A recent article in This Day newspaper by Efe Etomi and Elivis Asia, questions the powers of the Securities and Exchange Commission (SEC), to suspend the Annual General Meeting of Oando Plc, in a bid to sanction the company for alleged infractions. They conclude that such application of institutional powers may prove to be repulsive and toxic, to investment inflow in Nigeria.
The Securities and Exchange Commission’s (SEC) investigation report and sanctions on Oando Plc, reignites the jurisprudential debate on the extent of the powers of SEC to control public companies in Nigeria. On 10 June 2019, the news broke that SEC suspended the proposed Annual General Meeting of Oando. The obvious question here is whether the Regulator had the power to do so.
Section 13 (v) of the ISA empowers SEC to do ‘whatever’ it deems fit with a ‘capital market operator’, in order to protect investors. This power is further strengthened and defined in Part VII of ISA, which provides for inspections and investigations by the Commission. The question has always been, whether public companies are capital market operators for the purpose of application of the Section, and in what manner should SEC exercise its powers generally, under Section 13 of the ISA. The Court of Appeal tried to answer this question sighting the Oni versus S.E.C. case.
Here, the issue was whether SEC’s powers extend to members of the Boards of Directors of all or any companies registered and regulated under the Companies & Allied Matters Act. The Court of Appeal held that SEC has the power to disqualify persons considered unfit from being employed in any arm of the securities industry, including directorship positions in public companies pursuant to Section 13 (bb) of the ISA. This decision is justifiable, to the extent that Section 13 (bb) is a general provision which applies to all regulated entities, including public companies unlike Section 13(v) which specifically mentions capital market operators.
There is something significant about Oni’s case, which should be the condition sine qua non for the exercise of any of the powers contained in Section 13 of the ISA. In Oni’s case, Cadbury, its directors, including Oni, the external auditor and the Registrars, were invited before sanctions were imposed. The effect of this is that, even where SEC can exercise its powers under Section 13 of the ISA against public companies and directors, such powers are not intended to be arbitrary. The persons or companies seeking to be sanctioned must be given fair hearing in a manner that is in tune with the constitutional right to a fair hearing.
A major criticism of the decision in Oni’s case, however, is that the sort of sanctions imposed, ought to have been obtained from the court, or, as it is now the case under the ISA, from the Investments and SecuritiesTribunal.
The Right to Fair Hearing
The powers of SEC are too wide; such powers should not be confirmed on an ex-parte application. Even if SEC had such powers, it ought to have obtained a positive order of the court or tribunal, before exercising it. It is worrisome and unconstitutional for SEC to be allowed to wrest control and management of a public company ex- parte before the company is heard.
US Securities and Exchange Commission’s Practice
In the United States (US) where we copy our securities law from, the Securities and Exchange Commission (US SEC), does not possess the powers to take over the management of a public company, and its general powers over the securities market cannot be exercised without a fair hearing. According to the US SEC on its website, the Commission cannot impose sanctions, without the decision of either the federal court or administrative law Judge, depending on the type of sanction or relief that is being sought. Whilst the Commission may bar someone from the brokerage industry in an administrative proceeding, for example, an order barring someone from acting as a corporate officer or director must be obtained in a federal court.
There is a dangerous trend in applying institutional powers, in a manner repulsive and toxic to investment flow in Nigeria. Investors would definitely think twice, before investing in a country where regulatory action can lead to losing control of a public company within a twinkle of an eye. It is hoped that there will be the opportunity to make final pronouncements on the extent of the powers of SEC, so as to regulate public companies in fairness and re-affirm the disdain for draconian ex-parte orders and breach of the constitutional right to a fair hearing.