How Tingo slipped through regulatory gaps to defraud investors

On Monday, the US Securities and Exchange Commission (SEC) filed charges against Dozy Mmobuosi and three companies he leads as CEO, accusing them of inflating their financial performance to defraud investors. The charges filed in the United States District Court in New York described the scope of the fraud as “staggering”.

“Defendants have booked billions of dollars worth of fictitious transactions through two Nigerian subsidiary companies Mmobuosi founded and controls, reporting hundreds of millions of dollars of non-existent revenues and assets. For example, Tingo Group’s FY 2022 Form 10-K filed in March 2023 reported a cash and cash equivalent balance of $461.7 million residing in Tingo Mobile’s Nigeria bank accounts. However, authentic bank records for the same accounts show a balance of less than $50 for that period,” the court document read.

Experts who spoke to BusinessDay described Tingo as an open scam to which Nigerian regulators turned a blind eye. Although Tingo Group was formed as a Delaware corporation on January 31, 2002, under the name Lapis Technologies, Inc, BusinessDay found registered businesses on the Corporate Affairs Commission of Nigeria under names such as Tingo Mobile (February 2016); Tingo Foods (registered on August 11, 2022), Bet Tingo Limited (December 2022); Tingo Properties (June 2022); Tingo Express (November 2023); and Tingo Pays (registration not completed).

The implication is that Tingo had several businesses that fall under the regulatory purview of different Nigerian government agencies. Soon after the investigation conducted and published in June 2023 by Hindenburg Research which described Tingo as “an exceptionally obvious scam with completely fabricated financials,” the company, in response, organised a tour of a facility in Delta State which it said was going to empower millions of farmers in Nigeria and address food sustainability in the country. The facility was to be operated by Tingo Foods, a subsidiary of Tingo Group.

As part of the entourage on the tour were top-level officials from the Federal Ministry of Agriculture and leaders of the All Farmers Association of Nigeria. The tour also received the backing of some community leaders in Delta State. At the time of the tour in July, the facility was mostly bare and still being developed by the construction workers. However, as the SEC charge sheet showed, In February 2023, Mmobuosi sold Tingo Foods to Tingo Group for more than $200 million, causing Tingo Group to incorporate and report Tingo Foods’ fabricated financial results, in addition to Tingo Mobile, “thereby compounding the fraud.”

Read also: Tingo Group denies fraud allegations, calls Hindenburg’s report “opinion”

“This shows how the moral fabric of Nigeria is rotten. Some very experienced senior people work for this guy and they know everything or decided not to imagine that everything was a fraud,” said a financial industry expert who wanted to remain anonymous to speak freely. “So when Tingo was there, they went to buy the share of the company because they did not list directly on the NASDAQ exchange; they did a reverse merger so that they could gain access.”

In February 2023, Tingo generated a lot of buzz when it announced that it was looking to raise $500 million through a combination of debt and equity financing through a private placement. It was also planning to list on the New York Stock Exchange by the first half of 2022, saying it provided an e-commerce platform that has generated $4 billion in transactions per year. At the time, Jumia Technologies, which operates the largest e-commerce business across 11 countries on the continent, could only boast of less than $2 billion in revenue in 2022.

In May 2023, Tingo announced that it had completed its first batch of export deals from which it generated $348 million of sales with a gross profit approaching $100 million. The trade, the company said, was part of an anticipated long-term multibillion-dollar pipeline of export transactions, more than $1 billion of which were already being processed for expected delivery by the third quarter of 2023. Exports were allegedly facilitated by Prime Commodity Exchange Limited and AFAN. These transactions never happened, according to the SEC court document.

Read also: Tingo stocks race to junk after alleged fraud by CEO

“This was an instance of overstated financial results; it raises concerns about governance, supervision, and control. These issues relate more to flaws in the internal structure as a whole, which is primarily the result of management and stakeholder dysfunction rather than an industry problem, though you can’t fully separate the two however,” Edoka Idoko, CEO of Ojireh Prime, said.

“I do not believe this would have a detrimental influence on other Nigerian businesses wanting to list on the US stock exchange. We fully understand that we already have a perception problem on the ground, which I believe will work in our favour over time as we push to raise the bar slightly higher than average which will undoubtedly have a strong positive impact over time,” he added.

Prince Nwafuru, managing partner at The Law Suite, told BusinessDay that regulators and law enforcement agencies act based on intelligence gathered internally or upon petitions written by victims of fraud.

“It is possible that the USA investigation that led to the US SEC charge was instigated either by intelligence or a petition by a victim of the alleged fraud. It would not be fair to blame the Nigerian regulators or law enforcement agencies unless it is established that some reports have been made against the company or the individuals who run the company which were not addressed or that the regulator has failed in its duty,” he said.

He also noted that the difference between law enforcement in Nigeria and advanced countries is proper funding to be able to gather and act on intelligence. Corruption and weak institutions also play roles in why law enforcement agencies wait for complaints from the victims of the alleged fraud before they act, he said.

There are occasions when complaints are made to the Police and the individuals who made the complaint end up sponsoring the investigations, according to him.

Read also: Phantom airline and false PhD: Who is Dozy Mmobuosi?

“Nigerian regulators have a lot of roles to play in instilling strong corporate governance and reporting standards for companies in the regulated sectors. Even companies that are not in a regulated sector are required to comply with some general reporting standards under the Companies and Allied Matters Act. Directors of companies owe fiduciary duties to the shareholders and investors. The law has put this mechanism in place to ensure investors protection,” Nawfuru said.