme) to settle third party vendors. The total sum of about fifty million naira (N50m) was expended by this institution on this particular project. Beyond this, there are others who have benefited from the SEC either as financial advisors, agencies or platforms of choice who equally contributed to this project. 

It is on record that the Audit Committee of the SEC had asked the Chairperson of the Project 50 celebration committee, Ms. Aruma Oteh to provide an account of the forty two million naira (N42m) approved for the project by the board along with other donations to date. This has since not be rendered. 

During the disclosures today, the Executive Commissioner recalled documents slipped under his door that indicated that an international finance agency had indicated its willingness to donate the sum of N2.5m but was told not to send the money to the SEC but that an instruction to pay will be sent. Where did this money go if it did not go into the SEC accounts? 

Given the pattern established with the esteemed institution mentioned above, it is obvious that an elaborate plan had been hatched to ensure that the promoters and committee were not directly linked to these funds.  

If it was for the interest of the SEC and the market, why was this not transparent and funded through SEC. Could this account for the secrecy and management style that was apparent for all to see; one that ostracized the executive management (who not only denied being members of the committee as alluded to by the DG but claimed openly that they never knew what the whole project was about – as questionable as that would sound?). 

This one issue raises questions of probity, integrity and credibility of the SEC leadership and during the hearing today, it was too apparent to ignore. 

From one Executive Commissioner to the other, without exception, the echo of a dysfunctional institution was laid bare.  

In the words of the secretary of the commission, “we have no structured meetings or agenda”. 

The capital market needs a regulatory institution that works as a unit, unfettered from prejudices and incestuous relationships; and does not operate on the desires and mood of an/any individual (and in any case that was the intention of the ISA 2007). 

If the two memorandums and extract of board meetings on the decision by the Board of the Commission to ‘support’ the national assembly with the sum of thirty million naira (N30m) was thought to be an exception and a genuine intent gone wrong, this latest disclosures suggests that we have a trend/pattern at play here. 

There is so much to dimension from the disclosures so far, but today’s revelations will conclusively indicate that it will be difficult for the whole leadership of SEC to inspire confidence in the market going forward without addressing these fundamental corporate governance issues. No one involved with the institution should, for a second, be involved in finger pointing, the damage done is real but can offer a learning opportunity. It is an institutional failure.