By Biodun Sonowo

Wednesday, 22 Dec 2010

The two chambers of Nigeria‘s parliament where macabre entertainment at public expense is often on display intervened in the ongoing crisis in the capital market the other day. First, the House of Representatives‘Committee on Capital Market angrily berated Arunma Oteh, Director-General of the Securities and Exchange Commission, for the actions she had been taking since August this year to clean up the system.

The committee declared that SEC did not follow due process before ordering the removal of Prof. Ndi Okereke-Onyiuke as head of the Nigerian Stock Exchange and the suspension of other members of its council. It then recommended that Okereke-Onyiuke be reinstated as NSE‘s director-general to allow her retire voluntarily as she had earlier indicated.

Shortly afterwards, the Senate Committee on Capital Market also convened to repeat the lower chamber’s assertion that Okereke-Onyiuke had been denied “fair hearing” and was equally hostile to SEC and its head. While still reeling from the legislative onslaught, another scud missile landed on Oteh’s table, this time from the Attorney-General of the Federation, Mr. Muhammed Adoke (SAN), who, acting on a petition, reportedly demanded to know why the regulator sacked the larger-than-life Okereke-Onyiuke.

Never before in this clime had such legislative and executive arsenal been deployed on the side of an individual that had come to symbolise the troubles in the capital market and around whom allegations of financial wrong-doing were swirling. In effect, both the legislature and the nation‘s chief law officer appear to be the chief defenders/protectors of an individual being sanctioned by the state regulator for alleged wrongs in the financial market!

The natural question stakeholders have been asking is: whose interest are Adoke and the lawmakers promoting? How did we get here? The story began in August when SEC, acting on a petition from the President of the NSE, Alhaji Aliko Dangote, ordered the removal of Okereke-Onyiuke as DG and also asked the petitioner and some Council members who, like Dangote himself, were enmeshed in an election controversy, to step down.

In the petition, the industrialist accused the NSE management of false accounting; failure to file the financial statement within the statutory time; raiding Central Securities Clearing System, an NSE subsidiary, to the tune of N900 million; depleting the bourse‘s reserves, and hiding the fact that the Exchange was insolvent.

SEC followed up on this action by appointing KPMG, an audit firm, and Oyebode & Aluko, a law firm, to undertake a forensic examination of NSE‘s books. Like the dizzying revelations of misdeeds that emerged in the wake of the ongoing sanitisation at the banks in mid-2009, the ”interim report” on the bourse, widely reported in the press and yet to be denied, are sordid indeed.

The investigators narrowed the allegations in SEC inspectors‘ report and Dangote‘s petition to 20 issues, among them that NSE spent N592.97 million on a long service award ceremony in 2008; assets allegedly disappeared from the books in questionable circumstances; sharing of money among council members with a former president getting N400 million from a total of N1.39 billion shared between 2005 and 2008; questionable travel, training and public enlightenment expenses; award of contracts to staff members and alleged abuse in expenditure classification.

Before then, Nigerians had been traumatised by a meltdown in late 2008 that by 2009 had wiped out share values by two-thirds. Ironically, Okereke-Onyiuke‘s 10-year tenure at the NSE is credited with overseeing the dramatic growth of the bourse.

Years of reforms and the bank consolidation of 2005/2006 witnessed astronomic growth in the market, unseen since its founding in 1960. Market capitalisation – the total value of quoted shares – rose four-fold to peak at N13.5 trillion by March 2008, with over 300 quoted equities, while the All-Share Index – a measure of the size and direction of general share price movement – was 66,000 basis points.

Nigerians as well as local and foreign institutional investors embraced the market. But the crash was as swift and giddy as the rise: By mid-January 2009, market capitalisation had fallen to N4.6 trillion and ASI to less than 22,000 points. Many stocks are illiquid with shareholders unable to convert them to cash to meet other investment needs.

Just as banks helped propel the growth of the bourse, many stakeholders blame capital market operators whose sharp practices helped bring down the market and ruined many businesses and individuals. Capital market analyst, Amaeze Olisaemeka, in a study of the market, recalls that about N2.2 trillion was raised for the primary market largely through disposal of shares in the secondary market as the banks brought in their short-term orientation into a market that thrives as a source of long-term funds.

Banks at a stage were financing about 65 per cent of the market, providing dubious margin loans to cronies and stock broking firms. CBN says over N1 trillion was lost through such margin loans, the result of insider abuse and share price manipulation. It is estimated that the total exposure of banks to the capital market in terms of trapped funds is in excess of N1 trillion.

One major cause of the disaster was a failure of regulation as both NSE and SEC abdicated their responsibilities while the market ran riot. Surely, all the arms of government should support efforts to end that era of weak regulation, not gang up against a new chief regulator seeking to instil sanity in the system. The AGF, the lawmakers and others backing the ousted NSE chiefs should pause to ponder the consequences of the market meltdown: losses of over 67 per cent of market value; trillions of naira trapped and capital flight. But perhaps the greatest havoc of the shenanigans that crippled the market is the loss of confidence in the NSE. The market thrives on confidence and distrust of operators and regulators stunts the growth of the bourse. Already, investors have been cautiously responding to the sanitisation efforts moving to capitalisation of N7.8 trillion recently.

Besides, allegations against NSE chiefs border on crime and the law should be allowed to take its course. If the AGF and lawmakers did not intervene to interpret the laws on due process when the Central Bank of Nigeria sacked eight bank CEOs last year and accused them of misdeeds, many involving dubious loans to the capital market, it is strange that they have suddenly become the final word on due process. Meanwhile, Okereke-Onyiuke and others have gone to court to challenge SEC‘s; actions in which case they should allow the wheels of justice to roll.

Being human, it is quite possible that the regulators may have erred and one should not discount the reality that internal power struggles within the NSE may have played a part in blowing open the putrid cupboards of the Exchange. But the law should take its course. Adoke’s role is especially curious since, as a senior lawyer, he knows that a case that is in court is not for him to adjudicate. The role of his immediate predecessor, Michael Aondoakaa, in frustrating the anti-corruption war is still fresh in the minds of Nigerians and he should not cast himself in that mould.

For Nigerian public officials, the overriding preoccupation should be the national interest to reinvigorate the capital market and they should not convey the impression that some Nigerians have become so influential that even regulators must be hounded on their behalf!

– Sonowo, a PUNCH employee, writes vide biodunsonowo@yahoo.com