What SEC might do to the Oando Parties after Forensic Audit

The Security and Exchange Commission, SEC, on Wednesday issued instruction to the Nigerian Stock Exchange to place the shares of Oando Plc on technical suspension.

The exchange was further requested to place the stock on full suspension for 48 hours and then place it on technical suspension till further notice.

This is to allow SEC conduct a Forensic Audit that shall be handled by a consortium of experts made up of “auditors, lawyers, stockbrokers and Registrars.”

Oando Plc was reported to SEC by two of its shareholders, Gabriel Volpi and Alhaji Mangal over allegation that Wale Tinubu has mismanaged the firm, and are thus pushing for his removal from the board. We explained the debacle in this article.

The controversy surrounding the allegation grew louder a few weeks back, after the House of Rep waded in asking SEC to hurry up and conclude the investigation. It appears this may have played a part in this latest twist into the saga.

According to SEC, it has now decided to carry out a forensic investigation after it claimed it made the following findings amongst others;

• Breach of the provisions of the Investments & Securities Act 2007
• Breach of the SEC Code of Corporate Governance for Public Companies
• Suspected insider Dealing
• Related party transactions not conducted at arm’s length
• Discrepancies in the shareholding structure of Oando Plc. Etc

SEC also claimed that it had powers under section 13(k), (n), (r) and (aa) of the ISA 2017, to enforce its statutory duties. Here is an excerpt of the sections;

Section 13K

act in the public interest having regard to the protection of investors and the
maintenance of fair and orderly markets and to this end establish a nationwide
trust scheme to compensate investors whose losses are not covered under the
investors protection funds administered by securities exchanges and capital trade
points;

Section 13 n

protect the integrity of the securities market against all forms of abuses including
insider dealing;

Section 13r

call for information from and inspect, conduct inquiries and audit of securities
exchanges, capital market operators, collective investment schemes and all other
regulated entities;

Section aa

prevent fraudulent and unfair trade practices relating to the securities industry;

Possible outcomes

With these powers as enshrined in the ISA, SEC appears poised to take decisions that could impact on the corporate existence of Oando. Whilst we await SEC’s forensic audit and without prejudice to the outcome and its subsequent decision, we have decided to give our readers our independent view of what the outcome of its investigation might lead to. Again, this is purely speculative as it is limited to the information that we currently have of this matter.

Force the board to resign – This is probably the most extreme action that could be taken after the forensic investigation is completed. It is a decision that can be considered as end of the road for the current directors of Oando. If SEC investigation concludes that insider trading and other allegation it listed holds true, it could decide that this happened under the watchful eyes of the board and as such they would have to resign.

Force the CEO and deputy to resign – SEC could pursue a less punitive measure by asking the CEO and some of the executive management personnel of the company to resign. This of course is if its forensic investigation affirms its findings. While this exempts other board members from the hammer, they may also be compelled to exit following the embarrassment that this may cause.

Cracks at the top – It is also likely that the board and management of Oando may weigh its options amidst these allegations and thus decide that it is in the best interest of the company for the CEO and some of his executive management team to step aside pending the determination of the case. This scenario could play out if the pressure ramps, particularly from shareholders, creditors and their technical partners.

Banks stepping in to takeover the company – This may seem like an unlikely option but banks also have a say in what happens to this company. Seeing that their loans to the company may be at risk, they could pile pressure on the board to take action against management pending the determination of the SEC investigation. This also gives them the level of comfort that ensures the business continues to run smoothly without the weight of a SEC investigation.

Ban Mangal and Volpi – Things could also go south for Alhaji Mangal and Volpi who may also be found culpable of flouting the ISA. You will recall that Oando has also accused Alhaji Mangal of not declaring that it owned over 5% of Oando, a statutory requirement for publicly quoted companies. Volpi’s could also be on the hook for its role in the shareholding structure of the company.

Ban all parties – The outcome of the investigation could also lead to an ugly scenario that could have SEC ban all parties involved in the allegation from ever participating in capital market activities or being on the board of any publicly quoted company. SEC has powers under its Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007. It recently invoked these powers in the case of Partnership Investments Ltd.

Reach an amicable solution with Volpi and Mangal – Perhaps with the National Assembly involved and lobbying from the powers that be, all parties can reach an amicable solution in the best interest of the company. In this scenario, the main parties in Oando, JAT and Mofe might hasten its debt repayment plan to Volpi, while also ceding a significant direct ownership in Oando to the Italian. In return, all charges could be dropped.

Go to court – Either party, perhaps not satisfied with the outcome of the final ruling could drag SEC and the other party to court. This would likely be a very messy route for all parties, including shareholders of the company.

We also do not rule out a remote possibly that all this investigation may just amount to nothing. After all this is Nigeria.