As SEC, Oando Begin Legal Fireworks
Justice Ayokunle Faji of the Federal High Court in Lagos will on Monday, June 24, 2019, begin hearing of arguments between the lawyers of sacked Group Managing Director of Oando Plc, Jubril Adewale Tinubu and his long time deputy, Omamofe Boyo and the Securities and Exchange Commission (SEC).
The SEC had on Friday, May 31, said a report of the forensic audit performed by the firm of Deloitte and Touche revealed serious infractions. These include: “false disclosures, market abuses, misstatements in financial statements, internal control failures, and corporate governance lapses stemming from poor board oversight, irregular approval of directors’ remuneration, unjustified disbursements to directors and management of the company, related party transactions not conducted at arm’s length, amongst others”.
The Commission therefore, ordered the resignation of some board members, while barring Tinubu and Boyo, from being directors of public companies for a period of five years, based on the allegation which the company’s management described as “unsubstantiated, ultra vires, invalid and calculated to prejudice the business of the company.”
Oando said its management was not afforded “the opportunity to see, review and respond to the forensic audit report and so is unable to ascertain what findings (if any) were made in relation to the alleged infractions and defend itself accordingly before the SEC.”
But the commission has since argued to the contrary, going ahead to appoint an interim management committee headed by Mutiu Sunmonu, a former head of Shell Nigeria.
This prompted the Oando management to obtain an injunction stopping the enforcement of the SEC’s orders, for which the commission has filed preliminary objection as well as counter-affidavit against the fundamental rights enforcement suit which Tinubu and Boyo, as applicants filed against it.
In the preliminary objection, SEC urged the court to dismiss the suit on grounds of lack of jurisdiction, non-compliance with conditions precedent as prescribed by the investment and Securities Act, no, 29, 2007 for instituting an action against the respondent and failure to exhaust the administrative remedy available.
In a statement to the Nigerian Stock Exchange (NSE), Oando Plc’s management accused the commission of not giving it fair hearing as in previous cases where it similarly intervened in the management of public companies, contrary to the SEC’s claim.
Despite the alleged lack of fair hearing, Oando said its management “simply co-operated with the process and responded to questions posed by the auditors in the course of their fieldwork for findings in a report that the company has still not seen.”
Oando further argued that before the forensic audit it “was not afforded the same opportunity to meet with the SEC as was afforded to the petitioners, despite repeated written requests to that effect.”
The SEC however affirmed that Oando Plc was given sufficient opportunity of being heard before they were penalised.
According to a statement from the SEC, there were various opportunities to defend themselves during the investigation by SEC and during the forensic Audit.
“The attention of the SEC has been drawn to various reports questioning the regulatory authority of the SEC, and insinuating lack of due process in the investigations of Oando Plc.
“To put the records straight, the SEC hereby states that fair hearing is a paramount and fundamental principle, which the Commission as a law abiding agency adheres to in all its investigative processes.
“In the course of the investigations, communications e.g. letters and phone calls were exchanged and meetings held between the Commission and Oando Plc, requesting for its comments and explanations on issues relating to the investigations. The findings of the Commission was communicated to the Group Chief Executive Officer of Oando Plc by a letter dated July 10, 2017.
The Commission said it subsequently engaged Deloitte & Touche to conduct a Forensic Audit of the activities of Oando Plc.
SEC said in the course of conducting the forensic audit, Deloitte & Touche held regular sessions with members of the Board and senior management of Oando Plc, and afforded them the opportunity to provide explanations on issues relating to the audit.
“The Commission confirms that Oando Plc was given sufficient opportunity of being heard and accorded several opportunities to rebut the issues revealed by the investigation. The responses given by Oando Plc, were however considered unsatisfactory; prompting, the decision by the Commission to penalize the company and some of the individuals related to it for violations of securities laws.
“The actions of the Commission were properly effected pursuant to the provisions of the Investments & Securities Act (ISA) 2007 and the SEC Rules and Regulations made pursuant to the ISA 2007” the SEC said.
The Commission said these facts have been properly articulated in the court process it filed at the Federal High Court in response to the suit instituted by the Group Chief Executive Officer and Deputy Group Chief Executive officer of Oando Plc.
“As the Apex Regulator of the Nigerian capital market, the Commission has a mandate to protect investors.
“The Commission’s recent action on Oando Plc aligns with the above cardinal mandate, as the directive for the removal of persons from the board of Oando Plc and the appointment of an interim management team to temporarily steer the affairs of the company is to protect investors and preserve stakeholder value.
“Failure or refusal of the Commission to act in the face of the serious issues thrown up by the investigations or to reverse its directives, would undermine the Federal Government’s agenda to build strong institutions and promote the transparency and integrity of the Nigerian capital market, especially given that, these are preconditions for attracting foreign investors to the Nigerian capital market”. The SEC added.
During the 18-month long forensic audit exercise, the company insisted that it was never given an opportunity to present its case based on the concerns or findings of the Forensic auditor to the SEC, while in kick off meeting with Deloitte on March 29, 2018, they assured the Company that we would be allowed to read their report on the forensic audit and give further clarification or comments on matters raised in their report (READ MORE).
Reacting to Oando’s claims, a group under the aegis of the Consolidated Capital Market Stakeholders Forum (CCMSF), in a statement by Umar Usman, its coordinator said the company initially resisted the auditors and only allowed the audit to proceed much later, “after they had taken SEC to court and questioned its powers to carry out the audit.”
Usman noted with great concern, the level the issues surrounding the forensic audit of Oando Plc is degenerating go with some comparisms being made to the ETI issue.
According to Umar, “The oando issue was a forensic audit, ETI was corporate governance audit. The scopes were totally different; they were not the same. It is laughable that they are being compared.
“Also, during the ETI investigation, it is on record that the ETI management and board co-operated with SEC, they did not take SEC to court to stop the investigation, they did not publish things about SEC in papers like we are seeing now”.
“Remember when this audit was to commence initially, Oando took SEC to court and that initially delayed the entire process. The management too were not co-operative from the beginning. With ETI, the management co-operated from the beginning of the investigation till the end.
Umar said in the Oando case the auditors engaged the management, which they resisted initially, adding that it was much later that the forensic audit was allowed to go on.
“The chairman and MD of ETI had to leave their positions in their time, they did not question SEC. they left and did not take SEC to court to question its powers”.
Also in a press statement, the management of Deloitte on Thursday, promised to publish its full forensic audit report, if it becomes necessary at some point to set the records straight.
At Monday’s resumed hearing before Justice Faji, lawyers to the SEC would expectedly draw attention to the provisions of Section 13 which empowers its management to perform all that it has done in the Oando Plc matter.
They will also be convincing the court of its powers under Section 13 (bb) of the Investment and Securities Act (ISA 2007) that Tinubu and Boyo are persons unfit to be employed in any arm of the securities industry, as affirmed by a most recent decision of the Court of Appeal in SEC v. Big Treat & 5 Ors Suit No – CA/L/88/2011.
The commission’s investigation into the affairs of Big Treat Plc a public listed company and its directors had shown several infractions of the ISA 2007 like the inadequate and total breakdown of corporate governance in the company and inadequate internal control systems.
In that matter, the Lagos Division of the court upheld the powers of the SEC to intervene in the management and control of public companies, under its power of investor protection, while maintaining a free, fair, efficient and transparent capital market.
When they square up on Monday, lawyers on both sides will seek to help the court decide on the allegations of unfair treatment as alleged by Oando, Tinubu and Boyo.
Lawyers of the commission will also be convincing the court that Section 13 of the ISA 2007 empowers it as the apex regulatory organisation for the Nigerian capital market to undertake the functions prescribed in this Act, including regulating investments and securities business in the country as defined in the Act. They must also prove that the actions taken in the case of Oando Plc are in the public interest, especially as it concerns investor protection; and in further bid to prevent “fraudulent and unfair trade practices relating to the securities industry;” among others.
The SEC must also establish that the implementation of Section 13 of the ISA is the responsibility of its management, just as the power to sanction erring individuals under Section 13 (u) and to levy fees, penalties and administrative costs of proceedings or other charges on any person in relation to investments and securities business in Nigeria, in accordance with the provisions of the Act.