Case: AJAYI V. SECURITIES AND EXCHANGE COMMISSION (2009) 13 NWLR (Pt. 1157) 1
Reviewer: Olumide K. Obayemi
This paper critiques the slow pace and use of legal rigmaroles in frustrating enforcement investors’ protection laws in Nigeria, compared with the American legal system, using Ajayi v SEC as reference. It concludes that (a) Nigerian courts should employ their power to sanction lawyers and litigants more proactively; (b) specialized courts’ powers, such as the Investment and Securities Tribunal (IST) must be enhanced to handle specific subject-matters in Nigeria; and (c) the rights of appeal to appellate courts may be curtailed/ restricted to matters involving meritorious issues. This will facilitate quick and expeditious resolution of disputes between litigants.
It is disheartening that, after eleven years, issues raised in Ajayi v SEC are nowhere near resolution while the impugned corporate officers and auditors (Osindero, Oni & Lasebikan) parade the Nigerian Capital Market, whereas the 2001 Enron Scandal, in the United States, had been put to rest with Enron’s executives and Arthur Andersen becoming historical relics.
The Enron Scandal
The October 2001 Enron Scandal, led to the bankruptcy of Enron, and dissolution of Arthur Andersen, the world’s largest audit and accountancy partnership. Enron’s Jeffrey Skilling and other executives used accounting loopholes, special purpose entities, and poor financial reporting, to hide billions in debts from failed deals and projects. Chief Financial Officer Andrew Fastow and others misled Enron’s board of directors and audit committee of high-risk accounting issues and pressured Andersen to ignore the issues. Enron’s stock price hit US$90 per share in mid-2000, later caused shareholders to lose $11 billion by plummeting to less than $1 by December 2001. U.S. SEC’s investigations indicated Enron executives. On May 25, 2006, Lay and Skilling were convicted amongst others, of securities and were fired. Earlier, on May 6, 2002, a charge of obstructing an official proceeding of the SEC was filed against Enron’s auditor, Arthur Andersen LLP. The jury found Andersen guilty on June 15, 2002, of obstructing of justice. Since federal regulations do not allow convicted felons to audit public companies, Andersen surrendered his CPA license on august 31-effectively putting the firm out of business, losing majority of its customers and shutting down.
The question is what makes the American system work quickly towards restoring investor’s confidence while the Nigerian investor is caught in endless delay?
‘The question is what makes the American system work quickly towards restoring investor’s confidence while the Nigerian investor is caught in endless delay?’
Securities Regulation in Nigeria
The Nigerian Securities and Exchange Commission (SEC) is charged with restoring investor confidence, enhancing market integrity and protecting the everyday investor under the Investment and Securities Act (ISA), 2007. prohibits the employment of any device, scheme or artifice operating as a manipulation, fraud or deceit on any person in connection with the purchase or sale of securities; prohibits false trading, i.e., where an individual or entity engages in activities creating a false or misleading appearance of activity in any securities; prohibits purchase or sale of securities not involving a change in the beneficial ownership of the securities and transactions conducted to maintain, inflate, depress or fluctuate the price of the security; and prohibits engagement in insider trading by using unpublished price sensitive information in relation to purchase or sale of securities.
Penalties for above violations are injunctions, monetary penalties and the disgorgement of profits gained in violation of ISA. Under ISA, allegations of fraud and violations provoke a SEC investigation. The matter is then referred to the Administrative Proceedings Committee (APC). Later, a suit is instituted before the Investments and Securities Tribunal (IST), charged with the resolution of all disputes arising out of the application and enforcement of ISA.
An award of judgment of the IST, upon registration, with the Federal High Court ()’s Chief Registrar shall be enforced as a decision of FHC. Appeals from IST lie directly to the Court of Appeal, and, thence to the Supreme Court.
The Nigerian Enron Saga: Ajayi V SEC
Mufutau Ajayi, former finance and accounts manager of African Petroleum Plc (APPLC) prepared fraudulent prospectus dated march 30, 2000, in conjunction with AP PLC’s auditors, Osindero Oni and Lasebikan (“OOL”). This followed the National Council on privatization’s offer for sale of Federal Government’s 86,400,000 ordinary shares of AP Plc.
In April 2001, Sadiq Petroleum, having subscribed to 30% of the shares, proved that AP PLC’s past management had failed to disclose debts of N22.5billion owed to various creditors and OOL were negligent in auditing AP PLC. SEC’s preliminary investigations showed concealed debt comprising of commercial papers and bankers acceptances, and the matter was referred to SEC’s APC. Before the APC, Ajayi, being an officer of APPLC, was charged with authorizing the 03/30/2000 prospectus containing an untrue statement, i.e., that AP’s total indebtedness as of June 30th , 1999 was N22.5billion, instead of N10.2billion, contravening Sections 62(1), (2)(d) and 63,.
Despite voluminous publicity surrounding SEC’s investigations and hearings, Ajayi did not attend the hearings. The APC’s found that Ajayi was a principal officer who played a major role in concealing AP PLC’s debt, and disqualified Ajayi from being employed or participating in any capacity in the securities industry.
Ajayi approached FHC for an order of certiorari removing the case to FHC and quashing APC’s decision, determinations and directives, alleging that he did not receive “justice” after failing to attend hearings. SEC challenged FHC’s jurisdiction, since under section 236 of ISA, only the IST has exclusive jurisdiction to hear disputes arising under ISA. On July 31, 2006, Hon. Binta Nyako ordered a transfer to the IST.
Ajayi approached the Court of Appeal which overruled both of his arguments on May 8, 2007. First, Hon. Peter-Odili, JCA held that sections 224(1), 234(1) & 236(1) of ISA must be read together within their joint context, and that exclusive jurisdiction to hear disputes arising under ISA is conferred on IST. Relying on OHANAKA v ACHUGWO and BAKARE v AG, Odili held that, section 236(1), ISA mandates Ajayi to go to IST for relief. On the natural justice issue, Odili held that since Ajayi had a statutory right to seek review of APC’s findings before the IST, his non-appearance before APC was not a denial of fair hearing. Ajayi has filed an appeal with the Supreme Court thus prolonging the case from 1999 longer – perhaps to 2014.
Whereas, the Enron case took about 3 ½ years to resolve, Ajayi and Osindero, Oni & Lasebikan continue to parade Nigerian stock market.
Investors’ confidence in Nigerian Capital Market has not been helped with the 15 year prolonged legal gymnastics. First, they refused to attend the hearings before APC and are now using technicalities as a means of stalling APC’s findings. Under California Code of Civil Procedure, §§128, 177, courts have the power to compel obedience to their orders and amend them as necessary to make them “conform to law and justice”. All courts have inherent supervisory or administrative powers enabling them to carryout their duties and oversee and enforce execution of their decrees. ASBESTOS CLAIMS FACILITY v BERRY (1990) 219 Cal.App.3d 19.
Nigerian courts must use their sanction powers against frivolous parties and counsel exploiting technicalities and unduly prolonging unmeritorious claims.
Second, Nigerian market regulators must make the specialized IST much stronger, covering all stock market disputes. America has witnessed a nationwide growth in specialized problem-solving courts, based on the state’s role promoting social change. State’s social control theories, especially theories of technocratic or rationalized justice, show that law is increasingly about efficiency, speed, and effectiveness. Former Attorney General Janet Reno and New York Chief Judge Judith Kaye support problem-solving courts, called them “by far the most exciting, most promising recent development in the law”.
Finally, not all appeals from FHC should lie as of right to the Court of Appeal. Clear-cut cases involving no real controversy should be weeded out through Pre-Docket Questionnaire serving as a way of summarily dismissing unmeritorious frivolous suits.
About the Author:
Obayemi, Principal; LL.M (Alberta, Canada); LL.M -Taxation Law; S.J.D -International Legal Studies; PhD; Attorney At Law; Admitted in Nigeria and California bars and writes from San Leandro, California.
Source: Thisday LAWYER, Tuesday, August 24, 2010, page X1