Continues from monday
9 July 2008-ACCESS BANK 345-ORACLE TRAINING USA N17, 500, 000.00 We sighted a copy of Progenies’ letter dated 11 June 2008 to the DG titled: “Technical User Training for System Administrators: Oracle lag”.

In the said letter, the training was expected to run for a period of nine working days at the sum of N3-5 Million per delegate. From the said letter, we note that the following names were endorsed by the DG to attend the training. They include: Obaseki; Chinyere: Ezeju; Mohammed Aliko N: and Lawrence. We also sighted a Payment Voucher No. 0024467 dated 9 July 2008 indicating that the sum N 17, 500,000.00 (Seventeen Million, Five Hundred Thousand

Naira) was paid to Progenies in respect of this training. We have already conducted a search on Progenies at the CAC and the outcome of this investigation will be discussed later in this update. Further investigation of this expense will focus on requesting for evidence of attendance from the nominees. We shall also be reviewing the accounts held in the name of Progenies to determine sources of inflows and persons to whom payments were made.

9 July 2008-STERL 1658-ORACLE OPENWORLD CONFERENCEN N10,800,000.00

We sighted Progenies letter dated 11 June 2008 to the DG, NSE, titled: “Technical User Training for System Administrators: Oracle lag”. In the said letter, the training was expected to run for a period of nine working days at the sum of N3.5 million per delegate which will cover tuition fees, course materials, tea and light refreshments, lunch and transport between the hotel and the training centre. From the said letter, we note that the following names were endorsed by the DG to attend the training: Obaseki; Chinyere; Ezeju; Mohammed Aliko N; and Lawrence. We sighted disbursements to Godwin Obaseki, Chinyere, Ezeju, Mohammed Aliko for the Oracle Training in USA; in the sum of US$228,200 (at N 120/US$1) with the Naira equivalent as N27,384,000.00 added to the course

fee in the sum of N3,500,000 per delegate. The total sum expended was N44, 884,000.00; this was approved on 9 July 2008. We also sighted disbursements to the DG/CEO, ADG, GM (RIT), GM (Q), AGM (RIT), Consultant Tong Udo in the total sum of N27, 936,000.00 representing the costs of return tickets, estacode, miscellaneous, and course fees.

This was approved on 9 July 2008. We also sighted a Progenies letter dated 11 June 2008 to the DG, NSE titled: “Oracle Open World Conference-San Francisco 2008. This event was scheduled to hold in San Francisco, USA on 21-25 September 2008 and the cost of the conference was US$15,000 per participant. The DG, ADG, GM (RIT), Yaroe, Obaseki and J. Udoh were endorsed on the letter on 10 June 2008 by the DG to attend the event.
5 March 2008_FBN 1089041_ ASIA 1RADING CONVENTION-N25,715, 400

We sighted a Payment Voucher dated 5 March 2008 in the sum of N25~ 715,400.00 representing payment for the Asia Trader & Investor Convention. The Convention was held in Malaysia between 22 and 23 March 2008. The delegates nominated to attend the event include: President of the Exchange and spouse (Conference fee USD950 (Le. USD475 for each delegate), Cost of Ticket USD44,200); DG/CEO (Ticket -US$31,940); ADG (Ticket USD22,100); GM (CIA), GM (EM/SP), GM (RIT) (Ticket-USD15,200 each); Dr. (Mrs) Ogamba (Ticket  – USD9,600); One Council Member (Ticket _ USD 22,100); Okezie Pascal (Ticket ¬USD 11,430).

The total sum expended on conference fee and tickets were USD5, 225 and USD209, 070 respectively, and the naira equivalent totalling the sum of N25, 715,400. Further investigation of this expense will focus on the following:  Determining the average cost of tickets to Malaysia around the period in which this convention was held; Determining the actual participants; Confirming through interviews that these sums were in fact paid to the nominees.

Requiring evidence of attendance from those nominated to attend and/or from the organisers of the conference;
2004 Audit

We sighted documents which indicate that certain tax consultants from the Lagos State Government came to audit NSE’s account in 2008. The tax consultants came to the conclusion that NSE had been under remitting taxes including P A YE and VAT. Following the audit conducted by the government. consultants, NSE’s tax liability was revised to about N90, 000,000.00 (Ninety Million Naira). We also sighted an internal memorandum seeking approval for payment of the sum of N 14,000,000 (Fourteen Million Naira) to these tax consultants for PR for their agreement to reduce NSE’s tax liability from over N90, 000,000 to N 12,970,000.

During an interview with the Principal Accountant of the NSE we were informed that the sum of N14, 000,000.00 was given to the government consultants in cash. We were also informed that the cash payment was made to the leader of the team, Bamidele Nasiru. We are currently making attempts to contact the said Bamidele Nasiru.

Contracts
We obtained a list of contractors from the Administrative Department of the NSE. We came up with an additional list of Contractors based on contract documents reviewed. Our approach in respect of these contractors is as follows: Conduct searches at the CAC to determine whether there are any related party transactions. Our searches will focus on the shareholders and directors of the company; Where the search indicate that the shareholders or directors of such companies comprise of any Council Member, NSE Management or Staff, we shall check the bank accounts of the NSE to determine the frequency and quantum of payments to such company and the purpose fair which the payments were made particularly where such payments exceed the sum of N5,000,000; As an alternative or in addition to the above we shall also trace the company accounts of those companies.

To date, we have conducted searches on the following companies Progenics Corp Limited; Harris AIB Associates Limited; Pathway Communications Limited; Sonex Clinics Limited ; AD Consulting Limited; Coral Properties Limited; Dimension Data Limited; Candy Floss Limited; Avrosyn Data System Limited; Global Outdoor Systems; Kingdom Securities Limited; KSL Consultants Limited. Searches are still ongoing in respect of the following Companies/Business names: Mercilia Electromech Limited; Centric Industries Limited; Ingita & Co.;  Primonsong Petroleum Limited; Hailsham Nigeria Limited ; Class Construction and Property Limited ; Dialink Limited ; Progenies Enterprises; Liiyaz Dee Ventures; Tahail Crystal Ltd; Hadassa Investment Security Nigeria Ltd; Quantum Classic Limited.

As at date, our search at the CAC reveals the following:
That only Mrs. Yinka Idowu and Mr. Emmanuel Adekoyeju Idowu are the owners and directors of Candy Floss Limited. Mrs. Yinka Idowu was the former head of the Corporate Affairs Services of the NSE and she was principally responsible for the international road shows, the merits award, long service award e.t.c. The said Candy Floss Limited received the sum of over N342, 378, 428 (Three Hundred and Forty Two Million, Three Hundred and Seventy Eight Thousand, Four Hundred and Twenty Eight Naira in respect of the Long Service Award organized by the Exchange in 2008. We understand that Mrs. Yinka

Idowu was also Head of Corporate Services and was responsible for organizing the long service award. Progenies Corp Limited: One of the subscribers to the Memorandum and Articles of Association of this Company and Director as at incorporation was the former DG, Ndi_Okereke Onyuike. At the time this company was incorporated in 1996 she owned 250,000 shares of the 4.4m share capital of the company. However, her name does not appear in the FORM CAC 2 for 2007 as one of the shareholders of the company and CAC records also indicate that she ceased to be director till 1997. We however note that Progenies Enterprises appears as owning 651,000 shares. We intend to conduct a further search to determine the owners of Progenies Enterprises.

That Kingdom Securities Limited and KSL Consultants Limited are owned by Mr. Uzoma Henry Onyekuru former General Manager of the NSE’s Compliance Unit. The said company was responsible for the reactivation of the 2nd tier and creation of the 3rd tier market project between 2006 and 2007 and received the sum of N 125,7 50,000.00 (One Hundred and Twenty Five Million, Seven Hundred and Fifty Thousand Naira) from the NSE. We are currently reviewing the contract and investigating whether the said services were rendered by the company in question.
Surplus Sharing

In the year 2006, a total sum of N402, 000,000 (Four Hundred and Two Million Naira) was paid out of which both staff and management were paid N241, 200,000 (Two Hundred and Forty One Million Two Hundred Thousand Naira) while Council members were paid N 160,800,000 (One Hundred and
Sixty Million Eight Hundred Thousand Naira). We sighted the position paper which is attached as part of the supporting documents for the payment. Although the position paper was not signed, we were informed by the Principal Accountant that the same was prepared by the ADG. This position paper provides in part as follows:

“POSITION PAPER ON SURPLUS SHARING FOR 2006
The Management wishes to recommend to the Council the payment. of N402 million as surplus sharing for the year ended 31st December, 2006. This amount represents 20% of the pre_tax surplus already reported to the Finance and General Purpose Committee of the Council. If this is approved by the Council, the reported pre_tax surplus will come to N.1608billion.”

Management is therefore seeking the Council’s approval to make the above payment and to reflect same in the Management accounts hereby presented for your kind consideration and approval.”

The journal entry however recorded the payment to council as “council expenses” and credited sundry creditors.
In the year 2007, the sum of N 1, 171,837,486 was paid to Staff Members of the NSE as productivity bonus. While the sum of N71 0,000,000 was shared among 15 Council members with Oba Otudeko, the former President of the General Council and the DG getting the highest i.e. Nl15, 000, 000 and N75, 000, 000 respectively.

In 2009, the sum of N720, 000,000 was paid to Staff members while the sum of N480, 000,000.00 was paid to Council Members. The details on the voucher for payment dated 04/03/2009 of the sum of N720, 000/000.00 in 2009 read as follows: “Being payment of surplus sharing to Council Members and staff in respect of 2008 financial year”

The payment voucher dated 27 February 2009 of the sum of N480, 000,000 details of which read “Payment for surplus sharing, Council Members for the year 2008 as per the attached” was approved by the DG and ADG andreceived by Josephine Igbinosun, the Secretary to the Council. Although, these sums were paid as part of staff remuneration they were not reflected as a line item in staff costs but were included in the Sundry
expenses.

In a memo prepared by the ADG, Lance Musa Elakama, dated 4 March 2009 and written to the DG/CEO stated as follows: “2008 Surplus Sharing You will recall that at the National Council Meeting of 27 February 2009, approval was given for the following provisions to be made in the Unaudited

Management Accounts for the year ended 31st December 2008 as follows:  Management & Staff N720,000,000.00;  Council Members N480,000,000.00;  Others N500,000,000.00; N1,700,000000.0 Please approve to enable us effect the accruals in the account. Signed Lance Musa Elakama.” At all relevant times to this sharing of surplus, the NSE was registered as a company limited by Guarantee. Thus, the said surplus sharing appears to be a contravention Sections 26 and 27(4) of CAMA and the clauses 6 of the Memorandum and Articles of Association of the NSE.

During an interview with the Company Secretary, Josephine Igbinosun, she stated in summary as follows with regard to the surplus distributions:  That the sums shared were productivity bonuses for staff and formedpart of staff remuneration;  That sums paid to Council Members was not productivity bonus.  That although the minutes of March 2009 refer to productivity bonus, she had simply recorded the deliberations wrongly and the term productivity bonus was only in relation to staff members.

In respect of Council Members, the sums they received were for training and the letter accompanying the cheques forwarded to the Council Members stated so explicitly. (iv.) That she had never advised the Council that the distribution of surplus was a contravention of the provisions of CAMA because she was never consulted and even if she had, it would not have changed their decision to make the distribution.

The position paper and other supporting documents attached to the schedules of payment of the bonuses/surplus do not support Josephine’s position. First, the letters she refers to as explicitly stating that the sums were meant for training/visitation of other stock exchanges were written and forwarded to the Council Members before the meeting in which she alleges that the productivity bonus was approved.

Secondly, the said letter refers to a meeting of Council held in February where it was decided that Council members be given money for training/visitation of stock exchanges. We have reviewed all the minutes of meetings covering this period, and there is no record that such deliberations/resolutions were made.

There is nothing in the compensation/remuneration package of staff members of the exchange which states that they may be paid bonuses. The records so far reviewed therefore suggest, contrary to Josephine’s assertion, that the sums distributed to staff and council members was a distribution of profit contrary to clear provisions of statute.

With regard to the above, further investigation will focus on the following areas:  Determining whether the t distribution made to staff/council members was subject to tax. If it was not, it further buttresses the position that the distribution was a sharing of profits;  Conduct interviews with Council Member

NSE Consult NSE Consult is a wholly owned subsidiary of the NSE and is the investment and private sector arm of the exchange which takes proprietary trading positions on behalf of the NSE. It was observed that the NSE transferred money to NSE Consult for the purpose of trading and investing on the stock exchange on its behalf. Investigation is ongoing as to whether NSE Consult was used as a tool for insider trading in contravention of Section 112 of the Investment and Securities Act.

Possible areas of contravention In order to determine the possible charges and cause~ of action against the former/current officers of the NSE and what form of jail term, compensation/ restitution, if any, that the NSE would be entitled to we are reviewing the following legislation:

The Investments and Securities Act;  Companies and Allied Matters Act; The Corrupt Practices and Other Related Act; (iv.) The Economic and Financial Crimes Commission (Establishment) Act;  Miscellaneous Offences Act Cap. M 17 Laws of the Federation of Nigeria, 2004; (vi.) Advance Fee Fraud and Other Fraud Related Offences Act; and The Criminal Code Act. Subject to our final findings on .the transactions being reviewed, some sections of these legislations which may form the basis of prosecution are as follows:

Section 1 of the Advance Fee Fraud and Other Related Offences Act and Section 419 of the Criminal Code which respectively provide for the offence” of obtaining by false pretence/ felony and obtaining by false pretence/cheating; These provisions could be used with respect to the following
questionable transactions highlighted above: Transactions under the Long Service Award; Receipt of money for the purchase of items (Rolex watches, cars e.t.c) for the Long Service Award, which items are unaccounted for/were not used for their purpose of purchase/ seem not to have been purchased;

Duplication of money paid for the payment of the special presentation to employees who had worked with the NSE for 25 _ 30years.
Transactions under Business Travels Overseas:

Duplication of the payment of the sum of N65, 670,360.00 (Sixty Five Million, Six Hundred and Seventy Thousand, Three Hundred and Sixty Naira) for an international road show. Transactions under Maintenance of Staff Quarters Use of the NSE funds to purchase diesel and other products for officers of the NSE under the false pretence that they are official residences; Use of the NSE funds to purchase diesel and other products for non members of staff of the NSE. Receipt of money for purchase of products which were never supplied
Transactions under Staff Training

Inflation of the ticket Cost [ii.] Receipt of Money for training and not attending the said training [iii.] Duplication of payments in respect of one Convention/ training seminar  Section 8 of the Advance Fee Fraud and Other Related Expenses Act and Section 422 of the Criminal Code which respectively provide for the offence of conspiracy and conspiracy to defraud. Aside from those who actually committed the offences all those who were involved in various aspects of the offence can be charged under these sections.

[iii.] Section 18 and 46 of the Economic and Financial Crimes “Commission (Establishment) Act which provide that offences involving financial crimes such as fraud, bribery, looting, embezzlement, tax evasion and any form of financial malpractices. These provisions are very encompassing and thus cover all the questionable transactions highlighted in this report. Section 8 and 9 of the Corrupt Practices and Other Related Offences Act, Section 427 of the Criminal Code and Section 17 of the Economic and Financial Crimes Commission (Establishment) Act (EFCC Act) respectively provide for the offence of corruptly receiving or giving cash or kind, receiving” property stolen or fraudulently obtained and retention of proceeds of criminal conduct.

These provisions cover the following questionable transactions highlighted above. Transactions under Maintenance of Staff Quarters Use of the NSE funds to purchase diesel and other products for officers of the NSE under the false pretence that they are official residences; Use of the NSE funds to purchase diesel and other products for non members of staff of the NSE. Receipt of money for purchase of products which were never supplied
Transactions under Staff Training

a. Inflation of the ticket Costs b. Receipt of Money for training and not attending the said training
c. Duplication of payments in respect of one Convention/ training seminar
Transaction under the 2004 Audit

The approval and payment of N 14, 000,000.00 PR to officials of the Lagos State Government for their agreement to reduce NSE’s tax liability. [v.] Section 37 f the Investment and Securities Act places an obligation on the NSE to keep and maintain proper books of account and records relating to its operations, Section 303 places a penalty on any person who violates or contributes to the violation of any provisions of the ISA and Sections 436 and 438 of the Criminal Code make it an offence for an official of a company to engage in fraudulent /false accounting;

These provisions cover the clear false accounting/ improper book keeping in respect of the accounts of the NSE.  Section 33 of the Value Added Tax Act and Regulation 19 of the PAYE Regulations 2002 state that tax evasions, failure to remit taxes, submission of false and incorrect statements or returns are offences. These provisions cover the clear false accounting/ improper book keeping in respect of the accounts of the NSE, the false returns that were made regarding the remuneration of staff and the failure to pay tax with respect to the bonus payments made. In addition to the above, possible civil claims include the following:  conversion  negligence; and  Breach of the employment obligations & duties imposed by the.

In each of these causes of action possible reliefs that can be sought by NSE include restitution of the monies that were converted, monetary compensation for damages and loss that the NSE may have suffered as a result of the breach of employee obligations negligent conduct. The NSE Codes of Conduct for Council Members, Senior & Junior Staff requires Council Members and employees not to put themselves in positions where conflict of interest would exist and not to corruptly give or receive cash/kind. Where their conduct has breached these obligations, civil actions for breach of employment obligations as well as negligence could be instituted.