· Diamond Securities in alleged fraud
· How SEC condones illegalities in the Marke
By OHIA ISRAEL
The Securities and Exchange Commission (SEC) has again come under heavy attack after the House of Representatives Committee on Capital Markets public hearing on the capital markets following the continuous crashing of the Nigerian stock market. But the impasse in Nigerian stock market seems not to be over as the a lot of petitions have been submitted to the House Committee on Capital Markets. One of those letters was the letter dated 15th March, 2012 and addressed to the Chairman House Committee on Capital Markets.
The petition which was against Diamond Securities Limited for gross professional misconduct, unethical practices and fraudulent mismanagement of margin facility and shares, and willful neglect by the Securities and Exchange Commission to impose regulatory sanctions was however seeking for the intervention on the House Committee on Capital Markets.
In the said petition written from Ivory Chambers by one Chris Ezugwu ESQ solicitors to General Housing and Products Limited and its Managing Director Chukwuemeka Obianozie. According to the petitioner, Diamond Securities Limited which are acting at the behest of DIAMOND BANK PLC in the management of General Housing and Products Limited shares which is domiciled with the Diamond Securities even as the petitioner also alleged that the Securities & Exchange Commission attitude in handling the matter has become what it termed an apparent collusion and ineptitude .
According to the petition, Diamond Bank Plc, sometimes in 2007 offered General Housing and Products a margin facility ofN450, 000,000.00 for the purchase of shares and the shares acquired pursuant to the offer of the credit facility were domiciled and managed by Diamond Securities Limited, a wholly owned subsidiary of Diamond Bank Plc who chose and appointed the Securities outfit as sole manager of the shares.
According to them, the letter of offer clearly and unequivocally provides in clause 3 thereof that, as one of the conditions precedent to the drawn down of the facility, General Housing and Products should execute a share transfer from giving Diamond Bank Plc a right of lien over the shares and an undated letter of authority in favor of the bank to sell commensurate number of shares so as to maintain collateral cover in the event of default or decrease in value of portfolio by 20%.
Ivory Chambers said: “Our clients executed these documents based largely on the assurances by the Diamond consortium that, as banking and capital market experts, they were best equipped to manage the facility and the shares to be purchased with it in view of the specialized nature and attendant fluctuations in the financial services industry particularly the capital market. Additionally and apart from the shares purchased with the margin facility from Diamond Bank Plc, our clients had also separately mandated Diamond Securities Limited to purchase and manage on its behalf shares in different companies worth over Three Hundred Million Naira Only (N300,000,000.00).
“When, however the stock market started a gradual collapse with share prices plummeting on a daily basis the Diamond consortium did not find it necessary to exercise its authority to sell even when our clients informally drew their attention to the crisis, despite that they were daily disposing shares in which they presumably had more rewarding interests. Diamond Securities Limited and Diamond Bank Plc persisted in their failure to seize the moment even then the stock market went on a free fall and it became obvious that the situation was irredeemable.
“Apart from failing to act timorously to save our clients shares from the crises in the stock market, Diamond Securities Limited acting at the behest of Diamond Bank Plc swooped on and fraudulently converted our clients’ privately acquired shares under its custody and management,” stated the petition.
Ivory Chambers, went on to say that their client’s General Housing and Products limited has drawn the attention of the Securities & Exchange Commission to the manifest illegality vide a petition dated 29th October, 2009, wherein their clients urged SEC, as the apex regulatory body for the capital market, its activities and operators, to intervene in the matter to redress the injustice done to our clients and preserve the integrity of the Nigerian Capital Market.
In a response, the Securities and Exchange Commission set up a committee to investigate the issues raised therein. The committee convened several hearings on the matter during which the parties made submissions and submitted relevant documents as requested to the committee to aid it in its investigations.
Pursuant to exhaustive and far reaching investigations carried out by the said committee, the Securities & Exchange Commission satisfied that Diamond Securities Limited were professionally negligent in the management of our clients’ shares and had indeed, illegally converted our clients’ shares under its custody, on 19th May 2010 duly suspended Diamond Securities Limited from all Capital Market activities (the notice suspension is duly attached)
Following the suspension, Diamond Securities Limited and its parent company, Diamond bank Plc sought for an out of SEC settlement of the matter with General Housing and Products limited . In its bid to secure an amicable resolution of the matter and stave off further regulatory sanctions as threatened by SEC, Diamond Securities Limited offered General Housing and Products Limited, Fifteen Million Naira (N15,000,000.00) compensation while disclaiming liability for its professional incompetence, gross misconduct and corporate negligence which, in the first place, necessitated the suspension.
However, in another twist, General Housing Products Limited rejected the offer of Fifteen Million Naira as grossly inadequate in the circumstances; and this also made Diamond Securities Limited to become desperate and began to inundate SEC with half truths, untruths and in most cases outright falsehood in a bid to have its suspension from the stock market lifted and its dented corporate image restored.
Meanwhile, the Enforcement committee set up by SEC to implement the outcome of the Investigative committee also convened several hearings wherein it took further submissions from the parties and requested the parties to submit further relevant documents in respect of the matter. The plethora of hearings commenced by the Enforcement committee of SEC wound up with a directive by the committee to the parties to submit their final written addresses to enable SEC take a final decision on the matter.
While all these were going on, Diamond Securities Limited, in clear contempt of the SEC proceedings, proceeded to sell some of the shares in dispute without recourse to the client. Curiously SEC did nothing to protect its regulatory integrity even when we brought the matter to its attention.
However, Ivory Chambers, in their report said that; “Our clients became understandably agitated when seven months after the suspension of Diamond Securities Limited from the Capital market in May 2010 and five months after the submission of final addresses by the parties no decision or action had been taken by SEC over the matter. Worried by this development, our clients wrote to SEC lamenting the commission’s impious silence over the issue even in the face of the incalculable loss the fraudulent and unprofessional conduct of Diamond Securities Limited had inflicted on our clients financial profile.
“Indeed our client became uncomfortable with the passive posture of SEC which was beginning to assume the character of acquiescence to DSL’s reckless plunder and violation of our clients trust. In apparent disregard and further contempt to SEC’s regulatory authority and investigative proceedings, Diamond Securities Limited and Diamond Bank Plc purported to have sold our client’s margin facility portfolio to the Asset Management Company of Nigeria. Very curiously, the Managing Director of SEC sits on the board of AMCON.
With this development, our client began to suspect that there was, perhaps, an “organic connect” between the Director General of SEC and her management team on one hand and Diamond Securities Limited on the other hand,” the petition stated.
It went on: “This clear and willful failure by SEC to discharge its statutory responsibility prompted General Housing and Products Limited to draw the attention of the Honourable Minister of State for Finance to the impasse vides a letter dated January, 10 2011. But while they are still awaiting the Honourable Minister’s action in the matter, they received a letter from SEC informing them that “parties concerned in this matter should resolve their dispute or escalate same to the court for resolution”.
The letter not only came to General Housing and Products Limited as a rude shock but is also unfortunate, tendentious and a clear departure from the statutory obligations imposed on SEC by Section 13 of the Investment and Securities Act 2007.
There is overwhelming and established evidence stated the report that Diamond Securities Limited and Diamond Bank plc fraudulently mismanaged our clients privately acquired shares and the margin facility granted our clients by the bank to purchase shares contrary to Rule 110 of the SEC Rules & Regulations, Code 1(v) of the Code of conduct for Capital Market Operators.
“This much the Securities & Exchange Commission clearly admitted in its letter suspending Diamond Securities Limited from the Capital Market.
On the part of SEC which suspended Diamond Securities Limited from the Capital Market in May 2010 to turn around in January, 2011 to lift the suspension without any reason for the its new position. It is also a clear abandonment by SEC of the mandatory statutory obligations imposed on it by the Securities & Investment Act and the SEC rules made pursuant thereto which requires SEC to protect investors and sanction erring capital market operators like Diamond Securities Limited, and thereby strengthen the confidence of investors in the capital market.”
“If Diamond Securities Limited fraudulently “sold other Securities belonging to the complainant … and refused to remit the proceeds to the complainant” as established by SEC in its letter of 19th May 2010 (attached) suspending DSL from capital market activities, the Investment & Securities Act and the SEC Rules and Regulations empower SEC to impose decisive sanctions on DSL other than suspending then from Capital Market activities for a few months and lifting the suspension without as much as a reason for the reprieve.
“Are the reasons for the suspension no longer tenable? Why did Diamond Securities Limited offer our clients N15,000,000.00? If indeed they were not convinced of the consequences of their fraudulent mismanagement of our clients’ share, breach and abuse of its trust obligations to our clients, why would they offer any money? Or is DSL a charitable organization?
The Securities & Exchange Commission (SEC) has by its apparent collusion with a fraudulent and erring Capital Market Operator exposed the Nigeria Capital Market to ridicule. The integrity of the Nigerian Capital Market has been put to serious question, and we do not believe that any genuine businessman will invest in a sector where the regulatory agency connives with operators who engage in fraud and sharp practices to the detriment of investors”, the report concluded.