BY PETER EGWUATU

Stakeholders in the Nigerian capital market are divided over the penalties imposed by the Securities and Exchange Commission on Sterling Registrar over its role in the unlawful allotment of Japaul Oil and Maritime Services Plc’s shares.

Last week, the Administrative Proceedings Committee (APC) of the commission fined Sterling Registrar, Kalstead Farms Investment Ltd and five others culpable in unlawful allocation of the shares of Japaul Oil and Maritime Services Plc.  In addition to  cancelling the registration of Sterling Registrar, SEC  also  imposed  a fine of N5million  and ordered it to pay the sum of N5,000 (Five thousand naira) from the day of the illegal allotment (6th May 2008) to the date the decision was made.

Some stakeholders, however, believe that the penalties were too heavy.
“It is a welcome development, but I think the penalty is too much”, said, Chief Sunny Nwosu,   National Coordinator, Independent Shareholders Association of Nigeria, ISAN.

In an interview with Financial Vanguard, he said, “Anyway, Sterling Registrar has the option of appealing the case to get mild penalty.  In my own opinion, I think the commission should not have revoked the licence of the registrar and as well impose fine on them. What the commission should have done is to ask it to pay fine so that it will serve as a deterrent to others. Revoking its licence will not be to the interest of shareholders as well as the market in general.”

His position was supported by Chief Joseph Okelano, Chairman, Shareholders Mobilisation Association of Nigeria.
“It is a good development for our market, but the sanction is too heavy”, he told Financial Vanguard. “How come the registrar is asked to pay  N5 million and  another fine of N5,000.00 per day from the day of default (2008) to date . It is not done, even in advanced economies.

We should also realise that the case was not disposed on time from 2007 till now. The fine is inhumane. SEC should return their licence and allow it to pay the fine. The commission should temper justice with mercy. I am a customer of Sterling Bank. We just gave the bank some money to further boost its capitalisation through rights issue”, he said.
However, Chief Timothy Adesiyan, President, Nigerian Shareholders Solidarity Association (NSSA), the oldest shareholder group in the country and some other stakeholders do not share this view.

“The action by SEC is a welcome development as it will help sanitise the market from all kinds of fraudulent practices.  Even the former Managing Director of Sterling Bank,  Akabueze, should be questioned since he was still with the bank when the public offering of Japaul was done in 2007 and he even assured us that there will be no problem  from the offer,” Adesiyan told  Financial Vanguard

Continuing, he said, “The investigation should be in-depth , even  Japaul should be involved in the case as well. The company has been convening  its Annual General Meeting, AGM, in areas that are not comfortable  for shareholders and we are not happy with it.”

Similarly, Alhaji  Gbadebo Olatokunbo,  former National Publicity Secretary of the NSSA,  commended  SEC for the investigation and the sanction imposed on Sterling Registrar.
He said, “Whoever that err should not be spared. That is the only way to sanitise the system and prevent further crime in the market.

“This shows that SEC has woken up from its slumber. It is not good for a regulator in the market to keep warning defaulters without appropriate sanctions. If they keep warning without imposing sanction, you will see people committing crime and going scot-free.

On his part, Ambassador Olufemi Timothy, President, Renaissance Shareholders Association, said, “It is a welcome development. This is one thing that investors all over the world expect from the market.  We the investors have been agitating that regulators should be proactive. We are not happy with some of our registrars.  They commit all sorts of unlawful acts. The SEC should put up more actions that will put fear on scrupulous operators. A lot could still be discovered by the commission with further investigation.

The Administrative Proceedings Committee (APC) is an internal administrative committee of the Securities & Exchange Commission (the Commission) established to afford the opportunity of hearing to parties alleged to have breached the provisions of the securities’ laws and regulations. The APC was set up to resolve conflicts, disputes or grievances in the Nigerian capital market.

The Committee consists of the Director-General of the commission (who presides), members of the Board of the commission, directors in the operations departments of the commission and observers who are representatives of trade associations in the market e.g. the Associations of Stock brokers, Registrars, Trustees, Issuing Houses etc.

The commission had dragged  to the APC,  Sterling Registrars Ltd.  (1st Respondent) , Mr. Giwa Olayinka Takiudeen  (2nd Respondent), Mr. Adeniji Adetokunbo  ( 3rd Respondent) , Kalstead Farms Investment Ltd (4th Respondent), Mr. Omodele Teluwo (5th Respondent),  Mr. Kolawole Teluwo (6th Respondent), Mr. Ganiyu Akeem (7th Respondent). The commission accused them of:   Unlawful allotment of shares; payment of return monies to persons not entitled thereto; violations of the SEC rules and regulations (As Amended) and the Code of Conduct for capital market operators and their employees.

The APC, investigating the case, found that, the first to the 6th respondents “engaged in unlawful allotment of shares of Japaul Oil & Maritime Services Plc during its initial public offer of 2007, which contravened the provision of the Investments and Securities Act 2007, SEC Rules and Regulations 2000 (as amended).”

It also found that, “The 1st Respondent (Sterling Registrars) issued questionable return money warrants of N445, 867.71 (Four Hundred and Forty-Five Thousand, Eight Hundred and Sixty-Seven Naira, Seventy [-One Kobo) and N791, 447.32 (Seven hundred and Ninety-One Thousand, Four Hundred and Forty-Seven Naira, Thirty Two Kobo) respectively to Mr. Akin Ekundayo and Aina Folasade

“That the 1st, 2nd, 3rd,   5th and 7th   respondents violated the provision of Rule 43 of the SEC Rules and Regulations (as amended) by not observing fair and equitable dealings in securities and not maintaining proper standard of conduct and professionalism in securities business.

“That the 1st – 7th respondents violated the provisions of Rule 110 of SEC Rules and Regulations (as amended) when they engaged in manipulative and deceptive devices and contrivances.
“That the 1st, 2nd, 3rd,   5th and 7th  Respondents violated the provisions of Article 1(I) & (III) and 2 (I)   & (II) of the Code of Conduct for capital market operators and their employees as contained in Schedule IX of the SEC Rules and Regulations (as amended).”

Consequently the APC decided that “By their actions 1st, 2nd, 3rd,   5th and 7th respondents have engaged in acts capable of adversely affecting the investing public’s image of and confidence in the capital market;
That the 1st respondent did not exercise utmost good faith in the discharge of its functions as a registrar;
That pursuant to Section 303 of the Investments and Securities Act (ISA) 2007, the 1st respondent be and is hereby ordered to pay a fine of N5, 000,000.00 (Five Million Naira) only and a further sum of N5,000 (five thousand naira) only per day from the day the illegal allotment was made (6th May 2008) to the date of decision hereof, for its unprofessional conduct and breach of the provisions of Investments and Securities Act (ISA) 2007 and SEC Rules and Regulations made pursuant thereto;

“That the registration of the 1st respondent (Sterling Registrars Ltd.) be and is hereby cancelled;
“That pursuant to Schedule VII Rule 11 of the SEC Rules and Regulations, the 5th respondent, who is a director of the 4th respondent (Kalstead Farms Investment Ltd) and also a staff of the 1st respondent (Sterling Registrars Limited) be and is hereby banned from engaging in capital market activities for 20 (twenty) years for his role in designing and masterminding the irregular transaction in this matter;

“That pursuant to Schedule VII Rule 11 of the SEC Rules and Regulations, the 4th respondent (being the company unlawfully allotted shares in irregular transaction) and the 6th respondent, being the (Chairman / Director) of the 4th respondent (Kalstead Farms Investment Ltd) be and are hereby blacklisted for colluding with the 5th respondent in carrying out the irregular transaction;

“That the 7th respondent be and is hereby banned from engaging in capital market activities for twenty years for colluding with the 5th respondent to pay   and clear third party cheques through   his employer’s (Quantum Securities Ltd) account;
“That the 4th, 5th, 6th and 7th respondents be and are hereby ordered to disgorge all benefits enjoyed as a result of these transactions.