Business Regulations, Law & Practice | |
Business Regulations, Law & Practice | |
4376 VIEWS | |
![]() |
Wednesday, July 18, 2018 04:55PM / Oserogho & Associates
Introduction
The fraudulent practice of artificially pumping up the price or value of the Shares or Stock of a company, whether a private company or a public company, which artificial increase in value is not reflective of the forces of demand and supply, with the penultimate objective of dumping such Shares or Stock at their highest unrealistic price, on members of the public to purchase, is again on the rise.
Unbeknown to members of the investing public and the perpetrators of Shares Pump and Dump Schemes, there are various statutory legislations which criminalise Shares Pump and Dump Schemes. Some of these legislations are considered below.
CAMA – Shares Pump and Dump Schemes
The Companies & Allied Matters Act (“CAMA”) vests the day-to-day direction, management and administration of every limited liability company, whether private or public, on each company’s Board of Directors.
The Directors of a company therefore serve as Trustees and Fiduciaries of their company when dealing with the company, and with members of the public.
Under the provisions of CAMA, where the Directors of a company breach their fiduciary duties, by for example publishing false and misleading statements about their company’s financial affairs, injured parties who relied on such mis-information and suffered losses, have civil and criminal reliefs that they can claim against such a company and its Directors.
Criminal Liabilities – Shares Pump & Dump Schemes
The Criminal Code makes it a criminal offence for any person or corporation, with the intent to defraud another person, to obtain, steal, conspire or induce another person to deliver anything that is capable of being stolen. Terms of imprisonment ranging from three (3) years to seven (7) years; with punitive monetary fines, apply where an alleged offender is found guilty of obtaining anything under false pretenses.
The Advance Fee Fraud and Other Fraud Related Offences Act also criminalise obtaining anything under false pretenses with the intent to defraud another person. The penalties on conviction for offences such as this include a term of imprisonment not exceeding twenty (20) years and not less than seven (7) years. No option to pay a fine is provided in this Statute.
The Economic and Financial Crimes Commission (Establishment, etc.) Act (“EFCC Act”) in its interpretation Section 46 defines Economic and Financial Crimes to be crimes that are of a non-violent, criminal and illicit in nature, committed with the objective of obtaining wealth illegally. Examples of Economic and Financial Crimes include any form of fraud, open market abuses, money laundering, foreign exchange malpractices, tax evasion, etc.
The penalties on conviction, for Economic and Financial Crimes under the EFCC Act include a term of imprisonment of not less than two (2) years and not exceeding three (3) years; with the forfeiture of the proceeds of the crime to the Federal Government.
The Investments and Securities Act (“ISA”) empowers the Securities and Exchange Commission (“SEC”) to among other things suspend and or prohibit the unlawful trading on any publicly quoted shares/stock that is suspected of being affected by any Shares Pump and Dump practices. Examples of the latter include the publication of false, misleading, fictitious or insider statements which statements are/were intended to maintain, inflate, depress or cause any artificial manipulication or fluctuation in a share/stock price.
The ISA also provides for criminal liabilities for individuals and corporations in the form of stiffness in the terms of imprisonment where insider dealings, false, misleading and fraudulent statements regarding publicly traded shares, or the Prospectus for such shares, are knowingly, recklessly, dishonestly or negligently undertaken.
Conclusions
Shares Pump and Dump Schemes do not only cause massive financial losses to the investing members of the public; they also significantly undermine public trust and confidence in the financial services market.
Regulatory bodies, as financial watchdogs, need to be more aggressive in protecting the investing public and the financial services market. Offenders of the various statutory provisions highlighted above need to be publicly and proactively prosecuted in a more expeditious and timely manner.
Increased and more regular public education and enlightenment are also required so that Shares Dump and Pump Schemes are more easily recognised by members of the public; at the time of the incubation of such Schemes; as opposed to at the time of their completion with the resulting damage.
LATEST Developments in the Market
· Buhari Signs Law Separating NFIU from EFCC
· Unconstitutional, Null And Void - Legal Opinion On Preservation Of Suspicious Assets Order
· The Draft Nigerian Code of Corporate Governance 2018 For Your Input
· 2018 Nigerian Code of Corporate Governance: Sectorial Codes to Serve as Guidelines - FRC
· Landmark FHC Judgment On The Information Rights of Investors In The Nigerian Capital Market
· Executive Summary of Changes to CAMA
· Senate Passes New CAMA Bill into Law; Lists Seven Benefits
· Sales Tax versus VAT: Supremacy - Case Law Review
· Finance and Accounting Outsourcing
· Judgment Delivered Against Plaintiff In First Nigerian Case on ATM Dispense Error
NB: This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed. This Legal Alert is protected by Intellectual Property Law and Regulations and is reproduced by Proshare Nigeria Limited under permission, for the Proshare online investment community, from Oserogho & Associates [ contactus@oseroghoassociates.com ]
Related Legal Alerts
1. Voluntary Membership of Trade Unions
2. Fire Safety Compliances and Regulations
3. Admissibility Of Evidence As It Relates To Electronic Devises, Social Media And Forensic Science
4. New Requirements For Registration Of Charges (Form CAC8) Takes Effect April 3, 2018
5. Court Approves Website Seizure and Anton Piller Order Against Online Copyright Piracy Platform
6. Hotels and Restaurants Consumption (Fiscalisation) Regulations
7. Court Grants Injunction Restraining Lagos State From Enforcing New Consumption Tax Law
9. Police Powers of Arrest and Civil Contracts
10. Stakeholders harp on robust PPP, at 2017 BusinessDay Education Summit
13. Stamp Duties on Bank Deposits and Transfers: Are There Unresolved Issues?
14. IFRS 9 Standard Implementation: Building Organisational Capacity for Implementation Success
15. Bank Charges: Role, Responsibilities and Rights
16. Bank Charges & Recent Regulatory Guidelines
17. Legal Update On The Implementation Of The Stamp Duties Act And The Rights Of Bank Customers
18. How Recent Environmental, Waste and Effluent Law & Regulations Affect You
19. Indonesia Issues New Regulation Regarding PLCs' Shareholding Reporting Obligations
20. Contracts - Time Is Of The Essence
21. Nigeria's new Immigration Regulations 2017
22. The Law, The Environment And Permissible Noise Levels
23. Advancing the Role and Effectiveness of Audit Committees
24. House Passes Federal Competition Commission Bill
25. Registering a Business in Nigeria: Preliminary Considerations
26. PEBEC approves 60-day action plan on Doing Business in Nigeria
27. Annual Minimum Corporate Compliances
28. You've Registered Your Trademark, What Now? Tips on Maintaining Trademark Protection
29. Why FGs Ban of Vehicle Imports Through Land Borders Makes Sense
30. While Nigeria Dithers, 3 in 4 African Countries Improve Business Environment
31. The Un-Enforceability of the Nigerian FRC’s Code of Corporate Governance