Private Placements: Many Firms Abused Gaps In Nigeria’s Laws To Defraud Investors, Uduk, SEC DG

Ms. Mary Uduk, Acting Director-General of the Securities & Exchange Commission (SEC), last week lamented a situation where many private companies took advantage of gaps in Nigerian laws, especially between 2007 and 2008 to defraud many investors, by embarking on private placements, with promises to list the shares for trading on the Nigerian Stock Exchange (NSE), when in reality they had no such intention.
Many who invested in such placements during the period on the basis of such promises were swindled in the process.
Uduk, who was reacting to questions during the two-day international capital market conference, organized by the commission, in collaboration with the Department of Finance, University of Lagos, particularly noted the case of BGL Plc (formerly known as Banc Garanti Limited), a capital market operator, which raised capital without listing its shares on the NSE.
She lamented that the private placement bubble happened with the connivance of many market operators who encouraged issuers to take advantage of loopholes in the relevant investment laws at the time.
Uduk recalled chairing several meetings, where she appealed to such issuers, to list their shares without success, stressing that “market operators encouraged private placements knowing that the law did not allow the SEC to regulate private companies.”
She urged operators to cooperate with the commission for the good of the market and the economy, realizing that “it is our market, please let us join hands and revive this market.
“Let us come together and sanitise this market,” she stressed, urging them to bring incidences of market abuse to the attention to the commission and enjoy protection under the law.
“…You can only sanction what you know and can prove (as a regulator),” she stressed further.
According to “The Report of the SEC Committee on the Nigerian Capital Market,” dated February 2009, whose members included Godwin Obaseki, who is currently Edo State Governor; Olutola Mobolurin, chairman of the Capital Market Master Plan, Yusufu Modibbo of Tiddo Securities, and Sonnie Ayere, currently Group CEO of Don Loren Merrifield; among others, it is estimated that up to N650bn was raised via private placements in as many as 300 transactions between 2004 and 2008.
As part of efforts to stem the abuse of private placements at the time, Investdata recalls that as part of efforts to avoid recurrence of the crash of the Nigerian stock market in 2008 and 2009, the Securities and Exchange Commission (SEC) stopped the publicity of private placements in the market, warning that any company that publicises its private placement risks the suspension or withdrawal of approval.
To close the gaps in its laws, the commission released new Rules and amendments to the existing Rules and Regulations dated on March 24, 2010, by the creation of a new Rule 90(2) which made advertising, mentioning and/or discussing of private placements in the mass media illegally. While prior approval of such exercise may be suspended or withdrawn for violation of the rule, “capital market operator engaged in an advisory role on the private placement may also be sanctioned.”
Besides BGL, companies that did not list the shares after successful private placements included Reltel/Zoom, and Geofluids, among others, while others like NPF Microfinance Bank Plc, founded in 1993 as NPF Community Bank, listed its 2.286bn shares by introduction at N1.50 each.