New Rules: SEC Says Unapproved Issuance Of Securities to Attract N10m Penalty

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…SEC Issues New Rules on Issuance and Allotment of Private Companies’ Securities

May 9, 2024/SEC Nigeria
The Securities and Exchange Commission (SEC Nigeria) has exposed New Rules on Issuance and Allotment by Private Companies Securities declaring that any person who issues or allots securities without its prior approval or violates any provisions of its regulations will be liable to a penalty not less than N10 million in the first instance and a further sum of N100,000 for every day the violation continues.
The recommended fine is contained in the proposed new rules on the issuance and allotment of private companies and securities prepared by the Securities and Exchange Commission.
The rules apply to Debt securities issuances by private companies either by way of public offer, private placement or other methods as may be approved by the Commission; Registered exchanges and platforms which admit debt securities issued by private companies for trading, price discovery or information repository purposes; Registered capital market operators who are parties in issuances and allotment of debt securities of private companies.
The Commission which set out stringent punishment for those who violate the regulation, stated: “Any person who issues or allots securities without the prior approval of the Commission, or violates any provisions of these rules shall be liable to any one or more of the following sanctions: i. A penalty of not less than N10 million in the first instance and a further sum of N100,000 for every day the violation continues; ii. Suspension, or withdrawal of the registration of the capital market operator(s) involved; iii. Disgorgement of proceeds/income from the transaction; and iv. The Commission may ratify or rescind a transaction if it is in the interest of the public to do so; v. Any other sanction the Commission deems fit in the circumstance”.
The Commission in the document stated that a private company may list its securities on a registered securities exchange, adding that such securities must be listed not later than 30 days after completion of allotment.
SEC explained that for a private company to be eligible to issue securities under the regulations it must be a company duly incorporated under Companies and Allied Matters Act (CAMA), or other enabling Laws with at least three years track record of operation.
The regulations pegged the maximum amount a private company can raise within a one-year period at N15 billion provided that where a private company intends to undertake any further debt securities issuance, it shall be required to re-register as a public company.
It added that the issuing house would, within 21 working days of allotment, file with the Commission a summary report containing post allotment information; summary of applications received; list of allottees of 50,000 units of securities or more and list of all allottees acquiring 5 per cent or more of the securities on offer; list of all applications received including list of those rejected and the basis for rejection, among others.
According to the proposed rule, for a private company with existing debt securities held by qualified investors, the company “shall no later than three months from the date of issuance of these rules, file an application for the registration of the securities to the Commission through the securities exchanges. Failure to comply with this provision shall attract a penalty of not less than two million Naira and a further sum of N100,000 for every day the violation continues”.
It added that a private company “shall not offer its equity securities (shares) to the public under any circumstance. b) Debt securities issued under these rules, shall be sold only to qualified investors. c) Only registered capital market operators shall be parties to debt securities issuances under these rules. d) No private company or any person acting on its behalf shall offer, sell or allot securities to the public without the prior clearance of the securities exchange and registration of the securities by the Commission. e) Securities purchased in a public offer pursuant to these rules shall only be traded on a registered securities exchange”.
On the utilization of Proceeds, the Commission held that issuers are prohibited from using the proceeds of the issues for purposes other than those stated in the offer document without its prior approval, adding that “the issuer shall file with the Commission not later than 90 days after the conclusion of an issue on the appropriate SEC Form, detailed information on the utilization of proceeds. Evidence of such utilization shall be provided as appendix to the report. The rendition shall be on a quarterly basis until issue proceeds are fully utilized”.
“The issuer is prohibited from using the proceeds of the issue for purposes other than those stated in the offer document without the prior approval of the Commission.
“The issuer shall file with the Commission not later than ninety (90) days after the conclusion of an issue on the appropriate SEC Form, detailed information on the utilization of proceeds.
“Evidence of such utilization shall be provided as appendix to the report. The rendition shall be on a quarterly basis until issue proceeds are fully utilized.”
The Commission said the rules were made pursuant to “Section 43 (1) (b) of the Business Facilitation (Miscellaneous Provisions) Act 2022 which amends Section 67 (1) of the Investments and Securities Act and empowers the Commission to prescribe regulation for the issuance and allotment of private companies’ securities”.
It stated that all comments and input should be forwarded to the Secretariat, Rules Committee via rulescommittee@sec.gov.ng or through the DG SEC not later than two weeks from the date of the publication on the website.

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