It is one sore point on the capital market. And it came about because of regulatory failures and market bubbles of the past. But now, the issue of fictitious and multiple names on firms’ registers is being addressed. Capital Market Editor TAOFIK SALAKO reports that amnesty for shareholders with multiple and irregular names and accounts to harmonise them may be the way out of some of the market’s problems.
His formal identities-national driver’s licence, international passport, national identity card and national voter’s card among others bear all his names – Okafor Olugbemi Audu (not real names). Mr. Okafor, a man of modest means but with eyes for bigger opportunities, was a keen player in the capital market boom of 2005-2008.
One of the major challenges of the period was the huge level of oversubscriptions and the resultant allotment procedures that prorated allotment of shares to intending subscribers, with preference for small subscriptions.
Typically, after waiting for three to five months, a subscriber that had sunk in N2 million for 400,000 shares at N5 per share in a public offer would get notification of allotment of 20,000 shares and a return cheque for N1.9 million.
After two of such experience, Okafor learnt the trick on how to get his hands on the bigger pie of the raving public offers-multiple subscriptions in relatively small units. With the help of willing hands at his stockbroker’s office and the horde of target-driven marketers, he perfected the trick of multiple subscriptions by joggling his names in many forms with similar and sometimes different addresses and signatures.
In the same public offer, he was Okafor Olugbemi Audu, Okafor Olugbemi, Olugbemi Audu, Okafor Audu, Audu Okafor and several other variants. He had all the evidences of payment and the certificates somehow found their way to him.
In desperate search for funds, banks were quite helpful. Other parties to an issue, including registrars, stockbrokers and issuing houses, were more interested in the success of their offer than compliance.
The level of oversubscription was an indication of the dexterity of the parties, a major claim to publicise in the cheering media. Capital market regulators – Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) – lost the focus, less from the patriotic zeal to grow the market than surpluses flowing from public offers, which provided the officials with cozy bonuses and allowances.
The complicity was almost all-inclusive. There were others that encouraged underage participation by using the names of their children to subscribe to the offers.
But, there were genuine errors in names and signatures, which have not been corrected because of the existing stringent Know-Your-Customer (KYC) rules.
Yet, extant rules at the capital market disallow multiple subscriptions and direct participation by persons under the age of 18 years.
The capital market rules, which lay emphasis on full disclosures and integrity of the disclosures, allow subscribers to request for additional shares under pre-allotted offers like rights issue and participation by minors through adult representation or trustees.
No doubt, rules had been breached and lessons have been learnt. Many companies have surreptitiously been dealing with bubble assets related to the boom burst period through share reconstruction and cancellation. The market is left with the onerous task of addressing the foibles and drawing a closure on the past?
A window of reprieve
The Capital Market Committee (CMC) – a consultative working group of capital market stakeholders – has granted investors with multiple subscriptions, multiple accounts and irregular signatures a general amnesty to harmonise and lay formal claim to their accounts in a one-off reprieve aimed at addressing the negative leftovers of the previous bubble-burst era of the market.
Investors have up till September 31 to step forward and claim their shares.
The CMC, chaired by the SEC director-general, consists of chief executives of all registered capital market operators including, stockbrokers, solicitors, custodians, funds’ managers, issuing houses, rating agencies, registrars, reporting accountants, trustees and consultants among others.
Other members include: chief executives of the Chartered Institute of Stockbrokers (CIS); NSE, Nigeria Commodity Exchange (NCX) and Central Securities Clearing System (CSCS).
Also on the list are: two members each from observer groups, which included Asset Management Corporation of Nigeria (AMCON), Central Bank of Nigeria (CBN), Corporate Affairs Commission (CAC), Debt Management Office (DMO), Federal Ministry of Finance, Federal Mortgage Bank of Nigeria (FMBN), Federal Inland Revenue Service (FIRS), Nigerian Deposit Insurance Corporation (NDIC), Investment and Securities Tribunal (IST), Nigerian Investment Promotion Council (NIPC), National Insurance Commission (NAICOM), National Pension Commission (PenCom) and FSS2020.
The CMC was raised to serve as a medium for exchange of ideas among market stakeholders on how to continuously improve the market activities and regulation.
It meets every quarter to deliberate on various issues affecting the market and other policy matters. At its 2018 first quarter meeting, the CMC reiterated its decision on the reprieve for rectification of multiple subscriptions and extension of the deadline till September 2018. “Therefore, we encourage all affected investors to come forward and take advantage of the window before the new deadline,” SEC’s Acting Director-General Mrs. Mary Uduk said.
Faces of the ugly past
A report by an investigate committee set up by the CMC had confirmed the existence of multiple subscriptions and irregular accounts, popularly referred to as ‘ghost investors’ by many stakeholders due to their lack of formal identities.
The introduction of Bank Verification Number (BVN) and biometrics as part of KYC has compounded the worries of claimants. The investigative committee – though restating the obvious – brought a coordinated formal acceptance of the problem of multiple subscriptions and other variants.
According to the report, there were two groups of investors involved in multiple subscriptions. In the first group, categorised as Group A, are investors that joggled their names in different forms to enable them buy more than the permitted units of shares on offer. In the second group, categorised as Group B, are those who use non-existent personal or corporate names for the purpose of purchasing shares during public offers.
The report admitted that in order to beat the limits that were essentially features of public offerings, including age, number of applications and allocation processes, several subscribers used fictitious names and various forms of their names to push through multiple allocations.
Though the actual total value of such assets is unspecified, but almost all the stakeholders agreed it is quite huge and pervasive.
After extensive deliberations, stakeholders agreed to adopt a non-prosecutory approach to resolve the issue. They, however, cautioned that the market must not be seen to be rewarding wrongful act and illegality of the perpetrators.
President, Association of Stockbroking Houses of Nigeria (ASHON), Mr. Patrick Ezeagu, whose group participated actively in resolving the multiple subscription issue, said stakeholders reasoned that many problems at the capital market revolved around unresolved issue of multiple subscriptions and unclaimed assets.
He, particularly, noted the problems of unclaimed dividends and low enthusiasm by minority and retail investors.
Many reports showed the use of non-existent identity to make multiple subscriptions to public offers as one major source of unclaimed dividend remains. Reliable industry sources had told The Nation that some three-quarter of the outstanding unclaimed dividends, estimated at more than N80 billion and millions of shares, belong to such fictitious investors.
Unclaimed dividend is a vexatious issue in the capital market. While nearly every stakeholder has an angle to the reasons for the annual count of billions of naira in unclaimed dividend, there was a consensus on the need to resolve the underlining problems and institute a workable framework that reduces unclaimed dividend to the barest.
Electronic dividend payment to the rescue
The adoption of electronic-dividend (e-dividend) payment system has helped to reduce unclaimed dividends as shareholders with bank accounts (with formal and regular names) have been able to claim their past and newly declared dividends.
Under the e-dividend arrangement, the bank accounts of registered investor are automatically credited once the recommended dividend has been approved.
The registration for e-dividend has enabled investors with backlog of unclaimed dividends to automatically trace and claim such dividends. A dividend warrant becomes statute-barred, that is, unclaimed and due for return to the originating company after 12 years. With e-dividend, registrars automatically revalidate and pay unclaimed dividend to the bank account registered under the e-dividend.
Shareholders’ activist and one of the co-founders of Nigeria Shareholders Solidarity Association (NSSA), Alhaji Gbadebo Olatokunbo, who admitted to having such multiple subscriptions, said the concession was a welcome development and a more realistic way to deal with the problem of multiple subscriptions.
He said: “It is highly welcomed because it was the situation then that forced several investors to spread their names. Whenever you applied for a little over 100 units, like 140 units, you would be allotted 100 units in that category, application for 250 units would be allotted 150 units and 300 units would get 200 units. Getting stocks to buy from public offers those days were extremely tough and you will not like to get a refund several months after the closure of the offer.
“Therefore, investors came up with the idea of ‘spreading their names’ such that Gbadebo Omolaja Olatokunbo will be Gbadebo Olatokunbo and Omolaja Olatokunbo of the same address with slightly different signatures,” Olatokunbo said.
Ezeagu said the consolidation of multiple accounts and formal identifications and processing of shareholders with confusing identities will not only help to reduce unclaimed dividend, it will also help to sanitise corporate registers and reduce cost of managing such registers by registrars.
He added that the reprieve will eliminate distortions and enhance the liquidity of the stock market by unlocking such dormant shares to their owners.
According to him, the reprieve, though tough for the market, may indirectly encourage disenchanted investors back into the market.
Unveiling the real owners
To initiate the claim and process of consolidation, claimants are required to approach the relevant company’s registrar or their stockbrokers with verifiable evidence and identifications to prove ownership of such unclaimed dividends and shares. Such evidence include recognised formal identities, original proof of payments for the shares, transaction receipts from the parties to the offer, proof of residential or postal address, in some cases affidavits and indemnity and any other documents and legal validation that may be required in the process. Those owners, whose identities are established, would then be allowed to consolidate their accounts.
After the expiration of the timeframe, all unclaimed dividends and shares traceable to the unverified and unconsolidated multiple subscribers and those with non-existent corporate or personal names, shall be forfeited and transferred to the Nigerian Capital Market Development Fund (NCMDF) to be managed transparently in a separate basket under clear guidelines.
After the conclusion of this special resolution arrangement, anybody who engages in the wrongful act of multiple subscriptions for the same public offer shall be prosecuted while the market shall put in place adequate processes, leveraging on technology, towards detecting and identifying such cases of multiple subscriptions in the future.
“Registrars have acknowledged that investors have started coming forward but there are challenges in the process,” Mrs. Uduk said.
Those challenges, include multiple subscriptions of deceased investors and inability to provide all relevant documents. The CMC has set up a technical committee to seek input and come up with recommendations to address the challenges.
Preventing reoccurrence
Bearing the brunt of the boom-burst era, capital market regulators and operators have been implementing several measures to address the loopholes in the ecosystem.
Both the SEC and NSE have implemented rigorous recapitalisation and standardisation programmes that weeded out several weak operators and strengthened market operators as first level of compliance.
More stringent KYC requirements, which include BVN and biometrics, are currently operational. Every broker-dealer is now expected to take all reasonable steps to ensure that all details of a client are genuine in line with KYC provisions.
The ongoing automation of the market processes including, e-dividend, Direct Cash Settlement (DCS), electronic public offering, full dematerialisation and electronic allotment among others, are designed to enhance the integrity of the market system and remove distortions.
When fully adopted, the DCS will move the stock market from the current stockbroker-mediated payment system under which proceeds of shares sales are remitted to the stockbroker for onward remittance to the investor to a new system under which payment will be made directly from the trading system to the investor’s bank account.
The e-dividend ensures payment of dividends directly into shareholders’ bank accounts. Dematerialisation of all share certificates converts all shareholdings into automated deposits under the CSCS, and the related electronic offer (e-offer) and electronic allotment (e-allotment) ensure that new supplementary shares are directly credited to the investors’ CSCS accounts.
Association for the Advancement of Rights of Nigerian Shareholders (AARNS) President Faruk Umar said the automation of the processes through initiatives such as the DCS will help to forestall untoward incidences.
Dr. Umar said: “The DCS is a commendable initiative. We have lost money in the past through outright diversion or confiscation by bank; this should help to safeguard our money. It will also serves to authenticate ownership of shares since nobody can claim proceeds of share sale, unless through the direct cash settlement.”
For those with multiple and irregular accounts, it is time to remove the veil and assert true identity. And for the market, it is a long-awaited closure. But in closing the blistering boom-burst era of the past decade, the market must be firm in forestalling reoccurrence and sanctioning infractions, going forward. Prospective investors must perish the hope of another amnesty.
The post Multiple subscriptions: Amnesty for ‘ghost’ shareholders appeared first on The Nation Nigeria.
Source: The Nation
We appreciate you for reading our post, but we think it will be better you like our facebook fanpage and also follow us on twitter below.