By Yakubu LAAH InvestAdvocate

Lagos (INVESTADVOCATE)-The Securities and Exchange Commission (SEC) Monday announced it has indicted Sterling Registrars Limited and six (6) other persons as Respondents  for unlawful Allotment of Shares. payment of return monies to persons not entitled thereto and violations of the SEC Rules and Regulations (As Amended) and the Code of Conduct for Capital Market Operators and their employees.

This is coming on the heels of Administrative Proceedings Committee (APC) of SEC in the matter of the Investments and Securities Act (ISA) 2007.

below is the proceeding and decision:

APC/1/2013

In Re:

• 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.

 Between:

Securities and Exchange Commission

And                                                        

1. Sterling Registrars Ltd.                              1^st Respondent
2. Mr. Giwa Olayinka Takiudeen                      2^nd Respondent
3. Mr. Adeniji Adetokunbo                                       3^rd Respondent      
4. Kalstead Farms Investment Ltd                   4^th Respondent
5. Mr. Omodele Teluwo                                  5^th Respondent
6. Mr. Kolawole Teluwo                                  6^th Respondent
7. Mr. Ganiyu Akeem                                     7^th Respondent

MEMORANDUM OF FACTS

1. The 1^st Respondent is registered by the Commission to perform the function of a Registrar.

1. The 2^nd Respondent is a sponsored individual of the 1^st Respondent.

1. The 3^rd Respondent is a staff of the 1^st Respondent.

1. The 4^th Respondent is a limited liability company duly registered with the Corporate Affairs Commission.

1. The 5^th Respondent is a staff of the 1^st Respondent and also a Director of the 4^th Respondent.

1. The 6^th Respondent is a Director of the 4^th Respondent.

1. The 7^th Respondent is a staff of Quantum Securities Ltd, a registered capital market operator.

1. In June 2010, the 4^th Respondent, Kalstead Farms Investment Ltd, vide a letter signed by the 6^th Respondent, petitioned the Commission alleging that its stockbroker, Quantum Securities Ltd, which was indebted to it to the tune of N3, 500,000 (Three Million Five Hundred Thousand Naira) only, issued a dud check to it for the sum of N300, 000 (Three Hundred Thousand Naira) only, and refused to execute its mandate to purchase shares. Exhibit A.

1. In its response to the Commission’s enquiry, Quantum Securities Ltd in its letter dated August 2, 2010 informed the Commission that it did not carry out 4^th Respondent’s instructions because:

1. The full identity of the owners of Kalstead Farms Investment Ltd especially that of the Chairman was not known to Quantum Securities Ltd. Further, the identities of Messrs Aina Folasade and Ekundayo Akin who signed the mandates for Kalstead Farms Investment Ltd were unknown to Quantum Securities Ltd as same was not made available to the operator.

1. Quantum Securities Ltd could not confirm the source/ownership of the 1,637,937 (One Million Six Hundred and Thirty Seven Thousand Nine Hundred and Thirty Seven) units, 131,355 (One Hundred and Thirty One Thousand Three Hundred and Fifty Five) units and 50,700 (Fifty Thousand and Seven Hundred) units of Japaul Oil & Maritime Services Plc shares directly deposited into Kalstead Farms Investment Ltd’s CSCS account No. 7118924 by Sterling Registrars Ltd. Exhibit B.

10. In the course of its investigations, the fact emerged that the complaint of the 4^th Respondent emanated from Japaul Oil & Maritime Services Plc 2007 Initial Public Offer, offer for subscription 1, 007,488,188 (One Billion, Seven Million Four Hundred and Eighty Eight Thousand One Hundred and Eighty Eight) ordinary shares of fifty kobo each at N3.95 per share.

11. The offer opened on September 24, 2007 and closed on October 31, 2007 while the private placement to absorb the excess subscription opened on May 6, 2008 and closed same day.

12. The 1^st Respondent acted as the Registrar to the offer.

13. At the close of the Offer and in line with SEC Rules and Regulations, the Issuing Houses (First Inland Bank Plc and Future View Financial Services Ltd) duly submitted to the Commission for its approval the allotment proposal showing a list of all applicants who applied for shares in Japaul Oil & Maritime Services Plc.

14. On February 6, 2008 the Commission approved the allotment proposal and communicated the joint Issuing Houses. Exhibit C

15. After the close of the said Offer, the 5^th Respondent applied for shares using the names of five fictitious companies. The company names used and the number of shares applied for were as follows:

Exhibit D

16. The total number of shares applied for by the aforementioned companies amounted to 1,421,300 (One Million, Four Hundred and Twenty-One Thousand Three Hundred).

17. One of the fictitious companies, Kalstead Farms Investment Ltd was only subsequently registered on June 25, 2008. Exhibit E

18. None of the aforementioned fictitious companies used by the 5^th Respondent to apply for the shares of Japaul Oil & Maritime Services Plc during the Offer was listed in the allotment proposal submitted to the Commission for approval, and none of the said companies’ allotment was approved as confirmed by the Commission’s SIS Department. Exhibit F.

19. Notwithstanding that the company’s name was not in the approved allotment proposal, the 1^st and 5^th Respondents connived and allotted the shares of Japaul Oil & Maritime Services Plc to the 4^th Respondent as follows:

20. The total number of shares allotted to Kalstead Farms Investment Ltd amounted to 1,919,292 (One Million, Nine Hundred and Nineteen Thousand, Two Hundred and Ninety-Two) shares. Exhibit G

21.  The 4^th Respondent did not pay for the 1,919,992 (One Million Nine Hundred and Nineteen Thousand Nine Hundred and Ninety Two) units of Japaul Oil & Maritime Services Plc shares irregularly allotted to it.

22. The 4^th Respondent alleged that it issued two Sterling Bank Plc cheques both dated 26^th May, 2008 for the sum of N15, 015,104.16 (Fifteen Million Fifteen Thousand One Hundred and Four Naira Sixteen Kobo) each totaling N30, 030,208.32 (Thirty Million, Thirty Thousand, Two Hundred and Eight Naira, Thirty Two Kobo) only, as payment for the 1,919,292 (One Million Nine Hundred and Nineteen Thousand Nine Hundred and Ninety Two) units of Japaul Oil & Maritime Services Plc shares. Exhibit H

23. The sum referred to in paragraph 20 and allegedly paid by the 4^th Respondent for 1,919,292 (One Million Nine Hundred and Nineteen Thousand Nine Hundred and Ninety Two) units of Japaul Oil & Maritime Services Plc shares was well above the amount required to be paid for the said number of shares.

24. The various Kalstead companies referred to in paragraph 13 were not legal entities as at the time they were used by the 5^th Respondent to apply for the shares of Japaul Oil & Maritime Services Plc.

25. The 1^st Respondent issued “return money” warrants for the sum of N445, 867.71(Four Hundred and Forty-Five Thousand, Eight Hundred and Sixty-Seven Naira, Seventy-One Kobo) only, in favour of Mr. Akin Ekundayo and N791, 447. 32(Seven Hundred and Ninety-One Thousand, Four Hundred and Forty-Seven Naira, Thirty Two Kobo) only, in favour of one Aina Folashade Ojuolaope respectively.  Exhibit I

26. Mr. Akin Ekundayo applied for 20,000 (Twenty Thousand) units of Japaul Oil & Maritime Services Plc Shares and was fully allotted and thus was not entitled to any “return money”. Exhibit J

27. There was no evidence to show that the said Aina Folashade Ojuolape subscribed for the Japaul Oil & Maritime Services Offer thus warranting the issuing to her of the “return money” warrant.

28. The said “return money” warrants were not forwarded to the recipients but paid into the account of Quantum Securities Ltd by the 5^th Respondent with the connivance of the 7^th Respondent. Exhibit K

29. The 5^th Respondent, in the course of investigating this matter, issued to himself a purported letter of authority from Mr. Akin Ekundayo. Exhibit L.

30. The 5^th Respondent with the assistance of the 7^th Respondent cleared the return money warrants issued in favour of Mr. Akin Ekundayo and Aina Folashade Ojuolape through the account of the 7^th Respondent.

 In view of the foregoing, the Respondents have now been invited to the Administrative Proceedings Committee (APC) of the Commission to show why sanctions should not be imposed on them for the violations hereinafter stated.

Provisions of the Investments and Securities Act 2007, SEC Rules and Regulations (As Amended) and the Code of Conduct for Capital Market Operators and their Employees violated by the Respondents.

The Respondents are in violation of the following:

1. Rule 110 of the Rules and Regulations which provides thus;

“A person involved in securities trading shall not –

(a)              employ any device, scheme or artifice to defraud or capable of defrauding any person or institution;

(b)             make utter or present any untrue statement of a material fact;

(c)              omit to disclose a material fact necessary in order not to render any statement misleading in the light of the circumstances under which the statement was made;

(d)             engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale or dealing in any security; or

(e)              deal in the securities of a company of which he is an insider.  

1. Rule 43 of the SEC Rules and Regulations (As Amended) which provides thus;

“All registered persons shall comply with the Commission’s Rules on orderly, fair and equitable dealings in securities and ensure that they maintain proper standards of conduct and professionalism in securities business.  They shall also comply with the Code of Conduct for market operators approved by the Commission and contained in Schedule IX of these Rules and Regulations” (as amended).

1. Rule 110 of the SEC Rules and Regulations (As Amended) which provides thus;

Manipulative and deceptive devices and contrivances

“A person involved in securities trading shall not –

(a)              Employ any device, scheme or artifice to defraud or capable of defrauding any person or institution;

(b)             Make ,utter or present any untrue statement of a material fact;

(c)              Omit to disclose a material fact necessary in order not to render any statement misleading in the light of the circumstances under which the statement was made;

(d)             Engage in any act, practice or course of business which operates or would operate as a fraud or deceit  upon any person in connection with the purchase or sale of or dealing in any security; or

Deal in the securities of a company of which he is an insider

1. Article 1(i) & (iii) of the Code of Conduct for Capital Market Operators and Their Employees which provides thus;

All operators –

i. shall strictly abide, at all times, by all existing Securities Laws, Rules and Regulations made thereunder;

iii. Shall not engage in any act that would adversely affect the general investing public’s image of, and confidence in, the capital market;

1. Article 2 (i) & (ii) of the Code of Conduct for Capital Market Operators and Their Employees which provides thus;

An Employee shall;

1. at all times conduct himself with integrity and display high level of professionalism expected of the industry;

ii.  not engage in any act that would adversely affect the general investing public’s image of, and confidence in, the capital market;

RELIEFS SOUGHT

1. A declaration that by their actions, the 1^st, 2^nd, 3^rd, 5^th and 7^th Respondents have engaged in acts capable of adversely affecting the investing public’s image of and confidence in the capital market.

1. A declaration that 1^st Respondent did not exercise utmost good faith in the discharge of its functions as a registrar.

1. An order pursuant to Section 303 of the Investment and Securities Act directing the 1^st Respondent to pay a fine of N1,000,000 (One Million Naira) only, for unprofessional conduct and breach of the provisions of the SEC Rules and Regulations and the Investment and Securities Act 2007

1. An order pursuant to Schedule 11 SEC Rules and Regulations banning the 5^th Respondent who is a Director of Kalstead Farms Investment and also a staff of Sterling Registrars Ltd from being employed in capital market for life for his role in designing and masterminding the irregular transactions in this matter.

1. An order pursuant to Schedule 7 Rule 11 of the SEC Rules and Regulations blacklisting the 6^th Respondent who is the Chairman of Kalstead Farms Investment Ltd

1. The 7^th Respondent be banned from engaging in capital market activities for life for conniving with the 5^th Respondent in clearing the “return monies” paid to non subscribers to the Offer.

1. An order directing the disgorgement of proceeds of sale of the shares irregularly allotted to Kalstead Farms Investment Ltd, which were not paid for by the 6^th and 7^th Respondents.

1. Disgorgement of all benefits enjoyed by the 5^th, 6^th and 7^th Respondents as a result of these transactions.

FINDINGS

The Administrative Proceedings Committee sat on Friday 4th October, 2013 wherein the parties in the matter made their oral and written submissions in respect of the issues raised in the Memorandum of facts and Respondents brief. After evaluating the oral and documentary evidence, the Committee made the following findings;

GENERAL FINDINGS

1. The 1^st Respondent is registered by the Commission to perform the function of a Registrar.

1. The 2^nd Respondent is a sponsored individual of the 1^st Respondent.

1. The 3^rd Respondent is a staff of the 1^st Respondent.

1. The 4^th Respondent is a limited liability company duly registered with the Corporate Affairs Commission.

1. The 5^th Respondent is a staff of the 1^st Respondent and also a Director of the 4^th Respondent.

1. The 6^th Respondent is a Director of the 4^th Respondent.

1. The 7^th Respondent is a staff of Quantum Securities Ltd, a registered capital market operator. However, at the date of the hearing, he was no longer in the employ of Quantum Securities Ltd having resigned in 2009.

1. In June 2010, the 4^th Respondent, Kalstead Farms Investment Ltd, vide a letter signed by the 6^th Respondent, petitioned the Commission alleging that its stockbroker, Quantum Securities Ltd, was indebted to it and issued a dud cheque and refused to execute its mandate to purchase shares.

1. In its response to the Commission’s enquiry, Quantum Securities Ltd in its letter dated August 2, 2010 informed the Commission that it did not carry out 4^th Respondent’s instructions because:

1. The full identity of the owners of Kalstead Farms Investment Ltd especially that of the Chairman was not known to Quantum Securities Ltd. Further, the identities of Messrs Aina Folasade and Ekundayo Akin who signed the mandates for Kalstead Farms Investment Ltd were unknown to Quantum Securities Ltd as same was not made available to the operator.
2. Quantum Securities Ltd could not confirm the source/ownership of the 1,637,937 (One Million Six Hundred and Thirty Seven Thousand Nine Hundred and Thirty Seven) units, 131,355 (One Hundred and Thirty One Thousand Three Hundred and Fifty Five) units and 50,700 (Fifty Thousand and Seven Hundred) units of Japaul Oil & Maritime Services Plc shares directly deposited into Kalstead Farms Investment Ltd’s CSCS account No. 7118924 by Sterling Registrars Ltd.

10. The complaint against the Respondents emanated from Initial Public Offer (IPO) of Japaul Oil & Maritime Services Plc which took place in 2007, wherein there was an offer for subscription of 1, 007,488,188 (One Billion, Seven Million Four Hundred and Eighty Eight Thousand One Hundred and Eighty Eight) ordinary shares of fifty kobo each at N3.95 per share.

11. The offer opened on September 24, 2007 and closed on October 31, 2007 while the private placement to absorb the excess subscription opened on May 6, 2008 and closed same day.

12. The 1^st Respondent acted as the Registrar to the offer.

13. At the close of the Offer and in line with SEC Rules and Regulations, the Issuing Houses (First Inland Bank Plc and Future View Financial Services Ltd) duly submitted to the Commission for its approval the allotment proposal showing a list of all applicants who applied for shares in Japaul Oil & Maritime Services Plc.

14. On February 6, 2008 the Commission approved the allotment proposal and communicated the joint Issuing Houses.

15. After the close of the said IPO, the 5^th Respondent with the 1^st Respondent applied for shares using the names of five fictitious companies. The company names used and the number of shares applied for were as follows:

16. The total number of shares applied for by the aforementioned companies amounted to 1,421,300 (One Million, Four Hundred and Twenty-One Thousand Three Hundred) units.

17. The aforementioned companies were never registered with the Corporate Affairs Commission (CAC) hence were not legal entities as at the time they were used by the 5^th Respondent to apply for the shares of Japaul Oil & Maritime Services Plc and subsequently allotted same.

18. Subsequently, one of the fictitious companies, Kalstead Farms Investment Ltd was registered with the CAC on June 25, 2008, after the closure of the IPO.

19. That the 5^th Respondent was a director of the 4^th Respondent at the time.

20.  That none of the aforementioned fictitious companies used by the 5^th Respondent to apply for the shares of Japaul Oil & Maritime Services Plc during the Initial Public offer was listed in the allotment proposal submitted to the Securities and Exchange Commission for approval, and none of the said companies’ allotment was approved as confirmed by the Commission’s Securities Investment Services Department.

21. Notwithstanding that the company’s name was not in the approved allotment proposal, the 1^st and 5^th Respondents connived and allotted the shares of Japaul Oil & Maritime Services Plc to the 4^th Respondent as follows:

22. The total number of shares allotted to Kalstead Farms Investment Ltd amounted to 1,919,292 (One Million, Nine Hundred and Nineteen Thousand, Two Hundred and Ninety-Two) shares.

23.  The 4^th Respondent did not pay for the 1,919,992 (One Million, Nine Hundred and Nineteen Thousand, Two Hundred and Ninety-Two) units of Japaul Oil & Maritime Services Plc shares irregularly allotted to it.

24. The 4^th Respondent alleged that it issued 2 (Two) Sterling Bank Plc cheques both dated 26^th May, 2008 for the sum of N15, 015,104.16 (Fifteen Million Fifteen Thousand One Hundred and Four Naira Sixteen Kobo) each totaling N30, 030,208.32 (Thirty Million Thirty Thousand Two Hundred and Eight Naira Thirty Two Kobo) as payment for the 1,919,292 units of Japaul Oil & Maritime Services Plc shares.

25. The sum referred to in paragraph 20 and allegedly paid by the 4^th Respondent for 1,919,292 (One Million, Nine Hundred and Nineteen Thousand, Two Hundred and Ninety-Two) units of Japaul Oil & Maritime Services Plc shares was well above the amount required to be paid for the said number of shares.

26. The 1^st Respondent issued “return money” warrants for the sum of N445, 867.71 (Four Hundred and Forty-Five Thousand, Eight Hundred and Sixty-Seven Naira, Seventy-One Kobo) in favour of Mr. Akin Ekundayo and N791, 447. 32 (Seven Hundred and Ninety-One Thousand, Four Hundred and Forty-Seven Naira, Thirty Two Kobo) in favour of one Aina Folashade Ojuolape respectively. 

27. Mr. Akin Ekundayo applied for 20,000 (Twenty Thousand) units of Japaul Oil & Maritime Services Plc Shares and was fully allotted and thus was not entitled to any “return money”.

28. There was no evidence to show that the said Aina Folashade Ojuolape subscribed for the Japaul oil & Maritime Services offer thus warranting the issuance of the “return money” warrant to her.

29. The said “return money” warrants were not forwarded to the purported recipients but paid into the account of Quantum Securities Ltd by the 5^th Respondent with the connivance of the 7^th Respondent. Who had liaised with the then MD of Quantum Securities Ltd. to do so.  

30. The 5^th Respondent, in the course of investigating this matter, issued to himself a purported letter of authority from Mr. Akin Ekundayo.

31. The 5^th Respondent with the assistance of the then MD of Quantum Securities Ltd cleared the return money warrants issued in favour of Mr. Akin Ekundayo and Aina Folashade Ojuolape through the account of Quantum Securities Ltd.

32. That the Committee was concerned with the “showing” of the 1^st Respondent at the hearing and the fact that the 5^th Respondent who masterminded the entire transaction was still in the employment of the 1^st Respondent.

SPECIFIC FINDINGS

ALLEGATION 1: Unlawful Allotment of Shares

That the 1^st – 6^th  Respondents engaged in unlawful allotment of shares of Japaul Oil & Maritime 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).

ALLEGATION 2: Payment of Return Monies to persons not entitled thereto

That the 1^st Respondent 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.

ALLEGATION 3: Violations of the SEC Rules and Regulations (As Amended) and the Code of Conduct for Capital Market Operators and Their Employees.

1.      i.        That the 1^st, 2^nd, 3^rd,  5^th and 7^th  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.

1.     ii.        That the 1^st – 7^th 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 1^st, 2^nd, 3^rd,  5^th and 7^th 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).

 DECISIONS

Pursuant to the powers conferred on the Commission by the Investments and Securities Act, (ISA) 2007, the SEC Rules and Regulations made pursuant thereto, and for the maintenance of investors’ confidence and trust in the Capital Market, the Administrative Proceedings Committee of the Commission hereby decides and directs as follows:

1. 1.   That by their actions 1^st, 2^nd, 3^rd,  5^th and 7^th Respondents have engaged in acts capable of adversely affecting the investing public’s image of and confidence in the capital market;

1. 2.   That the 1^st Respondent did not exercise utmost good faith in the discharge of its functions as a Registrar;

1. 3.   That pursuant to Section 303 of the Investments and Securities Act (ISA) 2007, the 1^st 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; 

1. 4.   That the registration of the 1^st Respondent (Sterling Registrars Ltd.) be and is hereby cancelled;

1. 5.   That pursuant to Schedule VII Rule 11 of the SEC Rules and Regulations the 5^th Respondent who is a Director of of the 4^th Respondent (Kalstead Farms Investment Ltd) and also a staff of the 1^st 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;

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

1. 7.   That the 7^th Respondent be and is hereby banned from engaging in capital market activities for twenty years for colluding with the 5^th Respondent to pay  and clear third party cheques through  his employer’s (Quantum Securities Ltd) account;

1. 8.   That the 4^th, 5^th, 6^th and 7^th Respondents be and are hereby ordered to disgorge all benefits enjoyed as a result of these transactions;

1. 9.   That information on possible criminality in this matter be and is hereby referred to the Law enforcement Agencies;

Secretary, Administrative Proceedings Committee

Source: SEC