Memo to The Market: The Oando Corporate Journey – At The Regulators Gate


Wednesday, November 22, 2017    03:58PM / By The Nigerian Investor & Proshare Research and @TheAnalystNG 

“…Manipulate the truth long enough and eventually you’re selling something that doesn't exist." 

We present herewith our market memorandum on a voluminous report looking at the recent development in the market with a view to expanding the knowledge of practices and market engagement issues that ultimately will aid the development of the Nigerian capital market. More importantly, the comprehensive report offers both local and international market operators and regulators, an independent look at the developments around Oando Plc and the Nigerian Securities & Exchange Commission actions.

We worked hard to provide the most honest representation of the evidence available to us (
and included in the footnotes below) and privileged information we were gained access to from various stakeholders in the market. 

Comments, view and enquiries are necessarily welcome via on the issues raised herein and possible updates on the subject from parties that may necessitate a review. 

More importantly, We encourage you to pay attention to details contained in this summary published below; ahead of the full report that offers you a complete dossier on what we believe will be an aide memoire on how to engage the Nigerian market, nay regulatory environment and most importantly, the role, responsibilities and governance ethos expected of listed entities in a stock exchange.

Executive Summary
In suspending trading on the shares of Oando Plc on October 18, 2017 as part of a series of actions taken by the Securities & Exchange Commission (SEC), the Nigerian regulatory landscape sent out a bold statement that it can act when motivated to do so. 

When the move came, it came against a background of recent actions taken by the SEC which reflected a long-awaited clamour for enforcement actions in our market place (with a few false-steps), an increased regulatory enforcement from NCC, NSE, CBN and lately the Financial Reporting Council (FRC) on corporate governance practices, and a public perception of Oando Plc as being corporate governance challenged. 

The market, while not unaware of the stories in the public space and dealers’ trading desks about Oando’s executive management’s investment dispute with two separate entities which the SEC was looking into, found the actions taken unclear as to intent, precedence and end-game; even as they were expectant of an action to put the matter to rest. 

While SEC argued that the action was necessitated by its desire to protect investors’  interests, the apparent lack of a scope and determinable time for a resolution raised considerable concerns; none the least the execution of the roll-out plan. 

At this stage, the market welcomed a move away from self-denial about concerns over Oando Plc and looked to the SEC for clarity through its actions; one that does not deliver uncertainty, create collateral damages and open up unintended consequences. 

Regulatory authorities in this age, as we have seen with the Debt Management Office (DMO) under Dr Abraham Nwankwo and sustained under a new leadership understand that their ultimate responsibility is to build businesses to be viable entities, stronger and not destroy value. Sanctions arising from regulatory action therefore must be in accordance with extant rules and regulations, severe relative to infractions, precise and satisfy the deterrence principle. In delivering on this mandate therefore, best practice regulators understand the need for prompt and clear interventions that ultimately enhances the market trust and helps organisations build institutional learning on how to better conduct their businesses and arrangements.  

There is thus a growing conviction amongst market analysts that in the interest of full disclosure, transparency, equity and accountability (the underlying value base for the SEC and other regulators) that regulatory intervention/action must engender trust, integrity and confidence in the market rules and regulations. 

Those who support the action of SEC predicate this on a number of long held perceptions including the separation of principals from the institution, the role of risk management to mitigate excesses arising from ambitious growth pursuits and founder-led management decisions as well as  processes within the company. The recent opinion from the independent auditors as contained in its financial statements simply adds another layer of credence to the uncertainty around its gearing/leveraged status and governance concerns. 

Even the critics of SEC acknowledge that a clear understanding of the macro and micro challenges faced by the Company’s and its management of those challenges that may have led to the above perceptions would be in the best interest of the market; even as they admit that the SEC has acted in ways recently that could benefit from an understanding of how “negotiated regulation” works. 

The question around the Oando regulatory intervention thus becomes one of answering “what were the issues known to and available before SEC that impacts market rules and regulations and what were the commensurate actions taken?” 

This information has remained largely unanswered or was unavailable to the public in a formal manner devoid of sentiments and selective memory. 

The Proshare multi-disciplinary project team formed to provide such an “issues update” thus understood that the most important task here was that outcomes and observations reached must be in the best interest of the market to allow it gain critical insight into processes, best practice, offer clarity and an understanding of the possible end game. 

The following stood out for us and represent our take-away from the exercise. 

1. There is a lot of misconception about the Oando Plc business model and structure, which is in part a function of its evolution, management style and business practices in the sector it plays in as well as the financing opportunities available for such an inorganic business growth; 

There are crucial learning points / case study opportunity for corporate organisations on:
a. listing in stock exchanges outside Nigeria – qualification, due diligence, reporting and governance standards;

b.  inter-jurisdictional regulatory requirements, collaboration and overlaps;

c.  clarity in the rules guiding rights issues and transfer of shares;

d. investor friendly laws and vehicles that aid private equity, trade finance and FDI’s for companies with international linkages; and

e.  overcoming associated political risk with doing business in Nigeria. 

3. There seems to be a failing in adequate risk management implementation in Oando as could be deduced from outcomes in its exposures and consequential outcomes. Evidently and arising from its compliance requirements with TXE, a robust risk management architecture exists in Oando. The question is whether it was always applied in key decisions particularly when certain unforeseen risks emerged in the course of transactions (e.g. CoP and the Consent Issues – as it can be reasonably argued of they should we have continued with the transaction or exited and perhaps lost the deposit when there were unforeseen delays with obtaining the Honourable Ministers’ consent for example). 

4. There is a reputational risk, some a function of misconception and others mainly self-inflicted, which underscores the need for Oando to pay attention to details related to governance ethos if it is serious about addressing the pervading perception of a company that is corporate governance challenged. A few examples will suffice: 

a. The public understanding of the appointment process of the executive director of finance. From the evidence reviewed, there was nothing untoward with the appointment of the GCFO to the Board of Oando Plc. The GCFO was employed as an ‘employee’ but was not automatically appointed as a member of the Board. His remuneration was therefore fixed by negotiation between himself and the GCEO. Subsequently, he was appointed as a director to the Board of Oando PLC to fill a casual vacancy until the next AGM.  There was no evidence of a change to his remuneration. At the next AGM following his appointment to the Board; he formally resigned and came up for re-election, and was duly elected to the Board by the shareholders. Again, there was no change to his remuneration. This is where it gets curious and opens the doors for questions at to the role of the Board Audit Committee and the responsibility for fixing and adopting the remuneration of executive directors. The last Board review on executive remunerations took place in 2011 with a next date expected to take place in 2014. This did not take place and whatever the reasons, remains a procedural issue for the SEC to raise and prompt action on; and rightfully so. 

b. The non-inclusion of Oando in the NSE Premium Board was a matter that elicited interest from the market, on account of the importance of the project and the timing relevance to listed entities seeking global recognition. Fact is, Oando scored the required mark to qualify for consideration in the pilot CGRS assessment as the model provided for. It however poured water on the next step which was ‘an application for the NSE Premium Board listing’ when it became clear that it would not/did not meet certain requirements, more obvious of which was the late filings of returns to the market (x-compliance requirements) which Oando explained away as due to its treatment of losses posted for two years in a row and delayed resolution of issues given the multiple reporting levels it had to pass through as a multi-exchange entity (considered part of its learning curve). 

There exist a clear and unambiguous basis for the SEC to ‘look into” the affairs and governance practices at Oando Plc within the rules and regulations of the market in fulfilment of its investor protection mandate as evidenced here;
a. the treatment/recognition of unearned revenue and its possible utilisation for dividend pay-out (time, motive, representation and pattern analysis drivers) ahead of a planned capital raising

b. the external auditors comments about its going concern status after two profit warnings;

c. the appointment process of an executive director ratified at the AGM but with issues around the audit committee responsibility for remunerations. 

General Electric (U.S) offers such an example of how regulatory work occurs and should be conducted on the above instances (with or without petitions).

September 16, 2002; General Electric agreed to cooperate with a Securities and Exchange Commission investigation into a compensation agreement with its former chief executive, John F. Welch Jr., after Mr. Welch came under widespread public criticism over the perks he has been receiving from the company. This was after U.S. SEC sent a request for voluntary cooperation in what it termed "an informal investigation" in connection with the employment and post-retirement agreement with John Welch jr. who in the end agreed that beyond the undisputed portion of his retirement package, he would "at no cost to the company" act as a consultant and teach management courses; thus restoring confidence in the regulatory intervention process. Immediately after this announcement was made, trading in G.E. shares gained 45 cents to $27.50 on the New York Stock Exchange (NYSE). 

September 23, 2004, the U.S. SEC instituted settled enforcement proceedings against General Electric Company. The Commission charged that GE failed to fully describe the substantial benefits it had agreed to provide its former chairman and CEO John F. "Jack" Welch, Jr., under an "employment and post-retirement consulting agreement." SEC found that in proxy statements and annual reports filed with the Commission from 1997-2002, GE failed to fully and accurately describe the retirement benefits Welch was entitled to receive from the company. The Commission further found that in the first year following Welch's retirement in September 2001, Welch received approximately $2.5 million in benefits under the agreement, which included access to GE aircraft for unlimited personal use and for business travel; exclusive use of a furnished New York City apartment that, according to GE, in 2003, had a rental value of approximately $50,000 a month and a resale value in excess of $11 million; unrestricted access to a chauffeured limousine driven by professionals trained in security measures; a leased Mercedes Benz; office space in both New York City and in Connecticut; the services of professional estate and tax advisors; the services of a personal assistant; communications systems and networks at Welch's homes, including television, fax, phone and computer systems, with technical support; bodyguard security for various speaking engagements, including a book tour to promote his autobiography Jack: Straight from the Gut; and installation of a security system in one of Welch's homes and continued maintenance of security systems GE previously installed in three of Welch's other homes. The Commission concluded that GE's inadequate disclosures violated Sections 13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 13a-1, 14a-3 and 14a-9 thereunder. Without admitting or denying the Commission's findings, GE settled the proceedings by consenting to the entry of an Order that it cease and desist from violating the proxy solicitation and periodic reporting provisions of the federal securities laws. "Shareholders have a clear interest in knowing how public companies compensate their top executives," said Paul R. Berger, Associate Director of the SEC's Division of Enforcement. "Compliance with SEC disclosure rules ensures that shareholders are provided a full and accurate understanding of senior executives' compensation arrangements." 

August 4, 2009, the U.S. SEC alleged that GE used improper accounting methods to increase its reported earnings or revenues and avoid reporting negative financial results. GE, without admitting or denying the SEC's allegations agreed to pay a $50 million penalty to settle the SEC's charges. The SEC uncovered the accounting violations in a risk-based investigation of GE's accounting practices. In a risk-based investigation, the SEC identifies a potential risk in an industry or at a particular issuer and develops an investigative plan to test whether the problem actually exists. In this case, the SEC identified the potential misuse of hedge accounting as a possible risk area. The SEC's investigation ultimately uncovered four separate accounting violations, and GE corrected the last of the violations in 2008. According to Robert Khuzami, Director of the SEC's Division of Enforcement "GE bent the accounting rules beyond the breaking point. Overly aggressive accounting can distort a company's true financial condition and mislead investors." In one instance, the improper accounting allowed GE to avoid missing analysts' final consensus EPS expectations. In reaching its decision, the SEC took into account the remedial acts taken by GE and its audit committee during the investigation, including improvements to its internal audit and controllership operations. 

27 July, 2010, the U.S. SEC charged General Electric Company and two GE subsidiaries — along with two other subsidiaries of public companies that have since been acquired by GE; with violations of the Foreign Corrupt Practices Act (FCPA) for its involvement in a $3.6 million kickback scheme with Iraqi government agencies to win contracts to supply medical equipment and water purification equipment. Without admitting or denying the SEC's allegations, GE agreed to pay $23.4 million to settle the SEC's charges against the company as well as the two subsidiaries for which GE assumed liability upon acquiring. The fines were far higher than the benefits which support and promotes what deterrence is truly meant to deliver in regulatory interventions. "Bribes and kickbacks are bad business, period," said Robert Khuzami, Director of the SEC's Division of Enforcement. GE cooperated with the investigation. 

6. For the above, it becomes apparent that there is a premium that accrues from co-operating with the SEC investigators and taking remedial actions after the fact and during investigations. In this case, it is evident that Oando fully cooperated with the investigators and ought to have enjoyed the benefit of mitigation and process. 

The decision by the DG, SEC not to refer the petitions to the Administrative Procedures Committee (APC) as prescribed under the Investment and Securities Act 2007 but rather to a Special Task Team and a special purpose Technical Committee made up of both SEC personnel and non-SEC personnel, reporting to the SEC's Corporate Governance Standing Committee, sets a precedence, the consequence of which may open the regulatory process to a legal challenge. 

There are a few issues which this immediately throws up, viz:
a. The SEC itself as currently constituted has not been operating with a properly and competently constituted board to oversee its affairs since the DG, SEC was appointed. This is not the norm and does not reflect corporate governance best practice.

b. Neither the Special Task Team's report, the Technical Committee's report nor any other Committee report has been made available to the public, the House Committee on Capital Markets (to whom the SEC offered to give a report in two weeks from their September 27, 2017 meeting) and to parties as best known to us at the time of concluding this memorandum.

c. The Technical Committee's report was not referred to in the SEC letter and notice on October 17, 2017 where the SEC based its reasons for imposing a technical suspension on the shares of Oando and ordering a forensic audit on certain "weighty" findings it made in the course of a "comprehensive review of the petitions".

d. The import of the above (without prejudice to the competence and capability of the professionals appointed to these Committees and/or working in the SEC) impacts on its best efforts at providing the benefit of fairness, transparency and best practice.

e. The fact that Ansbury, one of the petitioners is in arbitration with its co-venturer outside the jurisdiction of Nigeria in respect of shares held indirectly in Oando ought to have been obvious to the SEC and the matter, being sub judice (under judicial consideration and therefore prohibited from public discussion elsewhere), should not have been deliberated upon by the SEC in the exercise of its regulatory powers and in contravention of its own rules. It was expected that at most, the SEC would have chosen to discipline itself to act on the material information that bothered on its investor protection mandate as part of its supervision role; thus eliminating the accusation of bias noted in point 8 below.

f. The second petitioner, Alhaji Mangal, only sought for clarification on certain matters contained in the Company's published 2016 Financial Statements which have since been responded to by Oando; and it is for the SEC to determine if this was satisfactory or not.

g.  What will happen in the market place where the details of the Technical Committee report and recommendations are made public and found to contradict the actions of SEC (in some ways or in the main). To eliminate this, the authors of the market laws, rules and regulations recognised the need for an all parties meeting and internal investigation function. It is yet uncertain that this was done and if so, not available for an informed commentary. 

8. The October 17, 2017 SEC letter to the Chairman of Oando, responding to the August 24 and 28 letters detailing concerns about possible bias on the part of the DG, SEC in his handling of the petitions and subsequent investigations (including allegations of a denial of fair representation and access to outcomes/technical committee reports) came on the same day that SEC issued  letters to the managing director of Oando and notices to the market informing all of the suspension of the shares of the company and the ‘appointment’ of a forensic team to audit the affairs of Oando. This does little to assuage concerns about intent, motive and regulatory processes. 

There are obvious inconsistencies in the SEC position as evident in the following instances:
a. In their October 17, 2017 letter to Oando Plc, the SEC variously used concerns, allegations, and findings interchangeably. Their inability to agree on what was the basis of the action lends grounds for doubt where clarity was required.

b. This lack of clarity was further expanded when it became unclear whether to treat this intervention as a derivative of an allegation or a finding. The request therefore for a forensic audit without a clear scope and time frame immediately became untenable.

c. More closely associated to that concern was the question of how the SEC arrived at a figure of N160million without a defined scope of work, a timeframe and a reporting guideline? How does a corporate board pay for such a sum without these details? In anyway, where is the payment of an audit by a regulated entity provided for in the market rulebook or made clear in its extant laws?

d. In the spirit of good governance, did the SEC validate that none of the entities appointed to conduct the forensic audit is a related party or has a principal/agent relationship with Oando Plc, currently or in the past?

e. Given that the SEC did not acknowledge the cooperation of Oando Plc and indeed did not acknowledge the volumes of exchanges made available to its Technical Committee months earlier or/and if the information provided were satisfactory or not; - how did it arrive at a decision without reference to such.

f. The SEC, whilst predicating its decision to act on “the weighty findings it made in the course of a comprehensive review of the petitions” also made it clear in its October 17, 2017 letter that the petitioners had a situation that made its acting on same sub judice. What informed the actions of SEC? The evidence available and reviewed would indicate that other matters outside the petition would not have been considered by the Technical Committee that made recommendations and issued a report that guided the DG’s actions.

g. The SEC listed out a number of violations which had clear and commensurate sanctions for each as charged based on its findings. These findings were summarized in the SEC Circular to the General Public of 18 October, 2017 as “weighty” enough to require the suspension of the shares and a forensic audit of Oando. This goes to the fundamental flaw in the letter that seeks to expressly talk about violations not as “possible infractions or violations ahead of an investigation” but in clear terms which should at this stage give room to a report / decision highlighting penalties for such violations. Point (a) above becomes more relevant therefore because it remains unclear if this is the request to investigate or an outcome of an investigation that gives room to a request to the NSE to suspend trading in the shares of Oando Plc. The understanding of and resolution of this uncertainty is important not just for the precedence setting nature but its impact on rule making and market actions. Who were those who knew about this decision before it was taken and what was the last one week market activity on Oando like? Who were the most active traders and beneficiaries? This should interest the regulators and indeed the entire market.

h. In the SEC’s May 18, 2017 letter to Oando, wherein it forwarded the petitions from Messrs Ansbury Investments Inc. and Alhaji Dahairu Mangal; and requested a response not later than five days thereafter; it did nothing to apprise itself of the issues at stake, the legal status of same and its role or lack of thereof. This was further continued in its July 10, 2017 letter to Oando subsequent to their May 24, 2017 response. So at what stage did Messrs Ansbury Inc. referred to as a petitioner on May 18, 2017 become a whistle-blower on October 17, 2017 if that status was not already determined ab-initio? 

10.  The key market question that should interest the market is the determination of “who is and when does one become a whistle-blower?” We had done some extensive research on this principle when reviewing the Laurence D'rogo status in the ETI case with the SEC on January 21, 2014. Then, we took on board legal advice on the interpretation of S. 306 of ISA 2007 as applicable and undertook some review of its applicability to the whistle-blower definition in Nigeria. In this case, we struggled with how a petitioner became a whistle-blower in a case where he/she is a beneficiary of the outcome and has not been engaged as a witness under extant laws or information acquisition program under common and criminal laws. It will be beneficial to the market to understand how this process works to aid other shareholders who may have similar issues with companies they have holdings in. 

The claim of ‘suspected’ insider dealing against the company is curious given that the critical test here relates to determining that there existed ‘buying or selling’ of Oando shares by someone not the company (as it does not trade in its own shares) who had access to material price sensitive and non-public information. The burden of proof is on the SEC to determine through a painstaking process that requires it to keep watch or have records on unusual share movements before a big announcement, and make preliminary inquiries before instituting an investigation. The requirement to dig deeper may often involve the use/appointment of an accountant and a lawyer (if it does not have this skill-set in its enforcement unit) who act independently and have considerable powers to examine and demand documents. They produce a report upon which it would act and it can do this without throwing up wild allegations that it “observed that certain persons classified as insiders”. The definition of an insider is wide and as varied as established in the Martha Stewart case where she was charged by the U.S. SEC with obstruction of justice and securities fraud – including insider trading – for her part in the 2001 ImClone case even though she was not a director in the company. 

Thus, a slightly different approach was expected from the SEC on this matter deriving from the statements it made thus:
a. SEC affirmed that between January – October 2015, it had evidence of trades that took place before the release of the company’s 2014 financial statements where Oando reported a loss of N183.8billion.

b. SEC was suspending investigation against Alhaji Dahiru Mangal, a shareholder of Oando on the grounds of it being “sub judice” given that Oando had filed a suit in courts alleging insider dealings against Alh. Mangal. 

12.  It was apparent that until the petitions were received, Oando had obtained all necessary regulatory approvals from the SEC on all the matters raised in the case file reviewed. It therefore raises concerns about the process for regulatory review after the fact. It is well within the rights and responsibilities of SEC to take up any issue based on new facts and evidence and if this were the case as we envision, the SEC had the obligation to act and guide its actions as such – a regulatory review that may include possible forensic audit at its own cost which (based on the professional advice from its supervision/enforcement unit) will be recoverable from the fines and penalties that will be given. 

The  issues around related party transactions is yet unclear and underscores the lack of clarity on the path of SEC. Related party transactions are not illegal commercial transactions but the management of it reflects on the highest levels of governance and reporting and as shown in point 5 above can become a matter of routine interest for the SEC. It is in this same breadth that the issue of a corporate jet and its utilisation (separating between corporate usage and personal use and linking same with the attendant tax treatment of same in the books) will suffice and fall under.  

Reflexivity as a Tool 

Now, it is imperative to debunk the conspiracy of silence often attached to regulators when it comes to big businesses and the absence of regulatory action. 

This is important because it fits into the traditional narrative on why entities deploy technical arguments to get away from “seemingly obvious infractions in the absence of hard evidence”.

In the first place, the SEC made this intervention a response to a petition, which after the formal intervention agreed was sub judice. Thus the evidence that offered such technical construction was offered by the SEC and not Oando, whom we have established above deserved to have been “looked into/investigated” by the SEC long before now, without prompting.

More important is that the theory of reflexivity becomes manifest here.

The principle of reflexivity was perhaps first enunciated by the sociologist William Thomas (1923, 1928) and known as the Thomas theorem: that '
the situations that men define as true, become true for them.' 

Sociologist Robert K. Merton (1948, 1949) built on the Thomas principle to define the notion of a
self-fulfilling prophecy: that once a prediction or prophecy is made, actors may accommodate their behaviours and actions so that a statement that would have been false becomes true or, conversely, a statement that would have been true becomes false - as a consequence of the prediction or prophecy being made. The prophecy has a constitutive impact on the outcome or result, changing the outcome from what would otherwise have happened. 

An example of this is the interaction between beliefs and observations in a marketplace - if traders believe that prices will fall, they will sell - thus driving down prices, whereas if they believe prices will rise, they will buy - thereby driving prices up. Thus, the trigger for results lies in the belief that guides action/conduct.

If the SEC learnt anything from the post-financial crisis, it most certainly failed to deploy same in its handling of this case. While it is perfectly normal to assume that there may exist a certain level of incestuous relationships that would have been cultivated by a player in the dominant sector of the economy – Oil export, marketing and servicing; and this can and will be deployed when faced with regulatory challenges; it was incumbent on the SEC to “line up all its ducks in a row”.

The stage was thus set for what we find today, three (3) weeks after that intervention with allegations, counter-allegations, exposes, scandals and sensational stories put out in the public space. We wish our financial market professionals and regulators had read the book by George Soros on the subject matter - we would not be where we are today!

It really is time that egos get checked at the door, and we start adopting a general understanding of what is real, and what are lies or concoctions to achieve an end. This, according to the theory of reflexivity holds true for the SEC, Oando and the entire market.

Identifying the Unintended Consequences 
In managing the SEC v Oando matter before the market, it quickly became apparent to us while reviewing the body of information available that some thought ought to have been given to the unintended consequences of any action from the SEC and parties involved. Indeed, it is almost assuming a personal scorecard mind-set, revealing an absence of the much needed professional introspection on issues such as:

1.  Messrs Ansbury Investments Inc at no time stated it was a shareholder in Oando Plc in their May 02, 2017 petition to SEC. They stated that they were majority shareholders in Ocean and Oil Development (BVI) which holds 99 percent of OOOP Nigeria (holders of 56% equity stake in Oando Plc), an information hitherto unknown to the SEC. Was the SEC required to be in the know of such a transaction in the affairs of a majority shareholder of an entity under its jurisdiction? What evidence and details of the transaction documents between the owners of OOOP Nigeria and Ansbury has the SEC availed itself of or demanded when the petitions were received? 

2. That Messrs Ansbury Inc, not being direct shareholders of Oando Plc should have petitioned through the legal shareholder on record, OODP Nigeria. In the absence of their ability to do that the SEC should have treated Ansbury’s petition as mere information, which the SEC should have then considered in determining whether reasonable cause had been established to necessitate the need to engage the Company further in a SEC initiated enquiry on the matters alleged. Any further action by SEC would have had to consider issues such as jurisdiction, applicable Nigerian Law, SEC’s powers of investigation and minority shareholder protection as well as acting in the best interests of the company and the capital markets.  But yet again, did the SEC seek to establish this claim and to confirm if the transaction under reference was conducted under Nigerian laws and done in the best interest (and to the knowledge) of shareholders. This is important because if Ansbury’s claims are correct (and it has not been disputed from the evidence seen) a significant portion of the ownership of Oando Plc (above the 5 percent threshold) changed hands without any active involvement, knowledge of and approval of the SEC. This is of serious concern. 

3. The thinking above equally applies to Alhaji Mangal, whom by law ought to inform the company whenever his direct and indirect shareholding passes the regulated threshold. Why is the SEC not interested in the transactions that delivered this situation and the parties involved? If the interest of regulatory intervention is consistent, it will be proper to recognise that this issue goes to the heart of market practice and should be “looked into”. 

4. The Messrs Ansbury Investment Inc shareholding in Ocean and Oil Development (BVI) and OODP BVI's investment in OODP Nigeria offers a unique opportunity for the SEC to expand its regulatory coverage and review of business practices that can aid our business environment here in Nigeria but more importantly, is that the SEC should have expanded its investigation to cover tax compliance, foreign exchange control requirements and reporting standards if nothing but to gain knowledge of what regulators need to pay attention to and how businesses has moved far ahead of regulation. Such learnings may require new rules, regulations and amendments of existing laws to be able to put local regulation in tandem with international business practice. 

5. SEC does not have the mandate to make business profitable or to question why a Company is not being profitable.  There will always be an element of risk in investing in capital markets and the SEC cannot take away the responsibility of individual investors, particularly sophisticated high net-worth investors to make informed investment decisions. SEC’s role is not to act as “nanny” to investors but to create an enabling, transparent and accountable market with easy access to information to enable investors make the informed investment decisions.  To do otherwise would be to overreach its authority and mandate as conferred under the ISA and the SEC Rules.  Unless there are matters of capital market fraud, infractions or market manipulation; the SEC should restrict itself to its clear mandate or seek legislative change where its current powers appear to be inadequate in the larger interest of the market as best practice requires. 

The implications of the “noise” thus far created on possible Nigerian entities that may seek to list in other markets and how the management of this intervention will impact on them. At this time, it does not suggest that we are deploying an helicopter view on such issues at a time we are working assiduously to promote our “ease of doing business” and expansion of Nigerian businesses to international markets that would open up the growth potential the economy seeks.  

The End Game 

This was the least challenging aspect of the engagement. We had combed through the corporate governance rules applicable and realised that taken separately, there is “none there” in the allegations contained in the SEC intervention but a series of infractions for which appropriate sanctions are applicable. 

Taken together however, it would seem that the SEC can make a case of a sustained series of corporate governance failures and exposure of the investors’ funds to risk and inevitable going-concern issue.

The SEC can argue that failure to act would represent a failure of its mandate and despite the obvious clumsiness in the presentation and articulation of a case against the board of Oando, it is capable of advancing successfully this argument/point; assuming the basis of his/its action to preserve status quo in suspending trading on the shares of Oando can hold water.

The immediate market learning from this and critical question to ask is that “
Is the going concern issue of a Company in itself part of the SEC Mandate? 

How significant are the corporate governance failures mentioned in the “findings” of SEC relating to failure to conduct a Board Evaluation and clarity on whether the Board approves the remuneration of all executive directors have a significant bearing on the overall assessment of the company serious enough to warrant the actions taken by SEC, particularly since the Company had always self-disclosed its own non-compliance with the SEC Code to the SEC; who acknowledged, did and said nothing for years until now.

The SEC letter of October 17, 2017 basically excludes the validity of the initial premise of its actions and rather than argue on the merit of the points available for a needed intervention; it presented a shopping list of infractions which had been responded to by Oando. The decision as to whether this was satisfactory and offers a resolution of substantive market issues however remains the prerogative of the SEC.

The determination and exclusion of routine and statutory issues contained in SEC statement of claims/findings and perhaps its yet-to-be publicly sighted Technical Committee report would allow the market to properly understand what and why Oando shares were suspended and the company placed under expanded scrutiny and investigations.

Suffice to say however, had the Financial Reporting Council (FRC) corporate governance code not been suspended, it would have been an applicable rule that would see those in charge of the governance structure of Oando Plc from inception impacted by. This is not available as part of the regulatory options open to the SEC.

Thus, it is possible to agree conclusively that
the end-game would seem to be the removal of Adewale Tinubu and Mofe Boyo; pioneer executives and founders of Oando Plc and the replacement of its leadership. 

The money on the street is that these gentlemen represent the heart and soul of the company and the management of their exit can be better achieved through a
negotiated regulatory intervention i.e. to enforce investor protection and corporate governance mandates in such a way that corporate value, viability, sustainability and future prospects is protected and enhanced. 

For the existing, intended and prospective shareholders of Oando Plc and those in litigation; the share price suspension can only protect current value up to a limit. In fact, it offers little protection if share price suspension is lifted under a cloud of darkness.

It is worth reminding the market that in spite of the easily identified flaws, drawbacks and challenges; Oando Plc has achieved an impressive list of landmarks from the dreams of three young men in a country not usually associated with “
beyond local market” entrepreneurship endeavours. 

Yet, in the final analysis, we see a scenario that allows the SEC to learn lessons necessary to support a transcendent market and accelerate the introduction of new policies which management of this intervention offers it in addressing the current concerns of shareholders, petitioners, founders and the current board of Oando Plc.

We envisage that Oando will recognise that as an industry pioneer, there exist learning opportunities for the organisation to benefit from a new leadership and present it with the opportunity of being termed a visionary in years to come.

For the petitioners, it should quickly dawn on them that their goal is to increase shareholder value and that this can be done under a process that is less antagonistic and filled with suspicion but one that elevates the core objective of the company.

Under this scenario, the need to wait for the conclusion of a possible investigation of Oando may end up being a drawn out dream, but the review of key issues via a formal audit would be beneficial for all parties to clarify pre-existing beliefs and thoughts in the minds of business partners, shareholders, investing public, analysts and creditors of the company.

How this plays out is a decision we will revisit in the future.

For now, we leave you to make your own judgement and conclusions from the submissions in this important memo to the market. Thank you.

Download Report(s) Here 

Quick Recall of Past Market Memorandum(s)

Proshare Nigeria Pvt. Ltd.

List of Appendix
1.  Corporate Governance Rating System (CGRS)
2.  Facts Behind the Figures (FYE 2016 & Q1 2017 Performance Review)
3. Oando Plc Half Year Update Call (FYE 2015 & Q1 2016 Performance Review)
4. NSE X-Compliance Report February 21, 2014

Related News on Oando

1.  Oando PLC Announces YTD September 2017 Results; Gives Operational Highlights

2. Oando Plc state Positions on the Securities and Exchange Commission Alleged Findings

3. Oando Secures Court Injunction, restraining SEC, NSE

4. Oando Shares Now Available for Trading, No Price Movement During Technical Suspension

5.  JSE Follows NSE, Suspends Trading in the Shares of Oando Plc

6.  Oando Gives Holding Response on SEC’s Directive to NSE to Suspend Trading of Its Shares

7.  Oando PLC’s Official Statement on the SEC’s Directive to The NSE to Suspend Trading of Its Shares

8.  NSE, SEC Confirm Decision To Suspend Trading On The Shares of Oando Plc

9.  Trading on the Shares of Oando Plc Suspended; Reasons Unknown

10.  Oando Gas & Power Rebrands as Axxela

11.   House of Reps gives SEC Two weeks to submit Report on Oando PLC

12.  Oando Plc. - AGM Resolution

13. Oando Plc holds 40th AGM, engages Shareholders on the Progress of its Restructuring Plan

14.  Oando Plc's 40th AGM To Hold As Planned Following SEC Confirmation

15.   Oando Plc to Hold 40th AGM on Sept 11, 2017

16.  Oando Plc Issues an Update on Claims of a SEC Investigation

17.   OANDO Declares N4.56bn Profit in Q2 2017 Results,(SP:N7.80k)

18.  Oando Issues Press Release over SEC Investigation

19.  Corporate Earnings for the Week Ending 140717 – UCAP declares N1.99 billion Profit in Q2'17 Results

20. SEC Investigating Oando Plc

21.  OANDO Plc Announces Closed Period

22. Oando Provides Clarifications on its Refinery Ambitions

23. OANDO Declares N1.71bn Profit in Q1 2017 Results,(SP:N5.80k)

24. OANDO Plc Announces Closed Period

25.  Oando Plc to Hold 2016 AGM on Tuesday 2nd August

26. Oando Plc Key Highlights on Q4 15 and Q1 16

27. OANDO Concludes Recapitalization Partial Divestment of Equity Stake in Its Downstream Operations

28. Material Uncertainty May Cast Doubt on Oando’s Ability to Continue as a Going Concern – Ernst & Young

29. OANDO Releases Q4 15 and Q1 16 Results Declares N4.10bn PAT in Q1 SP N6.50k

30. Oando Plc Secures 5 Year N94.6 Billion Medium Term Facility with 10 Nigerian Banks

31.  Oando explains what Deregulation of Petrol Price means for its Downstream Operations

32. Why Oando Plc's 2015 Audited Statements will be released on May 31, 2016

33. OANDO to acquire OER Minority Shares for a Consideration of US 1.20 per share in Cash

34. The Corporate Governance Rating System – Proshare

35.  ETI, Oando Plc under Fire over Ownership, Governance


Related News on SEC Laws and Corporate Governance

36. The-Market-Memorandum---Fundamental-Considerations-for-Capital-Market-Reforms-in-Nigeria/2910

37. Corporate Governance and Directors' Remuneration

38. SEC Proposes New Rules & Amendments to Rules on Book Building, Corporate Governance

39. Good Corporate Governance is Good Business

40. SEC, Udo Udoma And Corporate Governance: The Fact Files

41.  Enabling Law – Investment and Securities Act (ISA) 2007

42. SEC Nigeria’s Executed Rules and Regulations as at June 2017

43. SEC Nigeria’s Consolidated Rules and Regulations as at 2013

44. Code of Corporate Governance for Public Companies_4 April 2011


Related News on Oando from Other Sources

45.  N236bn Liability: Oando Shareholders Protest in Ibadan – Independent

46. Intel’s Volpi Steps Up Battle Against Wale Tinubu over Control of Oando - ThisDay

47.  Suspension of OANDO PLC – SEC

48. Oando Shareholders Set To Sack Wale Tinubu, Board – Independent

49. Notice to the General Public on Oando Plc – SEC

50. So what’s happening at Oando (2)? – Business Day

51.   So what’s happening at Oando (1)? – Business Day

52.  The inside story: Why SEC ordered a Forensic audit of Oando Plc – Business Day

53.  CorporateStories: Under siege, the battle for Oando - Nairametrics

54.  Oando and IAS 24: What the law cannot do by @Doubleeph - Nairametrics


Acknowledgement/Research Links

55.  Securities and Exchange Commission, Nigeria  

56.  The Nigerian Stock Exchange

57.  Oando Plc

58. Convention for Business Integrity

59.  Vetiva Capital Management Ltd

60. Oando’s Investors Relation Page - TheAnalyst

61.  Oando Plc Audited Financial Statements – 2012

62. Oando Plc Audited Financial Statements - 2013

63. Oando Plc Audited Financial Statements - 2014

64. Oando Plc Audited Financial Statements - 2015

65. Oando Plc Audited Financial Statements - 2016
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