How Judiciary Impedes Growth Of Capital Market

Judiciary arm of government is slowing the growth of the Nigerian capital market as stakeholders have rightly observed. The recent intervention by the Nigeria Securities and Exchange Commission, SEC over alleged misuse of investors ‘funds by BGL Plc have continued to worry many investors and stakeholders in the market

In an increasingly competitive global financial system in which countries try to out-compete one another for investment inflows, governments across the world are launching reforms to strengthen their regulatory regimes.

Because investors consider the strength and independence of the regulator, amongst other factors before making an investment decision, many emerging markets are empowering their financial system regulatory agencies to give investors adequate comfort and protection.

Reacting to the saga between the SEC, apex regulator of Nigeria’s capital market and BGL Group, one of Nigeria’s largest brokerage and investment banking firms, Mr. Fidelis Okonkwo, an Abuja based financial and investment analyst noted that there are, however, signs of a worrying trend in which the regulatory authority of empowered government agencies are gradually being undermined by certain elements within the nation’s judiciary.

According to him “ While the judiciary has played a key role in the development of the financial system, some latest developments are sending disturbing signals to stakeholders in   the financial system and are capable of not only discouraging renewed zeal of regulators but also encourage malpractices in our markets.”

SEC had disclosed that it received over 40 complaints from various investors against BGL Group and its subsidiaries between 2012 and date. The total amount involved in these complaints against BGL Group is in excess of N5.8 billion, according to statements released by the regulator.

As is the normal practice, SEC is empowered and mandated by its enabling laws and rules to investigate investors’ complaints and facilitate a smooth resolution of disputes within the Nigerian capital market.

Based on the above, SEC initiated target inspections of BGL Group and its subsidiaries to ascertain the veracity of investors’ complaints. Subsequently, several all parties meetings were arranged by SEC in which BGL agreed to indemnify affected investors. However, according to the SEC, “BGL continued flouting such arrangements and reneging on promises to investors”.

Apparently, the cases against BGL had dragged on for almost three years without any firm action from the regulator. However, things took an interesting turn when the current Director General of the Commission, Mr. Mounir Gwarzo, took over leadership of the regulatory body in early 2015. He promised to sanitize the market and maintain a posture of zero tolerance for market infractions.

True to his words, the SEC obtained a court order from the Investments and Securities Tribunal (IST), the recognised court of law with exclusive jurisdiction to capital market matters, allowing it to set up an Interim Management Team, IMT for BGL Group. The team was led by Mr. Oladipo Aina and started work at BGL premises on Friday April 17, 2015. To complement their work, the IMT appointed a forensic auditor to look at the books of BGL and determine its true financial health.

Shortly after the IMT’s operations began, BGL approached the Federal High Court sitting in Lagos to stop the work being carried out by the IMT and forensic auditors. In a clear case of judicial interference with legitimate regulatory enforcement action, a Federal High Court issued an order on April 30,   2015 asking the IMT and forensic auditors to vacate BGL premises.

Before pulling out, the forensic auditors had produced a preliminary report confirming the SEC’s suspicion about the dire financial state of the BGL Group. Among the findings are consistent losses over a period of five years totalling more than N48 billion which was eroding shareholders’ funds; billions of Naira in questionable investments in illiquid securities of unlisted companies (including a company that has even been declared bankrupt); liquidity challenges that make BGL unable to pay investors an outstanding N11 billion in matured funds among others.

In essence, BGL represented a serious risk to investors, to clients and to the market as a whole. The SEC management therefore decided to suspend BGL Group, its subsidiaries and sponsored individuals and invited them to appear before the Administrative Proceedings Committee (APC) which affords them fair hearing to defend themselves against the allegations.

Based on this development, Okonkwo advocates the independence of SEC as part of solution to strengthen the market.

According to him “Nigeria deserves a judiciary that is willing to complement the strong posture of the current administration against corruption and other acts of financial impropriety. Vice President Yemi Osinbajo last week harped on the need to have a stronger judiciary system. The judiciary should certainly not be used as a tool to blunt the enforcement mechanism of regulatory institutions.

Vanguard