Friday, April 24, 2015 8.50 AM / Proshare
The Nigerian capital market entered this week crestfallen, with reference to Friday’s regulatory intervention in the management of BGL Plc, the holding company to BGL Securities Limited, BGL Asset Management Limited, BGL Private Equity Limited, I-skill Limited, and Immersion Marketing Strategies (IMS) Limited.
Even though the major players in the unfolding sad drama have strived to put a straight face in the wake of regulatory intervention in the management of BGL Plc, the general discomfort in this relatively small capital market community has been palpable.
For one, there is an uncertainty over who would preside at the next Annual General Meeting (AGM) of the Chartered Institute of Stockbrokers (CIS) over which the Chairman of BGL Plc, Mr. Albert Okumagba, presides as Chairman of Council. He is also a member of the board of directors of NASD Plc.
But beyond the immediate impact on the CIS, there is a bigger implication for the larger Nigerian capital market community. For a market that has in the last five years been fighting to reclaim lost investor confidence, this is quite a serious matter.
Speaking on the developments on Wednesday to journalist at the first quarterly meeting of the Capital Markets Committee (CMC) in Lagos, the Acting Director-General of the Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, expanded on the take-over and confirmed that the commission was equally conducting a forensic audit/investigation of the operations of BGL Plc.
On why the SEC took the decision to set up an interim management team for BGL Plc, Gwarzo said “What we did for BGL was basically extending our investigation process. We undertook target inspection of BGL and when we finished the investigation, we came up with our own report and then wrote BGL a letter where we said we want them to clarify some things. They responded by asking us for additional time to respond and we granted them that additional time and they responded. We reviewed their response and we felt there is a need for us to go in and confirm or clarify certain things. That is the situation we are in now. We set up an interim management team that has already moved in and is doing its job. I don’t want to preempt what the IMT would come up with, but the moment they finish the report, the SEC will look at it and take the next line of action,”
In all these, no one was better off in terms of the real reasons i.e. details of the Investor complaints and extent of infraction/erosion of capital at BGL Group Plc leaving market analysts and the general public with a buzz that could at best reflect conjectures created by an information gap/asymmetry about the following: motive and timing, , the assumed serious liquidity position of BGL Plc and other CMO’s in similar positions not yet addressed, the investor entities that have lost money (including corporates like First Bank Plc from a margin relationship), the investment decisions and professional management of funds received under their private placement, obligations to investors with funds falling due and remaining unpaid, court cases (at least one referenced below), the actual hole in the books running to billions and governance issues.
The on-going commentaries, in our estimation, will remain at the level of conjecture(s) and act to heighten concerns about an otherwise paradigm shifting move that should be celebrated until clarity is achieved in establishing the basis of action rather than awaiting a justification for action, if only to underline the investor protection mandate of a securities regulator which is to - protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
The big question begging for an answer is how the takeover of the management of BGL Plc has engendered or further eroded investor confidence and this mandate/mission.
The question is particularly important for the following reasons:
1. REGULATORY: This is the first time the market is experiencing a regulatory action of this nature (scope, target and depth) on a firm as big as BGL Plc. Contrary to what has been muted in certain quarters and prior to the Arunma Oteh-led SEC years, there had been such actions/initiative(s) against smaller firms but none the size of BGL Plc, which on its website (bglgroupng.com), proclaims itself as “one of Africa’s leading financial services groups.…”. Indeed, founded in 1993, BGL Plc has grown to become one of Nigeria’s very successful financial institutions and an influential member of The Nigerian Stock Exchange, with Mr. Albert Okumagba serving a full term on the Council of The Stock Exchange.
In effect, how the authorities dispose of the matter of BGL Plc will sign-post the future of capital market regulation in Nigeria; especially as it relates to supervision and enforcement with the larger question bothering on investor protection.
2. ENFORCEMENT MANAGEMENT ISSUES AND COMMUNICATION: Significantly, the ‘takeover’ came curiously without any formal announcement by SEC but for the ‘scoop’ published by the Punch Newspapers on Monday. As at the filing of this report, the commission had not considered it necessary to issue a release which raised the suspicion of arbitrariness on the part of the Commission in addition to raising the question of whatever happened to the Commission’s policy of “name-and-shame” as a deterrent to market infraction, assuming the Commission was justified in its move against BGL Plc, and this is despite the address to the press referred to above.
It is understood that there are indications of a formal communication to capital market operators (CMOs) only, even though the company under consideration is a public company that is traded on NASD OTC. That, of course, also immediately raises the question of the place of shareholders in the scheme of things. Shareholders would appear not to count for much. Clearly, they have been relegated to the background in this matter, which should not be the case if the market is serious about promoting investor confidence.
In the volatile world of high finance, managing decisions affecting the going concern of a capital market operator with the profile of BGL Plc suddenly without appropriate communications with investors and shareholders in what we believe must be in fulfillment of both the SEC and firm’s disclosure duties is not the way to recalibrate the investor protection mandate.
At a time when whistle-blowing and corporate governance ethos is encouraged by the SEC, BGL Plc ought to have disclosed the fact that it was under an SEC investigation to its shareholders who might have then had the added incentive to co-operate with the SEC in resolving issues involved. It is important for the capital market that investment advisers make timely and accurate disclosures of information that would be material to investors additionally. See below for further insights.
3. The Nigerian Stock Exchange: It is significant that even though BGL Plc is in a dire strait and it affairs needed to be managed properly from a regulatory angle, the self regulation mandate of the bourse meant that BGL Plc, with its subsidiary a dealing member of The Nigerian Stock Exchange ought to be aware or have been made aware of these developments and the question of its trading status resolved.
The Exchange, like SEC, has not considered it necessary to make a statement on the development at BGL Plc – a development that in time will be considered a defining moment in the Nigerian capital market, for good or bad. Why is The Exchange not talking? What are they waiting for?
4. Related Parties, Independence and the NASD: Like SEC and NSE, the NASD OTC on which BGL Plc is traded has not said anything. Incidentally, and in the case of the NASD, both the Chairman of the Interim Management Committee (IMC) appointed by SEC, the highly respected Mr. Oladipo Aina, and Albert Okumagba are directors of the company.
Ordinarily that should disqualify Mr. Oladipo Aina for the job but maybe the SEC, either by omission or commission, did not dig deep enough or does not consider that perception is an important element in the development of investor confidence. Other members of the IMC include Mr. Abubakar Ambursa, Mrs. Hafsat Rufai, Ms. Temitayo Siyanbola and Ms. Tonn.
The question that immediately pops up is that in what role are this esteemed entities furthering the investigation of the apex regulatory whilst they run their own private entities. In whose interest would they be serving? The trite point here is that we ought, as a market, learn to do things differently from the past. There are enough competent resources in the SEC to manage this targeted task including, but not limited to appointing a firm of professionals to carry out a forensic audit and manage the BGL entity in the interim.
In any case, what is the current trading status of BGL Plc on NASD in the light of the development under reference? It would be assumed that the SEC would take steps for this to go on but who would be making new/fresh investments giving the disclosures and conjectures in the market place.
5. Investor Relations 101: If everybody decides to keep shut lips on this landmark development, should BGL Plc be found in this bad company? As a publicly traded company, it goes without saying that BGL Plc should be upfront with information about developments in the company. Is the new management waiting for its next AGM to inform shareholders about this all-important development in the company? How about communication with prospective investors? Should they not be informed about a matter that has gone on for years with the last six (6) months spent in active engagement with the SEC? It is therefore a legitimate question to ask about the level of corporate governance that exists in BGL Plc?
6. Conspiracy of silence from market players: The conspiracy of silence gets even heavier (and pedestrian at the same time) when an elite local capital market internet forum that is quick to stream market-related information to members has not posted a word on this development. Whose interest is being served here? Certainly not the interest of the capital market community whose members deserve timely and accurate market information / clarifications based on insider knowledge of trading activities, positions and liquidity to aid investor decision-making. Members of this group can comment without being derisive or otherwise pretentious in fulfillment of the public enlightenment role they play. Proshare’s News and Investigations team is not excluded from this let-down as the firm was well aware of issues (having written extensively on the many fall-outs of the BGL private placement debacle since 2009) but premising its actions (or inaction) on not pre-empting the SEC to do its duty(ies) based on the information/cases at their disposal; ended up letting down its guard. More so, the news service was aware of the Friday letter from SEC but decided to wait for an official announcement from SEC which never came. It is a worthwhile lesson for all concerned as we rebuild and nurture a more investor protection driven market.
7. Piercing the Veil to Go After the Erring Directors: Closely related to this development and without prejudice to the findings of the IMC must be the discussion about what liability the directors of BGL Plc must bear for the losses suffered by investors. If the findings of the IMC suggest that further to the developments of the last five (5) years when the organisation has been battling with its liquidity hole, it operated as a sham, a shell or a conduit for mismanaging the assets of the firm in a manner not furthering the interest of investors; the SEC must consider the necessity to lift the veil or end up opening the doors for investors to lift the veil of the firm and enforce his/her remedies under the law.
Admitted, in Erhurhoro vs BGL Plc, the records were never developed to show a veritable cause of action against the directors, perhaps, in the future, the injured shareholder’s representative will develop a comprehensive complaint that will be tested in the courts to deliver restitution.
In this regard, the seminal work done by Dr. Olumide Kolawole Obayemi on this subject will prove yourself. In the published opinion, he submitted that “the Nigerian lawmakers should amend the ISA and Nigeria SEC Regulations to include provisions as contained under Rule 147 of the US Securities Act Regulations i.e. the IST must be ready to pierce the veil of incorporation when it is evident that the firm had been used to perpetrate a fraud on the investors or to siphon funds from the corporation”.
8. The timing of the takeover of the management of BGL Plc will in time come for serious scrutiny. From all indications, the matter leading to the recent regulatory move against the company did not happen overnight. It had festered over the years, which rightly raises the questions of why the authorities failed to act before now and why they are acting at this moment. Was it a case of regulatory inertia or another of those cases of regulatory accommodation of institutional misbehavior that has continued to ravage the capital market in spite of the changes of 2010 in the leadership of the market, or a case of selective enforcement of the rules? Who is next? What was the rationale used here as a basis for market learning?
The bigger tragedy in the regulatory intervention in the management of BGL Plc is not in the apparent fall of an individual or a firm but in what it reveals about the extant state of our market – operators, investors, and regulators - and its future.
We whine about the loss of investor confidence and fail to do the simple things that would promote investor confidence. Is it for lack of knowledge or the courage of our conviction? Perhaps the answer can be found in our collective inability to separate the personal from the professional? Time will tell, yet the BGL Plc saga offers more than a test case; it places the SEC and key market leaders, functionaries on trial.