SEC Sat on Oando Forensic Audit Report for 6 Months. Why?

 Yemisi Izuora 

The long awaited results from the forensic audit into Oando PLC, was finally released on Friday, May 31, 2019 on the website of the Securities and Exchange Commission (SEC) indicating weighty infractions with attendant sanctions leveled against the Company.

 

In a press statement issued on its website, Oando PLC responded to the SEC’s report saying: “Oando is of the view that these alleged infractions and penalties are unsubstantiated, ultra vires, invalid and calculated to prejudice the business of the Company. The Company has not been given the opportunity to see, review and respond to the forensic audit report and so is unable to ascertain what findings (if any) were made in relation to the alleged infractions and defend itself accordingly before the SEC. The Company reserves its rights to take all legal steps to protect its business and assets whilst remaining committed to act in the best interests of all its shareholders.”

 

The severity of the penalties and the timing of the release has roused public curiosity as to the motive and the basis for the penalties.  According to the Chief Operating Officer, Oando Energy Resource, Dr. Ainojie ‘Alex’ Irune, at a press conference in the Company’s head office, “We were not given a chance to review and respond to the outcome of the report. You do not sentence a person to death without giving him or her a chance to defend him or herself.  In this instance we have been sentenced to death without knowing what our crime is or being given a chance to defend ourselves.  At the barest minimum, best practice requires that you give the person a chance of a fair hearing. We have not been accorded this opportunity.” Dr. Irune explained that when the company made the decision to drop its court case challenging the SECs decision to carry out a forensic audit it was assured that they could trust the system for an independent investigation that would be fair and follow due process.  He reiterated that it was in the spirit of transparency, cooperation and full disclosure, they agreed to the forensic audit.

 

Echoes of Oando’s sentiments are resounding across the country with everyone wanting to know what exactly have the Oando management team done to warrant such steep penalties’.  Business personalities such as Atedo Peterside, founder of Stanbic IBTC bank went so far as to go on social media to publicly ask the SEC why it would not share the findings of the forensic audit with Oando thus giving them an opportunity to defend themselves.  He went on further to challenge the SEC to share the forensic audit findings and Oando’s response with the general public so we can all judge for ourselves.

 

According to a media source at the Oando press briefing, the forensic audit report was ready and submitted by Deloitte and Touche as far back as December 2018. Why the SEC then decided to sit on the report for six whole months without engaging Oando where necessary, remains a mystery. It also brings to mind the famous quote, power corrupts, but absolute power corrupts absolutely. Is this a case of abuse of power, or has someone been put under duress to release the report without any regard for due process? What are the details of the infractions as opposed to a summary and what are the associated penalties for each infraction according to the SEC rule book?

 

Drawing from a story by Proshare “Memo to the Market: The Oando Corporate Journey – At the Regulators Gate”, the publication said: “Regulatory authorities in this age, as we have seen with the Debt Management Office (DMO) under Dr. Abraham Nwankwo and sustained under a new leadership understand that their ultimate responsibility is to build businesses to be viable entities, stronger and not destroy value. Sanctions arising from regulatory action therefore must be in accordance with extant rules and regulations, severe relative to infractions, precise and satisfy the deterrence principle.”

 

Does the SEC have the right to institute these penalties? According to the guidelines of the SEC, Mary Uduk, as acting DG of the SEC was meant to submit her findings to the Board of the SEC which has been non-existent since Mounir Gwarzo was appointed DG of the SEC. This is not the norm and does not reflect corporate governance best practice. In the absence of a Board, a sign off from the Minister of Finance is required. Was this the case with the Oando Forensic Audit Report? The consensus following the press conference was that the publishing of the report whose cost would be borne by Oando without informing the principal, Oando, was contrary to best practice. It further shows that these are not the actions of a regulator working in the best interests of the market specifically minority shareholders. These actions are damaging to the Nigerian capital market and will further discourage foreign direct investment (FDI) into the country.

 

In terms of foreign direct investment, back in 2013 inflows totaled $5.6 billion, most of it in the telecom and energy sectors. In 2018, Nigeria’s FDI flattened to $2 billion. In the last quarter of 2018. According to a recent article by Forbes contributor, Kenneth Rapoza titled ‘Nigeria has Become Africa’s Money-losing Machine’, if you want to lose money in one of Africa’s biggest markets, put it in Nigeria. Despite sitting on nearly 40 billion barrels of proven oil reserves and $48 billion worth of investment opportunities in the oil and gas sector, Africa’s largest economy is mired in problems. Kenneth said: “Its Nigeria’s abundant commodity resources that makes it so big. But its Nigeria’s Government that keeps it from getting bigger and richer.”  When stories of this nature run in the international media we must sit up and take notice.  In this instance we must look at the actions our regulators who are Government bodies take, and ask ourselves are the legal, are they correct, are they the actions of a progressive nation, do the perpetuate the negative picture that the international media, business and investing community already have of our country? 

 

Looking at it practically, the SEC’s actions could be likened to a teacher who has informed a student that he has performed woefully in his exams and will be required to repeat without detailing the subjects, where errors were made and the associated grades to enable the student know what subject areas to improve on. The NSE owes it to the shareholders, the general public and to the world at large to do things the right way. The SEC owes it to the country to show that we are not regressing, that as a regulator they are fair, transparent and fully focused on protecting the Nigerian capital market.

 

Speaking on the damage done to the brand since the inception of the investigation, the Chief Finance Officer, Oando PLC, Olufemi Adeyemo said: “The damage cannot be quantified. We require credit to run our business and this has come at an extra cost, one that we would ordinarily not have incurred. Despite these challenges we’ve kept making milestones and running the business as usual.”  It would interest you to note that the damage, financial and reputation, caused by the SEC fiasco is worth significantly more than the alleged infractions leveled against the company and its management team. Making a public spectacle of the company, its management team and eroding shareholder value is not acceptable by any standards – especially because some of this damage is irreversible. At the end of the day, this is a public listed company, so any erosion of value affects the general public who are shareholders. According to a social media user “If the SEC think removing Wale and Mofe is the solution, then they don’t understand the tie between the company and its founders.  Removing them equates to taking the Company down and our money with it.”  

 

Nigeria as the giant of Africa, should lead by example, we must make a concerted effort to change the perception of Nigeria and Africa.  As a nation we must align our operations with global standards and like the developed world be deliberate in building home grown businesses as opposed to tearing them down. Businesses such as Oando have contributed immensely in boosting the Nigerian capital market index since its inception as well as attracting FDIs into the country. The company’s contribution to the economy under the leadership of the said management who have been advised to resign, cannot be overlooked. Oando’s management have weathered every storm known to the industry to ensure the business remain viable, the company’s recovery from the monumental loss following the release of its full year end 2014 results should be applauded because not many companies with such a loss and a challenging environment would have survived.  Today the company boots 3 years of profits.

 

This is not the time for corporates and the likes to be silent. With the increased awareness on rule of law and justice, it is time to speak up against such injustice. Silence would mean giving in to the norm which shouldn’t be the case and as history has shown us, this will definitely repeat itself except measures are taken to correct it. The SEC should, as the watchdogs of Africa’s biggest economy, do the right thing and engage companies that they are investigating, this should be the minimum standard. Today it is Oando tomorrow it will be you.

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