Private Placement Laws in Nigeria - A critique of Stella Erhurhoro vs BGL Plc

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Tuesday, February 18, 2014 05:58 AM / By Dr. Olumide Kolawole Obayemi, LL.M.; SJD*

PRIVATE PLACEMENT OFFERINGS UNDER SECURITIES LAWS AND REGULATIONS IN NIGERIA: A CRITIQUE OF THE DECISION IN STELLA ERHURHORO vs BGL PLC, ALBERT OKUMAGBA AND SECURITIES & EXCHANGE COMMISSION (SEC), Nigerian Investment & Securities Tribunal, Case No. IST/LA/OA/01/13, DELIVERED ON MAY 31ST, 2013.

 

I. Introduction

 

In the case under consideration, the Nigerian Investment and Securities Tribunal (“IST”), discarded the equitable rule of Ubi Jus, Ubi Remedium (where there is a wrong, there is a remedy), and applied the strict jurisdictional rule of exclusion as was laid down in Madukolum V. Nkemdilim (1962) SCNLR 341; (1962) ALL NLR 581, at 582 – 590.

 

By way of introduction, under Rule 89 of REGULATION OF PRIVATE PLACEMENT) of the SECURITIES AND EXCHANGE COMMISSION (SEC)’s RULES AND REGULATIONS PURSUANT TO INVESTMENTS AND SECURITIES ACT (ISA) OF 1999--(Nigeria SEC Regs) defines “Private Placement Offerings” thus: “For the purposes of the Act and this Regulation: 1) “Private Placement” shall mean the issue of securities not involving public offering…

 

Similarly, under Section 4(2) of the United States Securities Act of 1933 (US 1933 Securities Act), the term "private placement" refers to the offer and sale of any security by a brokerage firm not involving a public offering. Private offerings are not the subject of a registration statement filed with the US SEC under the 1933 Act.

 

In the United States, private placements are done in reliance upon Sections 3(b) or 4(2) of the US 1933 Act as construed or under Regulation D as promulgated by the SEC, or both.

 

Coming back to Nigeria, on May 31st, 2013, with Hon. Ngozi Chianakwalam, the Chairman of the Nigerian Investment and Securities Tribunal (IST) giving the lead judgment, in STELLA ERHURHORO vs BGL PLC, ALBERT OKUMAGBA AND SECURITIES & EXCHANGE COMMISSION (SEC), Nigerian Investment & Securities Tribunal, Case No. IST/LA/OA/01/13, the IST held that where a Nigerian investor purchases stocks pursuant to an offering, in a private placement in a company that is not quoted on the Nigerian Stock Exchange (NSE), such private placement would not is that they are not within the regulatory powers of the NSE. Therefore, if investor fails to recoup his investment in the offering, the Nigerian investor would have little or no chance of recovering his money.

 

According to the IST in Erhurhoro vs BGL Plc, the Nigerian investor has no remedy under the Investments and Securities Act, 2007 (ISA), and that the IST has neither the power nor jurisdiction to give remedies to the injured Nigerian investor. In particular, the IST held that a private placement is cognizable under the ISA, only to the extent that it relates to the private placement of a Public Company, in which case it will be subject to the Rules and Regulations of the Securities and Exchange Commission (Nigeria SEC Regs). Further, the IST in Erhurhoro vs BGL Plc, thus:

“We have no reason to believe that the 1st Respondent’s private placement in question was overseen or regulated by the 3rd Respondent (SEC)...held that the regulatory oversight of the SEC can only be invoked with regards to the regulation and supervision of the registration and sales of securities offered for private placement by a public company. See sections 89 and 106 of the Securities and Exchange Commission Rules and Regulations.” - See, Hon. Ngozi Chianakwalam in Erhurhoro vs BGL Plc

 

We disagree with the IST because it appears that Ms Erhurhoro was not a resident of Lagos State where BGL Plc has its corporate offices. Therefore, since an inter-state sale of shares took place, BGL would have no defense under Sections 89 and 106 of the Nigeria SEC Regs.

 

In the United States, under the Securities and Exchange Act of 1933 (US SEC Act 1933), section 3(a)(11) allows an exemption from registration for "any security which is part of an issue offered and sold only to persons resident within a single state by an issuer which is a resident and doing business within such state." Thus, the key issue here is ensuring that the offering is truly an intrastate offering. Further, the United States Securities and Exchange Commission (US SEC) has adopted Rule 147 to assist in determining whether the requirements have been met. To comply with the intra-state requirements, the offering company making private placement must make sure that all offerees are residents of the corporation’s registered headquarters, since even one non-residential offeree will jeopardize the availability of the exemption. Finally, the company must make sure that steps have been taken to ensure that all applicable state regulations have been satisfied.

 

Because Ms. Erhurhoro hailed from Edo State, and was ordinarily resident in Edo, there was an inter-state transaction from Lagos to Edo State. Therefore, the remedies that Ms Erhurhoro sought from the IST were within the jurisdiction of the IST.

 

II.      Rules Governing Private Placement in Nigeria

 

The Rules governing Private Placement in Nigeria bare contained in Section B3 (REGULATION OF PRIVATE PLACEMENT) of the SECURITIES AND EXCHANGE COMMISSION (SEC)’s RULES AND REGULATIONS PURSUANT TO INVESTMENTS AND SECURITIES ACT (ISA) OF 1999--(Nigeria SEC Regs)

 

In particular, Rule 89 of Nigeria SEC Regs, defines a private placement and an accredited investor, by providing thus:

 

Rule 89 For the purposes of the Act and this Regulation:

 

1) “Private Placement” shall mean the issue of securities not involving public offering.

 

2) “Purchaser Representative” shall mean any person who satisfies all of the following conditions or who the Issuer reasonably believes satisfies all of the following conditions:-

 

(i) is not an affiliate, director, officer or other employee of the Issuer, or beneficial owner of 10% or more of the equity interest in the Issuer, except where the purchaser is:

(a) a relative of the purchaser representative by blood, marriage or adoption and not more remote than a first cousin;

(b) a trust or estate in which the purchaser representative or any person related to him as specified in(a) above and (c) below collectively has more than 50% of the beneficial interest (excluding contingent interest) or of which the purchaser representative serves as Trustee, Executor, or in any similar capacity; or

(c) a corporation or other organization of which specified in (a) and (b) above collectively are beneficial owners of more than 50% of the equity securities(excluding directors);

 

(ii) has such knowledge and experience in financial and business matters that he is capable of evaluating, alone or together with other purchaser representatives of the offices, or together with the purchaser, the merits and risks of the prospective investment;

 

(iii) is acknowledged by the purchaser in writing, during the course of the transaction, to be his representative in connection with evaluating the merits and risks of the prospective investment; and

 

(iv) discloses to the purchaser in writing within a reasonable time prior to the sale of securities any material relationship between himself or his affiliates and the Issuer or is mutually understood to be contemplated, or existing at any time during the previous two years, and any compensation received or to be received as a result of such relationship.

 

3) An “accredited investor” shall mean any person or institution capable of understanding and affording the financial risks associated with acquisition of unregistered securities. These include:-

 

(i) a financial institution such as a bank, savings and loan association, insurance company, registered investment company, broker/dealer organization, employee benefit/retirement plan, business development company, or small business investment company;

 

(ii) any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of that issue;

 

(iii) any natural person who alone, or with a spouse has a net worth of over N2-million;

 

(iv) any natural person who alone had income in excess of N400,000 in each of the two most recent years (or with a spouse, in excess of N500,000 during this period) and had a reasonable expectation of reaching the same income level in the current year;

 

(v) any trust or business partnership, with net assets in excess of N5 million, not formed for the specific purpose of acquiring the unregistered securities;

 

(vi) any entity in which all of the owners are accredited investors.

 

4) “Aggregate Offer value” shall mean the sum of all cash, services, property, notes, cancellation of debt, or other consideration to be received by an Issuer for issuance of its securities. Where securities are being offered for both cash and non - cash consideration the aggregate offer value shall be based on the price at which the securities are offered for cash. If securities are not offered for cash, the aggregate offer value, shall be based on the value of the consideration as established by bonafide sales of that consideration made within a reasonable time, or in the absence of sales, on the fair value as determined by an accepted standard. Such valuations of non-cash consideration must be reasonable at the time made.

 

5) An “Affiliate” of, or “Person Affiliated with a specified person” shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

 

Rule 89 does not make any provision as to state of residence of the purchaser, and this is the crux of the matter, since Ms Erhurhoro is from Edo State, with BGL Plc from Lagos.

 

It is on this basis that we submit that the IST had jurisdiction over the matter.

 

Further, so as to distinguish between public offering and private placements, Rule 106 of (Nigeria SEC Regs) dealing with Persons Required to Register Their Securities, provides thus:

 

Rule 106 Persons Required to Register Their Securities

 

The following persons shall register their securities and shall thereafter file reports with the Commission as prescribed under these Rules and Regulations:

 

(i) public quoted companies;

(ii) public unquoted companies;

(iii) Governments and Government Agencies;

(iv) investment schemes.

 

Rule 109 further supports Ms Erhurhoro’s position because it covers “public unquoted companies.”

 

III.    Private Placement Rules in the United States Under the US 1933 Securities Act

 

Under the US 1933 Securities Act, Section 5 requires companies to file a registration statement with the SEC prior to an offer to sell any security in interstate commerce.

 

In fact, registration under Section 5 is an expensive and time-consuming process, and a network of underwriters and brokers/dealers must be assembled to make a market for the security. In addition, an issuer registering under Section 5 is also subject to strict periodic reporting requirements, and the penalties for failing to register, or for disclosing inaccurate or misleading information, are quite stringent. Thus, a private placement is the best exemption to sale of securities in the US.

 

Further, under the US 1933 Securities Act, to qualify for a private placement, a company must structure the transaction within the various categories of exemptions available, which are:

 

a.       Section 4(2), considered the broad "private offering" exemption;

b.       Section 3(a)(11, the intrastate exemption; or the most common, and

c.       Regulation D, which specifies three distinct exemptions from the registration provisions.

 

We must note that section 4(2) allows an exemption from registration for "transaction(s) by an issuer not involving a public offering." However, the targeted investors in a section 4(2) offering must have access to the same kind of information that would have been available if the issuer were required to register its securities under Section 5 of the Securities Act.

 

Further, when relying on an exemption under Section 4(2), the company must structure the offering in accordance with the following additional (although vague) guidelines:

 

a.          The offering should be made directly to prospective investors without the use of any general advertising or solicitation.

b.          The number of offerees should be kept as small as possible

c.          The offering should be limited to insiders (such as officers of the company or family members) or sophisticated investors who have a pre-existing relationship with you or the company.

d.          The prospective investor should be provided with, at least, a set of recent financial statements, a list of critical risk factors (which influence the investment) and an open invitation to inspect the company's facilities and records.

 

Regulation D, promulgated in 1982, sets forth certain guidelines for compliance with the Private Offering Exemption. Registered representatives involved in the private placement process are expected to have a working familiarity with Regulation D. Thus, Regulation D is a series of six rules, Rules 501-506, establishing three transactional exemptions from the registration requirements of the 1933 Act.

 

a.          Rules 501-503 set forth definitions, terms and conditions that apply generally throughout the Regulation. Specific exemptions are set out in Rules 504-506.

 

b.          Rule 504 applies to transactions in which no more than $1,000,000 of securities are sold in any consecutive twelve-month period. Rule 504 imposes no ceiling on the number of investors, permits the payment of commissions, and imposes no restrictions on the manner of offering or resale of securities. Further, Rule 504 does not prescribe specific disclosure requirements. Generally, the intent of Rule 504 is to shift the obligation of regulating very small offerings to state "Blue Sky" administrators, though the offerings continue to be subject to federal anti-fraud provisions and civil liability provisions of the Exchange Act.

 

c.          Rule 505 applies to transactions in which not more than $5,000,000 of securities is sold in any consecutive twelve-month period. Sales to thirty-five "non-accredited" investors and to an unlimited number of accredited investors are permitted. An issuer under Rule 505 may not use any general solicitation or general advertising to sell its securities.

 

d.          Rule 506 has no dollar limitation of the offering. Rule 506 is available to all issuers for offerings sold to not more than thirty-five non-accredited purchasers and an unlimited number of accredited investors. Rule 506, however, unlike 504 and 505, requires an issuer to make a subjective determination that at the time of acquisition of the investment each non-accredited purchaser meets a certain sophistication standard, either individually or in conjunction with a "Purchaser Representative." Like Rule 505, Rule 506 prohibits any general solicitation or general advertising.

 

Regulation D also defined who an "Accredited Investor" is in Rule 501(a). The principal categories of accredited investors are as follows:

 

    1) Directors, executive officers, and general partners of the issuer, including general partners of general partners in two-tier syndicating. (The term "executive officers" is more fully defined in the Regulation.)

 

    (2) Purchasers whose net worth either individually or jointly with their spouse equals or exceeds $1 million. It is important to note that while there is no definition of "net worth" in Regulation D, there similarly is no requirement of liquidity in the calculation of net worth for this accreditation standard. Thus, a purchaser's home, furnishings, etc. are includable in the determination of net worth.

 

    (3) Natural person purchasers who have "income" in excess of $200,000 in each of the two most recent years and who reasonably expect an income in excess of $200,000 in current year (or $300,000, jointly with their spouse).

 

    (4) A business entity will be treated as a single accredited investor unless it was organized for the specific purpose of acquiring the securities offered, in which case each beneficial owner of the security is counted separately.

 

One of the key issues here is ensuring that the offering is truly an intrastate offering. The SEC has adopted Rule 147 to assist in determining whether the requirements have been met. The issuer corporation must make sure that all offerees are residents of the issuing state, because even one non-residential offeree will jeopardize the availability of the exemption.

 

IV.     The Facts in Erhurhoro vs BGL Plc

 

On February 8, 2013, Stella Babudoh Erhurhoro (applicant) filed a Statement of Claim against BGL Plc (1st respondent), Albert Okumagba (2nd respondents) and Securities & Exchange Commission (Nigeria SEC)—the 3rd Respondent.

 

BGL Plc is a company duly registered as a private company under the Nigerian Companies and Allied Matters Act, Cap C20 Laws of the Federation 2004.

 

Okumagba is the Managing Director of BGL Plc, while SEC is the regulatory authority for matters of securities.

 

Erhurhoro had invested N14 million in a private placement by BGL Plc and when the outcome of the investment did not meet her expectations as promised by the company, she complained to SEC. When the response or decision of the SEC was too late for her, she took the matter to the IST, claiming “against the Respondents as follows; the sum of N14, 000, 000. 00 (Fourteen Million Naira only) against the 1st Respondent being the total amount for the shares which the Applicant paid for; the sum of N14, 000, ooo.00 (Fourteen Million Naira Only) against the 2nd Respondent for damages for deceiving the Applicant and N14, 000, 000. 00 (Fourteen Million Naira Only) against the 3rd Respondent for negligence in aiding the 1st and 2nd Respondents to swindle the Applicant”.

 

BGL Plc and Okumagba opposed her claim on jurisdictional basis arguing that the IST did not have jurisdiction over the case on three main grounds.

 

        i.           Ground 1: Non-Compliance With Section 284 (1) of the Investments and Securities Act 2007.

 

BGL Plc argued that the suit as constituted was not cognizable under section 284(1) of the Investments and Securities Act 2007, because there was no decision or determination by the SEC in respect of the complaint of the Applicant so as to confer jurisdiction on the IST to adjudicate on the Applicant’s suit.

 

           ii.          Ground 2: No Basis for Piercing the Veil of the Corporation to Hold Individual Managing Director Personally Liable.

 

Okumagba also argued that there was no claim against him, and consequently he was not a necessary party and that the suit did not disclose any reasonable cause of action against him as a director, simpliciter.

 

           iii.         Ground 3: That BGL Plc was not a Public Corporation and so its Private Placement Was Not Covered by the IST’s Jurisdiction.

 

According respondents, the IST could not be properly seized of the jurisdiction to hear and determine this suit. In Nigeria, jurisdiction is a threshold issue, and when raised must be determined before enquiring into the substance of a case. Thus, a court is only clothed with jurisdiction if the condition precedent to the institution of an action is met. See Erhunmunse Vs. Ehanire (1998) 10 NWLR Part 568, page 53 @ 61, paragraphs G-H where the court held that a court will be competent if;

 

 (a) it is properly constituted with respect to the number and qualification of its members;

 (b)            the subject matter of the action is within its jurisdiction;

 (c)             the action is initiated by due process of law; and

 (d)         Any condition precedent to the exercise of its jurisdiction has been fulfilled; see also Madukolum V. Nkemdilim (1962) SCNLR 341 or (1962) ALL NLR 581@ 582 - 590

 

In the end, the IST dismissed Erhurhoro’s claims on lack of jurisdiction.

 

V.       ANALYSIS AND DISCUSSION.

 

We hereby examine the decision in Erhurhoro vs BGL Plc

 

        i.           Non-Compliance With Section 284 (1) of the Investments and Securities Act 2007 Should Not be Fatal to Applicant’s Claim Where the Applicant, a Shareholder, Can File a Derivative Action to Stop Corporate Waste

 

An action is derivative when brought by a shareholder on behalf of the corporation for harm suffered by all shareholders in common. See Levine v. Smith, 591 A.2d 194, 200 (Del. 1991)

 

  "A shareholder derivative suit is a uniquely equitable remedy in which a shareholder asserts on behalf of a corporation a claim belonging not to the shareholder, but to the corporation."

 

In Lewis v. Knutson, 699 F. 2d 230, 237-38 (5th Cir. 1983), the court held thus:

 

  "When an officer, director, or controlling shareholder breaches [a] fiduciary duty to the corporation, the shareholder has no 'standing to bring [a] civil action at law against faithless directors and managers,' because the corporation and not the shareholder suffers the injury[; e]quity, however, allow[s] him to step into the corporation's shoes and to seek in its right the restitution he could not demand on his own."

 

Further, in Avacus Partners, L.P. v. Brian, CCH Fed. Sec. L. Rep. ¶ 96,232 (Del. Ch. 1990), the Delaware Supreme Court held that:

 

  action is derivative because it is brought by one or more shareholders on behalf of the corporation rather than by the corporation itself)

 

finally, we must consider Katz v. Halperin, 1996 WL 66006, at *4 (Del. Ch. Feb. 5, 1996) , the Delaware Supreme Court held that:

 

  "A proven claim of mismanagement resulting in corporate waste is a direct wrong to the corporation, and all stockholders experience an indirect wrong. Corporate waste claims are derivative, not individual."

 

Assuming that Okumagba and other directors were engaging in fraud and wasting the assets of BGL Plc and the complaint filed by Ms Erhukhoro had been dragging for 3 years, no one would expect the erring directors to bring claims against themselves. Further, if applicant were to wait for 5 years before being able to redress the wrongs, the victory would be a hollow and fruitless one, since the corporation would have become a mere shell.

 

It is this injustice that the concept of derivative action seeks to ameliorate. Nigeria and all common law countries allow the aggrieved shareholder to file a Derivative Action. A derivative action is actually two causes of action: it is an action to compel the corporation to sue and it is an action brought by a shareholder on behalf of the corporation to redress harm to the corporation. See Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984):

 

  "The nature of the action is two-fold. First, it is the equivalent of a suit by the shareholders to compel the corporation to sue. Second, it is a suit by the corporation, asserted by the shareholders on its behalf, against those liable to it."

 

In Brown v. Tenney, 532 N.E.2d 230, 232 (Ill. 1988), it was held that

 

  “a derivative action is in effect two actions: "one against the directors for failing to sue; the second based upon the right belonging to the corporation."

 

Thus, a derivative action allows shareholders to monitor and redress harm to the corporation caused by management where it is unlikely that management will redress the harm itself. Meyer v. Fleming, 327 U.S. 161, 167 (1946)

 

  "[T]he purpose of the derivative action [is] to place in the hands of the individual shareholder a means to protect the interest of the corporation from the misfeasance and malfeasance of 'faithless directors and mangers'"

 

(Quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548 (1949)); Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95 (1991)

 

In Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court held thus:

 

A shareholder's derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, 'the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets.

 

Therefore, if Erhukhoro could prove danger to the corporation, being perpetrated by the directors who would neither sue themselves no hold themselves accountable, she may not need to wait for the complaint filed with the SEC to be decided—otherwise, in five years, while the case drags before the SEC, thieving directors would have plummeted the corporation to a technical knockout.

 

           ii.          Piercing the Veil to Go After the Erring Directors

 

Closely related to the above discussion is that where the directors so dominate the corporation, that the corporation is a sham, a shell or a conduit for siphoning the assets of the corporation into the pockets of the directors, the shareholder should be able to lift the veil of the corporation and enforce his remedies.

 

Admitted, in Erhurhoro vs BGL Plc, the records were never developed to show a veritable cause of action against Okumagba as a director, perhaps, in the future, the injured shareholder’s representative will develop a comprehensive complaint

 

           iii.         The Issue as to BGL Plc not Being a Public Corporation and so its Private Placement Was Not Covered by the IST’s Jurisdiction.

 

The decision ultimately turned as to whether or not BGL Plc was a public corporation, since, if it were not, the IST would have no jurisdiction. Let us consider sections 54, 284 and 289 of the ISA

 

Section 289 of the ISA allowing the filing an action before the IST from a SEC hearing provides thus:

 

289 (1) A person aggrieved by any action or decision of the Commission under this Act, may institute an action in the Tribunal or appeal against such decision within the period stipulated under this Act:

Provided that the aggrieved person shall give to the Commission 14 days notice in writing of his intention to institute an action or appeal against its decision.

 

(2) An appeal under this part of this Act shall be filed within a period of thirty days from the date on which a copy of the order which is being appealed against is made, or deemed to have been made by the Commission and it shall be in such form and be accompanied by such fees as may be prescribed:

 

Provided that the Tribunal may entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for the delay.

 

(3) On receipt of an appeal under subsection (2) of this section the Tribunal may, after giving the parties an opportunity of being heard, make such orders thereon as it deems fit, confirming, modifying or setting aside the order appealed against.

 

(4) The Tribunal shall cause a copy of every order so made to be forwarded to the parties to the appeal and to the Commission.

 

(5) The Tribunal, shall in the exercise of its powers under this Act, conduct its proceedings in such manners as to avoid undue delays and shall dispose of any matter before it finally within three months from the date of the commencement of the hearing of the substantive action.

 

The law mandating the type of securities to be registered with the SEC—referring only to Public Corporations is as stated under Section 54 of the ISA

 

54 (1) All securities of a public company and all securities or investments of a collective investment scheme shall be registered with the Commission under the terms and conditions herein contained and as may be supplemented by regulations prescribed by the Commission from time to time.

 

(2) The issuer shall file with the Commission a registration statement which shall be signed by each issuer, its chief executive officer or officers, its principal financial officer and every person named as a member of the board of directors or persons performing similar functions and in case the issuer is a foreign person, by its duly authorised representative in Nigeria.

 

(3) A registration statement shall be deemed effective only as to the securities or investments specified therein as proposed to be issued.

 

(4) The Commission shall issue a certificate of registration in respect of securities and investments registered by it.

 

(5) No securities or investments of a public company or collective investment scheme shall be issued, transferred, sold or offered for subscription by or sale to the public without the prior registration of the securities or investment with the Commission.

 

(6) Any person who issues, transfers, sells, or offers for subscription or sale to the public, the securities or investments of a public company or collective investment scheme without the prior registration of the securities or investments with the Commission commits an offence and is liable on conviction to a fine of x1,000,000 or to a term of imprisonment of 3 years or to both such fine and imprisonment.

 

(7) The Commission may, in lieu of a prosecution under subsection (2) of this section, impose a penalty of x1,000,000 and a further sum of x5,000 for every day which the violation continues.

 

The jurisdiction of the IST to hear cases bordering on trading in securities under section 284 of the ISA, also provides thus:

 

284 (1) The Tribunal shall, to the exclusion of any other court of law or body in Nigeria, exercise jurisdiction to hear and determine any question of law or dispute involving-

 

(a) a decision or determination of the Commission in the operation and application of this Act, and in particular, relating to any dispute-

                          (i) between capital market operators;

                          (ii) between capital market operators and their clients;

(iii) between an investor and a securities exchange or capital trade point or clearing and settlement agency;

(iv) between capital market operators and self regulatory organisation;

 

              (b) the Commission and self regulatory organisation;

              (c) a capital market operator and the Commission;

              (d) an investor and the Commission;

              (e) an issuer of securities and the Commission; and

(f) disputes arising from the administration, management and operation of collective investment schemes.

 

(2) The Tribunal shall also exercise jurisdiction in any other matter as may be prescribed by an Act of the National Assembly.

 

(3) In the exercise of its jurisdiction the Tribunal shall have the power to interpret any law, rules or regulation as may be applicable.

 

Let us see if Ms Erhukhoro complied with the law in the case under review.

 

First, we submit that Ms Erhukhoro was right to have initiated a derivative action without waiting for the SEC to complete the investigation of her complaint. We rely on section 289(2) of ISA, which provides that: “An appeal under this part of this Act shall be filed within a period of thirty days from the date on which a copy of the order which is being appealed against is made, or deemed to have been made by the Commission

 

The operative word under section 289(2) of ISA is “deemed”.  According to Miriam-Webster Dictionary, the word “deem,” a verb, means “to think of (someone or something) in a particular way,” as a transitive verb, would mean: “to come to think or judge,” or “consider,” or  as an intransitive verb: “to have an opinion,” or “believe.”

 

Thus, as of the time that Ms. Erhukhoro formed a good faith opinion that the complaint being processed before the SEC would constitute an illusory victory, even if she were to be successful at the end, the applicant was in order to proceed to IST to prevent corporate waste

 

Second, Rule 109 further supports Ms Erhurhoro’s position because it covers “public unquoted companies.” Thus, BGL Plc’s private placement would fall under the IST’s jurisdiction.

 

Third, as stated above, since Ms. Erhurhoro hailed from Edo State, and was ordinarily resident in Edo, there was an inter-state transaction from Lagos to Edo State. Therefore, the remedies that Ms Erhurhoro sought from the IST were within the jurisdiction of the IST.

 

VI.       Conclusion

 

We submit that the Nigerian lawmakers should amend the ISA and Nigeria SEC Regs to include provisions as contained under Rule 147 of the US Securities Act Regulations.

 

The IST must be ready to pierce the veil of incorporation when it is evident that the corporation had been used to perpetrate a fraud on the investors or to siphon funds from the corporation.

 

Finally, while it is necessary for the defrauded investor to file a complaint before the SEC, as a precursor to filing a lawsuit before the IST, where the processing of the complaint before the SEC would take to long as to make the results of the litigation illusory, the injured investor must be able to proceed to the IST without making the suit premature.

 

**Dr. Olumide Kolawole Obayemi, LL.M. (Alberta Canada); LL.M. in Taxation Law; SJD in International Legal Studies, is of the Bars of the Federal Republic of Nigeria and State of California.


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