September 25, 2008 2043 VIEWS


Where there is money, there are swindlers. It is unfortunate, but words often associated with money and fortune are \"cheat,\" \"steal,\" and \"lie.\"


Who among us playing the capital market hasn\'t \"accidentally\" taken advantage of the others ignorance or lack of information, or simply forgotten at least once to pay N100 back to a friend?


Chances are you were never called on it because your friends trusted you. Just as we trust our friends, we put faith in the investing world. Investing in a stock takes a lot of research, but it also requires us to make a lot of assumptions. For example, we assume the man selling us the shares he has in his books is the rightful owner, that the buyer issuing us a cheque has funds in the accounts, that a company concluding its Public Offer and returning cheques will not issue one that will bounce, that reported earnings and revenue figures are correct, and that management is competent and honest. But these assumptions can be disastrous.


Understanding how disasters happened in the past can help investors avoid them in the future. With that in mind, we intend to devote some considerable attention to some of the cases that are often swept under the carpet by the compliance units of the regulatory bodies to highlight key lessons that investors can benefit from.


Some of these cases are truly amazing; and we will try to look at them from a shareholder\'s standpoint. Unfortunately, these shareholders had no way of knowing what was really happening as they were being tricked into investing.


That must have been the thinking behind the term ‘Caveat Emptor – Let the Buyer beware’. For a country known more by its scams than the industry and entrepreneurial spirit of its people, nothing can be left to chance in Nigeria.


Whereas the restraint is more pronounced in the merchandise market, the stock market has been known to turn logic on its head.


Let Everyone Beware is the new ‘watchword’ creeping into the Nigerian Capital Market space. This could not be coming at a worst time than in a market crisis as we have it where all efforts to stem the decline has failed.


This failing market scenario is not helped in part, by the challenges of enforcement, compliance and high incidence of speculators it attracted which ensures that any little gain seen now is swept up, thus forcing the market further down.


It is not just speculators that are the problem; the practice is also in dire straits. There is an unspoken rule in this market that implies that transactions are only respected only when the money hits your account….Why?


Cheques do bounce without many qualms in this market – from broker to client and even amongst brokers too.


Our investigations in the last six months have confirmed this observation repeatedly which encouraged our report to the Director General of the Nigerian Stock Exchange and the General Manager, Compliance for necessary action.



New word on the Street


Caveat venditor is Latin for \"let the seller beware\". It is a counter to caveat emptor, and suggests that sellers too can be deceived in a market transaction.


The way the provision was meant to work was to force the seller to take responsibility for the product, and discourage him/her from selling products of unreasonable quality.


We would have to use it, not from a legal perspective, but as a ‘buzzword’ to remind people that never cross deals based on un-cleared cheques.



Case Study: Issuing dud cheque of N13.9bn


SCS, a member of the Nigerian Stock Exchange sometime on or around the second week of September 2008 caused to be issued cheques running into hundreds of million naira when in fact it knew it did not have sufficient funds to pay for a share purchase ostensibly done in the name of the Chairman of the company, a prominent citizen and former public servant.


When the cheques were presented on the due date, it was returned ‘DAR’ and the company wrote a letter withdrawing the cheque and issuing another one from a different bank with a forward date.


The letter was signed by the Managing Director/CEO (referred to here as Bode), the sole signatory to the company accounts who personally placed company’s seal on the cheque and invited the bank manager to be present (for whatever purpose).


This was presented on the due date and the cheque was equally returned with charges.


It was at this stage that the planned fraud was discovered.


Bode and his collaborators had planned to purchase the shares based on the dud cheques and had hoped to sell it to an institutional buyer who would have paid by the time the payments were due.


He would have gotten away with it but for his greed in trying to outsmart his other colleagues and hold out for a buyer with a higher price.


While this was going on, he kept on assuring the parties involved that he had sold while telling the seller to go ahead and lodge in his firm’s cheque for the transaction, giving them no inkling that the accounts were not funded (giving the calibre of the chairman of the company).


We understand that the deal fell through and Bode has been very difficult to reach. Enquiries at his Abuja office and his Ibadan home have not yielded any response from him.


We are compiling the details of the said transaction and would be submitting our findings to the Nigerian Stock Exchange for necessary action.





Think about the kind of mind that\'s required to even think up something like this. I could never think up something like this. Most average people, of whatever financial desperation or ideological persuasion, could never do it.


Some players we have discussed this with talked about ‘smart by half’ and ‘gimmick’ and so on, but that doesn\'t really begin to describe the deviousness at work here. …


It is a criminal offence, and has been for a considerable time, to write out a cheque in payment of a debt, knowing at the time that you wrote out the cheque, or should have known, that it will bounce.


We will keep you posted.






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