02, 2019 / 01:57AM / By Proshare
Research / Header Image Credit: Oando
The Securities & Exchange Commission (SEC), on May 31, 2018 wrote to The Chairman of Oando Plc on the findings of the forensic audit conducted by Deloitte & Touche; and its decisions therefrom. Oando Plc has since responded to the contents of the letter. We present below both statements on an issue by issue basis.
You would recall that following the receipt of two petitions by the Securities and Exchange Commission (SEC) from April from Alhaji Mangal Dahiru and Ansbury Incorporated, the Commission in 2017, conducted an investigation into the activities of Oando PLC and observed certain infractions of securities laws by some members of the Board of Oando PLC Additionally, the findings of the Commission were communicated to the Group Chief Executive Officer of Oando PLC by letter dated July 10, 2017.
The Commission further engaged Deloitte & Touche to conduct a forensic audit of activities of Oando PLC.
The findings from the investigations were as follows:
We refer to your letter dated 31st May 2019 (“your Letter”) wherein you communicated the findings relating to certain infractions on securities laws by members of the Board of Directors of Oando PLC (“the Company”).
You will recall that following SEC’s receipt of two (2) petitions from Ansbury Incorporated and Alhaji Dahiru Mangal, SEC wrote to the Company requesting responses to the petitions. The Company responded to the allegations in its letter dated 21st July 2017. However, SEC only responded by communicating its interim findings in its letter dated 17th October 2017 wherein it stated that its findings are “weighty and therefore need to be further investigated to ascertain their veracity…”. The SEC thereafter suspended the Company’s scheduled Annual General Meeting (AGM) and ordered the appointment of a forensic auditor into the affairs of the Company. In October 2017, the Company filed a suit before the Federal High Court to challenge the SEC’s directives which later went on appeal to the Court of Appeal.
The Company later withdrew the appeal from the Court of Appeal on the strength of the assurance given by the SEC that the forensic investigation will be impartial and independent. Please note that we are aware that a copy of the forensic report was submitted by the forensic auditors to the SEC in December 2018. The Company has never at any time been furnished with the forensic report neither has it been afforded the opportunity to defend or make any representations on the final findings therefrom.
Having stated our general position on your Letter and without waiving our rights to receive the full report pursuant to which your Letter was issued, we respond to the specific points raised in your Letter below as follows.
1. Corporate Governance Lapses
There were several corporate governance lapses stemming from poor Board oversight. These include irregular approval of Director’s remuneration, Directors participation in matters in which they had declared interest, unjustified disbursements to Directors and Management of the company, failure of the Audit Committee to hold meetings with management, internal auditors and external auditors.
The Company firmly states that the SEC has not substantiated its findings on alleged ‘several corporate governance lapses stemming from poor Board oversight’. Oando prides itself as a pioneer Nigerian company in the adoption of best corporate governance practices. Oando was the first NSE-listed company to achieve a cross-border dual listing of its 100% shares on the Johannesburg Stock Exchange in 2005 and a further listing of 100% shares in its upstream subsidiary on the Toronto Stock Exchange in 2012. These successful listings required the Company to institute and maintain the highest international standards of corporate governance in its management and business operations.
1.1 Irregular Approval of Director’s Remuneration
The Company denies that there was any irregular approval of director’s remuneration at any period under review. All payments to directors were in accordance with the Board Remuneration Policy, were approved by the Board of the Company and disclosed in the audited financial statements.
1.2 Unjustified Disbursements to Directors and Management
The SEC has failed to furnish instances of such ‘unjustified disbursements’. All remuneration (including expenses) to directors and management are approved and paid in accordance with the approved Delegation of Authority document of the Company.
1.3 Failure of the Audit Committee to hold meetings with Management, Internal Auditors and External Auditors
This is completely false and raises quality assurance concerns on the SEC’s findings. The records of the Audit Committee meetings of the Company clearly shows that the Committee holds regular meetings with the Management of the Company and its internal and external auditors. In addition, the Audit Committee meets separately with the internal auditor and the Management is absent at such meetings. The rationale behind this is to reinforce the independence of the internal auditor in compliance with the requirements of the Audit Committee.
1.4 Directors’ participation in conflicted matters
The SEC has again failed to provide details of this allegation, which is denied. It is the practice and tradition of the Board of the Company to have as the first item on the agenda in all Board Meetings, the disclosure of any interest they may have in the business of the day. Any director(s) of the Company who disclose an interest in a matter before the Board always recuse themselves from exercising their right to vote on that matter.
2. Failure of Internal Controls
Oando PLC failed to establish an effective system of internal controls as required under Section 61 if the ISA 2007, over its financial reporting thereby compromising the integrity of the company’s financial controls and reporting as revealed by the misstatements in the financial statement, high number of related party transactions and unjustified disbursement to directors.
The Company denies the allegation in your letter that it does not have an effective internal control process in place as required by S61 of the Investments and Securities Act 2007 (“ISA”). In the absence of any specific instances or examples, the Company is of the position that there is no basis for this finding. The SEC is therefore put to further proof of this allegation.
3. Incidental Issues Arising From the Sale of a Subsidiary
3.1. In 2013, Oando PLC reported the sale of its subsidiary Oando Exploration and Production Limited (OEPL), to Green Park Management Limited without obtaining the approval of the commission, (in violation of the provisions of the Investment and Securities Act (ISA) 2007) and the consent of the Minister of Petroleum (As required under the Petroleum Act,1969)
The accounting treatment accorded to the sale of Oando Exploration and Production Limited (OEPL) was in accordance with the International Financial Reporting Standards (IFRS) and the rules of the Financial Reporting Council.
3.2. The purported sale of OEPL enable Oando PLC to report a profit instead of a loss, thereby misstating its Financial Statements in 2013 and 2014 and consequently misleading investors. This ‘fictitious’ profit reported in 2013, enabled Oando PLC to declare dividends.
The Company rejects the assertion by the SEC that the sale of OEPL in 2013 was fictitious or orchestrated to enable the company to record a profit and pay dividends.
3.3. The 2013 misstate accounts and quarterly reports of Oando PLC were include in the 2014 rights circular, thereby misrepresenting the financial status of the company to the public in violation of Section 86 of the provisions of the ISA 2007.
The 2013 audited accounts and subsequent quarterly reports of the Company were the proper account to be used in the 2014 Rights Circular and at the time of inclusion, did not contain any untrue statement or mis-statement. There was no intention on the part of the Company to mislead the public as alleged by the SEC.
4. Suspected Market Abuse and Insider Dealings
4.1. In 2012, 2013 and 2014 and 2015, certain insiders of Oando PLC sold shares of the company during “close period” despite having knowledge of active closed periods by the company and contrary to the Rules of the NSE. The insiders include Ocean an Oil Investment Limited (OOIL – represented by Jubril Adewale Tinubu and Godwin Omamofe Boyo), Ocean and Oil Development partners (OODP – represented by Jubril Adewale Tinubu, Godwin Omamofe Boyo, Francesco Cuzzocera), and ECP African Fund II PC (a Company in which Nana Appiah-Korang wards Director).
This violation is being referred to the Nigerian Stock Exchange.
4.2. OODP, the major shareholder in Oando PLC represented by Jubril Adewale Tinubu, Godwin Omamofe Boyo and Francesco Cuzzocera authorized the sale of 1,210,000,000 units of OODP shares in Oando PLC valued at N21,455,909,256. The trades took place between January and October, 212015, preceding the release of the 2014 audited financial statements on October 23, 2015 in which Oando PLC declared an unprecedented loss of N183 billion. During this period, these representatives of OODP were insiders of Oando PLC and had access to material non-public information regarding the poor financial status of the company commencing December 2014, in violation of the provisions of the ISA 2007 regarding insider dealing.
This violation is being referred to the appropriate law enforcement agency.
The Company has always maintained that its policy and procedure on Insider dealings and sale of shares during closed periods are in accordance with best corporate governance standards. Oando is however not in a position to provide a response regarding alleged actions of shareholders as these are independent and separate legal entities.
5. Related Party Transactions
Oando PLC was involved in several related party transactions linked to key Board members particularly Jubril Adewale Tinubu and Godwin Omamofe. Some of the related party transactions were not disclosed in the 2012 and 2014 financial statements. However, an impression was created in the 2013 and the 2015 financial statements that these disclosures had been accurately reported.
The SEC has again not specified the details of the related party transactions that were undisclosed in 2012 and 2014. As a result, we are unable to respond in detail to this allegation and again put the SEC to further proof of same.
6. Payment of Interim Dividends Despite Liquidity Constraints
In 2014, Oando PLC paid interim dividends when the Company was facing liquidity constraints.
The Commission claims that the Company paid interim dividends in 2014 when it was facing liquidity constraints. There is no legal basis for the SEC’s findings. As the SEC should be aware, Section 379 (2) of the Companies and Allied Matters Act permits the payment of dividends from distributable reserves. The interim dividend declared in September 2014 was paid by the Company in November 2014 from the H1 2014 profits of the Company. At that point in time, the Company had sufficient distributable reserves and it is acceptable under the law to pay out dividends if reserves exist at the point of declaration.
7. False Disclosures
Oando PLC failed to fully comply with the SEC Code of Corporate Governance for public companies. The Company falsely indicated full compliance with the code in its Annual Reports for 2012 and 2013.
The SEC’s claim that Oando failed to comply fully with the SEC Code of Corporate Governance for public companies is false, unsubstantiated and for the records, unhelpful.
8. Non-Disclosure of Beneficial Ownership
Alhaji Dahiru Baraú Mangal failed to disclose his substantial ownership in Oando Plc as required by CAMA. Similarly, Oando PLC failed to notify the Nigeria Stock Exchange (NSE) of his shareholding of 5% and above as required by the rules of the NSE.
This is being referred to the Corporate Affairs Commission (CAC) and the Nigerian Stock Exchange (NSE).
The SEC would observe that by the Company’s letters dated 21st July 2017, 23rd August 2017, 24th August 2017, 28th August 2017 and 21st September 2017, Oando repeatedly brought to the attention of the SEC the fact that to the best of the Company’s knowledge, Alhaji Dahiru Mangal held less than 5% of the shares in the Company and requested that the SEC compel Alhaji Mangal to disclose his full beneficial ownership in Oando PLC in accordance with Section 95(1-5) of the Companies and Allied Matters Act to enable the Company comply with Rule 17.13 of the NSE Rule book.
The SEC did not send Oando a response to its request and Alhaji Mangal did not contact the Company until 29th September 2017 and 11th October 2017. We thereafter promptly notified the SEC that his shareholding had exceeded 5% based on his notification.
9. Tax-Related Issues
i. Oando PLC deducted an amount representing 24% of the dividend paid to shareholders in 2014 as withholding tax. This exceeded the statutory requirement of 10% as required by the Compliance Income Tax Act (CITA)
ii. Oando PLC failed to comply with several tax laws such as Companies Income Tax Act, Value Added Tax Act etc.
These tax related violation are being referred to the Federal Inland Revenue Service (FIRS).
The Company denies that it deducted and/or remitted any amount in excess of the statutory 10% Withholding Tax deductions from the dividend paid to shareholders in 2014 as required by the Companies Income Tax Act (CITA). We put the SEC to further proof of this allegation. We also note that the SEC has clearly exceeded the remit of its powers by alleging non-compliance with ‘several tax laws such as Companies Income Tax Act, Value Added Tax Act etc’…We respectfully request that the Commission restricts its regulatory oversight to the matters permitted by the applicable law.
10. Directives including Resignation of Directors from the Board
In view of the above violations, the Commission hereby directs as follows:
1. Oando PLC to pay the sum of:
a. N8,450,000 to the Commission for publishing untrue statement in its 2012 Financial Statements, in violation of Rule 3 (4) of the SEC Rules and Regulations, made pursuant to the ISA 2007.
b. N7,850,000 to the Commission for publishing untrue statements in its 2013 Financial Statements, in violation of Rule 3 (4) of the SEC Rules and Regulations, made pursuant to the ISA 2007.
c. N42,750,000 to the Commission, for non-disclosure of related party transactions in its 2012 Financial Statements, in violation of Rule 39 (1&7) of the SEC Rules and Regulations, 2013, made pursuant to the ISA 2007
d. N30,625,000 to the Commission, for non-disclosure of related party transactions and its 2014 Financial Statements, in viatioon of Rule 39 (1&7) of the SEC Rules and Regulations 2013, made pursuant to ISA 2007.
2. The under listed directors of Oando Plc shall immediately refund to Oando PLC, the total sum of N145,767,316 (One Hundred and Forty-Five Million, Seven Hundred and Sixty-Seven Thousand, Three Hundred and Sixteen Naira, Only) being remuneration and other benefits paid to them above the provisions of the Board Charter:
3. In view of the gravity of the corporate governance lapse and internal control failures observed in the company, every person who sat on the Board of the company when the failures occurred to wit:
· HRH. Oba Micheal Adetoun Gbadebo CFR
· Mr. Mobolaji Osunsanya
· Mr. Olufemi Adeyemo
· Mr. Oghogho Akpata
· Chief. Sena Anthony
· Mrs. Ammuna Lawan Alli OON
a. Should reign his/her position from the Board of Directors of Oando PLC, failing which such person would be barred from serving as a director in any public company for a period of five (5) years.
b. Oando PLC should convene an Extra-Ordinary General Meeting (EGM) on or before July 1, 2019 to appoint new directors and articulate remedial measures for the observed corporate governance lapses.
4. For Certification of untrue statements of materials facts in the 2013, 2014 and 2015 financial statements of Oando PLC in violation of Section 60 (2 (b) (ii) of the ISA 2007, MR. Jubril Adewale Tinubu (Group Chief Executive Officer) and Mr. Olufemi Adeyemo (Chief Financial Officer) are ordered to the sum of N91,125,000 (each) to the Commission.
5. Mr. Jubril Adewale Tinubu and Mr. Godwin Omamofe Boyo are hereby barred from being directors of public companies for a period of 5 years for improper conducts in managing the affairs of Oando PLC to wit: market abuse, related party transactions not conducted to arm’s length, misstatements in financial statements of Oando PLC.
6. All monetary penalties referred to in 1 above, should be paid to the Commission immediately.
Please accept the assurance of the Commission’s highest regards.
Oando hereby states that the SEC did not follow due process in the conduct of this investigation and reserves its rights to challenge the legality of the directives in your Letter. We therefore maintain that such directives from the SEC are invalid, illegal, ultra vires and should be rescinded.
We reiterate that the SEC’s actions on this matter would have a huge negative impact on the Company’s reputation as a leading, indigenous oil and gas company and its shareholders, investors and stakeholders; whose interests the Securities & Exchange Commission (SEC) has a duty to protect. We condemn the disturbing pattern in which the SEC has repeatedly taken harsh punitive actions towards the Company without according it the fundamental principle of fair hearing.
Related News on SEC Investigation Report
Proshare Reports - Oando Investigation
3. Memo to The Market: The Oando Corporate Journey – At the Regulators Gate – Nov 22, 2017
Quick Recall of Past Market Memorandum(s)
10. Where Nigeria got it Wrong - Proshare Dec 01, 2014
Related News on Oando
17. Oando Optimises Value From Midstream Business – Apr 26, 2019
18. OANDO Declares N4.63bn PAT in Q1'19 Results (SP:N4.85k) – Apr 25, 2019
20. Oando’s Plan to Deleverage and Remain Profitable – Apr 04, 2019
21. Axxela Now 100 Percent Owned by Helios – Apr 04, 2019
22. Oando Plc Announces FYE 2018 Results, Posts N28.8 Billion Profit-After-Tax – Apr 02, 2019
23. OANDO Declares N28.79bn PAT in 2018 Audited Results (SP:N5.65k) – Apr 01, 2019
25. OANDO Declares N28.79bn PAT in 2018 Audited Results (SP:N5.65k) – Mar 15, 2019
27. Oando Employees Donate Relief Materials to Flood Victims in the Niger Delta – Jan 31, 2019
31. OANDO Declares N10.39bn PAT in Q3 2018 Results (SP:N5.05k) – Oct 31, 2019
32. Oando Plc Eyes Growth After Curbing $2.5 Billion Debt – Aug 28, 2018
33. Oando Plc Successfully Concludes 41st Annual General Meeting - Jul 28, 2018
68. The Corporate Governance Rating System – Proshare
Related News on SEC Laws and Corporate Governance
Related News on Oando from Other Sources
79. N236bn Liability: Oando Shareholders Protest in Ibadan – Independent
81. Suspension of OANDO PLC – SEC
82. Oando Shareholders Set To Sack Wale Tinubu, Board – Independent
86. The inside story: Why SEC ordered a Forensic audit of Oando Plc – Business Day
91. Oando Plc