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By Kingsley Ighomwenghian, Finance Editor, Daily Independent

April 2009

 

* Anenih’s Son Gets Further Bashing From SEC

* House Committee Decision Awaited


This indeed is not the best of times Eugene Anenih, stockbroker chief executive of Nova Finance and Securities Limited and son of Chief Tony Anenih, former Minister and chairman, Peoples Democratic Party board of Trust and a known protégé of President Olusegun Obasanjo during his eight-year administration.


The relatively unknown younger Anenih who was once touted as possible successor of former Edo State Governor, Lucky Igbinedion, has in the past few weeks bathed in the murky waters of negative publicity. He was fingered by the board and management of African Petroleum Plc in a well publicized advertorial in several national dailies as the instrument for the huge losses suffered by investors of the company between February 11 and March 20, 2009. The two-paged advertorial accused Anenih of working in league with Alhaji Aliko Dangote, who until a recent quarrel involving the divestment by a US core-investor from another petroleum products marketing giant- Chevron Oil Nigeria Plc, which has been the subject of lingering litigation since last year.


In what many see as more than just a coincidence, the Securities and Exchange Commission (SEC), on Thursday released the report of its investigation into the complain of share price manipulation against the trio of Anenih, his Nova Finance & Securities Limited and Alhaji Dangote. The release is ahead of the plan by the House of Representatives’ Committee on Capital Market & Structures to hold a hearing into the complaint by AP beginning from Wednesday, AP 22, 2009, in Abuja.


The commission, which barred Anenih from all capital market activities, for five years, suspended his company from the market for one year, while absolving Dangote of any misdeed. As if to show that the outcome of the investigation was steaming hot, all the punishment is with effect from Thursday, April 16, 2009.


Nova Finance & Securities was suspended, according to the SEC, after being found guilty of contravening Section 38(4) of the Investment & Securities Act (ISA). Its chief executive was also “disqualified from being employed in any arm of the securities industry for a period of five years with effect from April 16, 2009,” for breaching section 13 (bb) of the Act. He was also referred to the Economic & Financial Crimes Commission (EFCC) in line with section 304 of the Act, for violating sections 105, 106 and 110 of the ISA, for further investigation and possible prosecution under section 115. 


Breaching ISA, SEC/NSE Rules

For going against the commission’s Rule 177 and the code of conduct for market operators, Anenih and his company are also to pay a total of N5,000 per day for 38 days, from February 11 to March 20, 2009, amounting to about N190,000 in accordance with rule 7 of the Rules and Regulations of the SEC.


The decision on Dangote, according to the statement signed by Oloyi, followed the lack of proof that he instructed Nova Finance or its CEO to effect the transactions in AP, which were allegedly done on his behalf.


The sanction is coming a fortnight after the release of the outcome of a similar investigation, which also absolved Dangote of any wrong, after what it called a scientific probe. According to a statement by Mrs. Josephine Igbinosun, Secretary of the NSE Council, Nova Finance was also suspended from all capital market, but it was silent on the issue of the duration. After carefully examining “the recent alleged manipulation of the share price of African Petroleum Plc through incessant buy and sell transactions by Nova Finance & Securities Limited,” Nova Finance fined N500,000 per day from the date of the suspension till the day the fine is paid for irresponsible behaviour. The exchange investigation found Nova guilty of breaching Articles 103 and 107 of its rules and regulations, which “preclude dealing members from creating a false market on a specific security to effect a change in its price.” 


Unlike the SEC, the NSE punished AP for making the observed misdeed a media issue, instead of first intimating the exchange, as required in the post-listing requirement. It was also rebuked for indiscretion in the use of classified information from the Central Securities Clearing System Limited (CSCS), its subsidiary and depository.


By making the issue public through the media, the exchange faulted the management of AP and slammed the company for breaching the exchange’s post listing requirements on information dissemination by quoted companies in the process.


The statement reminded AP that “companies are obliged to inform The Exchange of any matter that affects their operations before going to the press.  African Petroleum Plc has brought the integrity of information emanating from the Central Securities Clearing System (CSCS) Limited to ridicule by publishing what was purported to be CSCS document and we wish to assure the investing public of the confidentiality of their records at the CSCS.  The published document by African Petroleum Plc is definitely not a CSCS document.  Consequently, the Council of The Exchange has also imposed a fine of N300,000:00 flat on African Petroleum Plc for contravening the post listing requirements.”


How We Discovered Manipulation – AP Plc

In spite of the ongoing stock market meltdown that has left several stocks trading at sometimes their six-year low, the panel sought to know how the AP management concluded that the price movements were not normal, following which Tunde Falasinnu, Chief Operating Officer of AP explained that the company’s attention was drawn by some concerned shareholders. This, said Falasinu, who was accompanied by Mrs. Elizabeth Idigbe, the company secretary and Akubueze B. U., its investor relations manager, prompted the company to commence close monitoring of transactions on its shares.  The transactions were discovered to be cross deals between Nova Finance and Dangote “in a manner that created the impression that there was active trading on the stock which was in fact not the case.”


“The records of the alleged manipulated transactions as obtained by SEC investigating team from the CSCS were circulated to all the parties and they were accepted by all as the transactions done by Nova Finance and Securities Limited.  The transactions involved series of cross deals between Nova Finance and Securities Limited and Alhaji Aliko Dangote between 11th February 2009 and March 20, 2009 at 50,000 units of AP Plc shares per transaction.  When asked, Nova Finance and Securities Limited could not explain the motive for the transactions.


Drama: Dangote Denies Anenih

There was however reportedly a drama, according to the report of the proceedings as Anenih who had earlier told the SEC investigative panel that he acted on the verbal mandated of Dangote relayed through telephone call recanted after being confronted by Uzoma Nwankwo, a former bank chief and Executive Director, Finance at the Dangote Group. Nwankwo who represented Dangote at the hearing, accompanied by Muyiwa Balogun, counsel to Dangote argued that his boss never did not at anytime give any mandate to Nova Finance and Securities Limited to carry out the transactions.


“Following this statement, the MD of Nova Finance and Securities Limited retracted his earlier statement that he received Alhaji Dangote’s mandate to carry out the transactions.  He (thereafter) categorically stated that he did not get any form of mandate from Alhaji Dangote for the transactions,” the statement by Oloyi added.


An obviously cornered Anenih was said to have changed the story afterwards to his having “interested buyers who were willing to buy AP Plc shares at the price range of between N25 and N30.”The SEC panel regretted that Anenih failed to neither satisfactorily justify the rationale for the sequence of transactions nor show that he stood to derive any benefit from the deal.


Reacting to the SEC committee report, one analyst last week told Daily Independent that the link between Nova Finance & Securities, its boss, Anenih and Dangote has grey areas that may never be unraveled. Preferring anonymity, he noted that since the mandate was gotten verbally through a telephone conversation, Nova Finance and its management could go the extra mile to exonerate themselves by getting a transcript of the phone conversation from the telecom network provider. By admitting that he had no mandate to cross the shares daily for over one month, the SEC noted, the Nova Finance and Securities’ boss, acted contrary to “sections 98 and 99 of the ISA 2007 and Rules 100(4) and 177 of the Commission’s Rules and Regulations which require all capital market operators to maintain proper and adequate records of transactions.”


The report also slammed the stockbroking firm and its CEO for employing manipulative and deceptive devices and contrivances in its transactions on AP within the period under review, contrary to rule 110(1) (d) of the Rules and Regulations of the Commission. Also, for manipulating the market by engaging in transactions which had the effects of lowering the price of AP Plc Shares on the NSE, the company was found to have breached Section 106 of the ISA 2007.


Part of the offences committed by the duo of Nova Finance and Anenih, the report added, includes engaging “in acts capable of affecting the general investing public’s image of and confidence in the capital market by manipulating the market for AP Plc shares to influence the price of the security contrary to the code of conduct for market operators and their employees contained in schedule IX of the Commission Rules and Regulations.”


“The Managing Director of Nova Finance and Securities Limited neither conducted himself with integrity nor displayed the level of professionalism expected in the securities industry, as required by the ISA and the code of conduct for Market Operators and their employees,” the panel’s report noted.


How We Got Transaction Data

Addressing members of the SEC panel, according Oloyi, representative of the CSCS Limited Mr. Joe Mekiliuwa denied that his organization sent the updates on the transaction to AP or Otedola, since only “in the course of performing its role as clearing and settlement agent of the capital market, regular updates on transactions were usually sent (only) to registrars of companies. He refuted the suggestion that the information was obtained directly from the CSCS by AP Plc.”


The issue of how AP got the said information used in its advertorial was however resolved when Mr. Chester Ukandu, chief executive officer of Afribank Registrars Limited, registrars to AP, admitted in his reaction, being the source of the published CSCS updates. “According to him, Afribank Registrars Limited, being the agent of AP Plc, could give all information obtained from the CSCS to the company in the discharge of its functions.”


Findings

According to the SEC, the investigating panel discovered that CSCS records revealed between February 11 and February 12, 2009, the purchase of 100,000 units of AP by Nova Finance purportedly for Dangote, while between February 11 and March 20, 2009, 50,000 units of AP shares were continuously crossed per transaction between Dangote’s share account under Nova Finance and Nova Finance.


That “within the same period, the daily traded volumes of AP Plc Shares fell below 100,000 units except on February 27, 2009 when 124,829 units were traded and March 20, 2009 when 123,286 units were traded. The Managing Director of Nova Finance and Securities Ltd had within the period of eight weeks, consistently consummated cross-deals involving 50,000 units of AP Plc shares per transaction between its company and the accounts of Aliko Dangote. (50, 000 units is the volume required by the NSE trading rule to move the price of any stock up or down up to a maximum of five per cent of opening price on any given day.)


“As at February 11, 2009 when Nova Finance and Securities Ltd commenced trading in the shares of AP Plc, the market price was N216.33 but thereafter, the stock continuously lost 5 per cent of its value till March 20, 2009 when the price fell to N54.18.


“That before the series of transactions by Nova Finance and Securities Ltd beginning from February 11, 2009, on Aliko Dangote’s account, the last transaction on that account was in March, 2007. The daily traded volume of AP Plc Shares was relatively low at the time of these transactions and as such the 50,000 units (volume) traded by Nova Finance and Securities Limited was significant and clearly influenced the behavior of the price.”


The committee also found officials of both the SEC and NSE partly culpable in the entire saga, wondering why SEC officials who monitor trading on the floor of the exchange were unable to detect the unusual transactions. While the Commission directed that the NSE upgrades its IT infrastructure to enhance effective monitoring of activities in the market, it regretted also that the exchange being a self regulatory organization and “on whose trading platform the transactions were executed and whose trading engine is hooked to the CSCS settlement servers, could not detect the irregular nature of the transactions and take appropriate action.”


The NSE was thereafter “advised to review its rules and procedures for appointing or electing its Council members in order to ensure good corporate governance and avoid conflict of interest situations.”


Reps Committee Sitting

If the tone of its advertorial on the alleged price manipulation as advertised in the media by the Aliu Wadada-led House of Representatives Committee on Capital Market and Structures is to be taken on face value, expectations are that the SEC/NSE findings could be child’s play. Going by  the mood of the statement, the outcome of the investigation may have more far reaching import for AP, its core investor- Zenon Oil owned by Mr. Femi Otedola, who is the executive chairman of AP in defiance of the SEC code of Corporate Governance for quoted companies, which advocates a separation of the roles chairman, who should be none executive and a chief executive.


The committee, while acknowledging the petition by the AP management, invited both the SEC and NSE to appear, in addition to Nova Finance and Eugene Anenih, its chief executive, and Alhaji Aliko Dangote, all of whom where mentioned in the AP petition. Others are chief executives of the 12 underwriting companies to the last AP offer- First City Monument Bank, Access Bank, Afribank Nigeria, Bank PHB, Diamond Bank, Greenwich Trust Limited, Guaranty Trust Bank, and Intercontinental Bank. Others are Sterling Bank, United Bank for Africa, Union Capital Markets Limited and Zenith Bank.


The committee, for example, queried the manner in which Zenon acquired the controlling (about 40.5 per cent) shares of AP, despite the objections raised by the committee, which “vehemently opposed” the move.


The advertorial recalled that contrary to the rule, AP was on technical suspension for over 10 months from until it was lifted on November 17, “well beyond the stipulated period, without any word from the regulators. It is on record that the suspension was only lifted after the committee wrote to the (SEC) and (NSE) in a letter dated November 17, 2008 asking why the suspension was not lifted.”


Continuing, the advertorial recalled that “the chairman and the committee members specifically wanted to know the rationale behind the jump in AP Plc share price from N46.27k to N293, which was 627 per cent increase compared to the NSE index increase of only 198.7 per cent during the corresponding period,” the statement added, not specifying the period under reference.


The committee, because of a number of abnormalities noticed in the AP Plc 2008 hybrid offer, organized a public hearing where it invited the chairman and chief executive officer of AP Plc, Mr. Femi Otedola, SEC, NSE and all underwriting financial institutions to the offer. Every other person and organization honoured the invitation and appeared before the committee except Mr. Otedola,” the committee complained, but did not state whether the AP chairman offered any excuses for declining the invitation.”


Previous Market Infractions

Although market infractions of lesser magnitude recur in Nigeria’s stock market, the case of Nova Finance and Securities is the second highest profile sleaze discovered on Nigeria’s stock market since 2005, when Chief Kingsley Ikpe, former General Manager of Icon Limited (Merchant Bankers), and a senior stockbroker bagged 163-year jail term for market infraction committed around 2003, by Justice Joseph Olubunmi Oyewole. He was arraigned by the Economic and Financial Crimes Commission (EFCC) and stood trial for a 43-court charge of conspiracy, stealing, forgery and alteration.


Ikpe, who later became MD/CEO, Nigeria-Arab Bank and then chairman Fidelity Bank, was particularly charged with stealing a sum of N135 million belonging to Chief Ezenna Anthony Ifeanyichukwu, the chairman of Orange Drugs Limited. The money was meant to buy shares of Nigerian Breweries Plc, where Ezenna had nursed the ambition of becoming one of the largest shareholders, thereby earning a board seat.


The accused was subsequently awarded a five-year jail term on each of the 40-count charges, while his company- Thomas Kingsley Securities was ordered to pay the sum of N7.55 million as fine. Ikpe was also ordered to return N61 million to Chief Ezenna within seven days.


Conclusion

For now, many are willing to wait as the events unfold, just as the House Committee probe is expected to unveil more in the coming days, will the report meet expectations?

 

The report which was finally communicated vide a press release can be downloaded here - http://proshareng.com/reports/2834  


 

http://www.proshareng.com/investors/company.php?ref=AP

http://www.proshareng.com/investors/company.php?ref=DANGSUGAR

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