Oando vs Gwarzo vs Adeosun: Is this State Capture? by @Nairametrics

Kemi Adeosun at the London Stock Exchange
  • A case of State Capture is being alleged after the Minister of Finance, kemi Adeosun suspended SEC Director General, Mr Mounir Gwarzo.
  • The Ministry claims he was suspended due to alleged cases of financial impropriety leveled against him
  • A Thisday and Businessday article alleges that his removal may be related to the Oando investigation, citing a letter from purportedly written by Gwarzo
  • We explain this whole controversy and how a case of State Capture may actually be conceivable.

Reports from two of Nigeria’s highly rated traditional media firms, Thisday and Businessday, suggest the recent suspension of SEC DG, Mr. Mounir H. Gwarzo by the Minister of Finance, Mrs Kemi Adeosun is related to the suspension of trading of Oando shares and the subsequent forensic audit of the financial affairs of Oando Plc conducted by SEC.

Brief Background

Oando has been in the under the radar since August, after two of its shareholders, Gabrielle Volpi and Alhaji Mangal accused the Oil and Gas company of financial impropriety. This led to a threat to Oando’s AGM which the duo unsuccessfully wanted suspended. We explained the matter here

They had written a petition to SEC requesting that the AGM be suspended and that the current CEO of Oando, Wale Tinubu and his Executive Directors be sacked from the board. SEC declined the request citing legal and regulatory constraints.

The National Assembly also weighed in citing complaints from shareholders of the company.

In surprise to many, SEC later announced a suspension of the trading of Oando shares on the floor of the Nigerian Stock Exchange leading to the Johannesburg Stock Exchanging issuing their own suspension.

SEC went a step further requesting for a forensic investigation of the Financial affairs of the company in line with its power as the regulator in the capital markets. Oando kicked replying that SEC does not have the powers to investigate its affairs and went to court requesting a restrain of SEC from the courts.

Justice Mohammed Aikwa of the Federal High Court, later struck out a suit filed by Oando Plc seeking to restrain SEC from conducting a forensic audit on the affairs of the company, and imposing a technical suspension on the company’s shares.

The judge then advised Oando to take its case to the Investment and Securities Tribunal (IST), as the laws setting up the tribunal exclude any other body from hearing a dispute between a company and a capital market operator.

While all this was going on, the suspended DG of SEC was accused of his own financial impropriety, alleging that he misappropriated a sum of N108 million when he was SEC Commissioner, an accusation Gwarzo denies. He claimed the money was part of Severance paid to him when he retired as SEC Commissioner.

Government Angle

In what seems like a wicked coincidence, Gwarzo was suspended last week and Abdul Zubair appointed as the acting DG of SEC. According to Thisday, Gwarzo had met with the Minister of Finance 48 hours before he was removed and was “verbally instructed” by the Minister “to discontinue the Oando probe, which he apparently objected to”.

The Minister the report continues said Gwarzo, objected to the instruction and wrote a letter to the Minister the next day. The letter the report claims may have infuriated the Minister “suspended him the next day – exactly 48 hours after their meeting and 24 hours after being in receipt of his letter”.

The report also reveals the Government alleges that the minister took the action to suspend him “purely due to the allegations of financial impropriety leveled against Gwarzo and mounting concerns that he was using the Oando issue as a smokescreen to prevent a probe into his stewardship as the DG of SEC.”

The official also revealed that the reason Adeosun had instructed Gwarzo to discontinue the Oando audit had more to do with “the fact that the management of the oil company had admitted wrongdoing in the charges against them, so she felt there was no need to continue the audit and had recommended that they be penalised.”

State Capture?

Various analysts comments surveyed by Nairametrics allege this case has a political undertone and bears characteristics of a state capture. The actors in this matter, Wale Tinubu, Gabrielle Volpi and Alhaji Mangal are all politically connected persons and exert varying degree of influence with the current government and the immediate past government.

State Capture by definition is a form of systemic political corruption in which private interests significantly influence a state’s decision-making processes to their own advantage.

Considering that the courts had already referred this matter to the IST, why then is the government involved in this matter, if not for political interest? Could this be State Capture?

For example, Wale Tinubu is related to APC Chieftain, Asiwaju Bola Tinubu and is thought to have the ears of the APC led government. Volpi is alleged to be a close associate of former Vice President, Alhaji Atiku who has recently abandoned the ruling party, APC for PDP, the party that ruled Nigeria for about 16 years. Volpi’s mega logistics company, Intels is also a subject of another controversy with the Nigerian Ports Authority.

Suspicions that the state is getting involved in a matter that is purely within the purvey of SEC and the markets draw mostly from this comment highlighted in the Thisday article.

“The minister then without mincing words reminded him that there were petitions bordering on financial impropriety and that he should have been suspended a long time ago. “She also insisted that a committee be set up comprising the legal officers of the ministry, SEC and Oando to agree on the penalties to imposed on the officials of the company. “Gwarzo, however, refused, telling her that there were implications of doing so and that the commission does not take decisions based on recommendations of committees but is guided by its Investment and Securities Act (ISA) and capital market regulations formulated by SEC.

Gwarzo’s Problems Persist

Claims that the SEC DG misappropriated about N104 million as Commissioner in SEC as well as several allegations of crony capitalism is worrisome. They claim he awards contracts to his personal businesses and to companies linked to his wife and cronies.

Gwarzo has denied these claims and insist that the N104 million was payment he received as severance. Whilst Gwarzo had denied this claims, payment of a Severance Package of N104 million to a Civil Servant is shocking nonetheless, especially if you consider he is back in the same SEC as DG.

What next?

It should be easy to verify severance payments as the money trail is not one of the most difficult to investigate. Thus, removing Gwarzo at a time when a high-profile case such as the Oando Financial Forensic Investigation is going on is a source of huge concern for the capital market.

Investors will be watching keenly to see if the new acting DG of SEC, Abdul Zubair will suspend the investigation and impose penalty on Oando. If this occurs, then it could fuel claims of “State Capture” and could strengthen Gwarzo’s claim that his suspension was not due to his own case of financial impropriety but because of the Oando investigation.

The market is very interested in how this case pans out especially when you consider the billions in market value that has been wiped out of Oando’s shares over the last two years. The record losses incurred by the company and the issues pertaining to related party transactions in the company is a major source of concern to hundreds of thousands of shareholders of the company.