The SEC and its not so good intentions

Securities and Exchange Commission- SEC
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I have watched the Oando and the Securities and Exchange Commission (SEC) faceoff unfold over the last week and one thing is clear, the SEC may have started off the investigation into Oando with all the right intentions, but along the way they seem to have lost their way.

In 2017, the SEC received petitions from two individuals against Oando, which as capital market watchdogs they were obliged to investigate. The Commission rather than make a decision based on its initial findings decided to verify through a more thorough investigation in the form of a forensic audit which lasted 18 months. Following the conclusion of the audit, the SEC released what can only be described as a summary of the investigation findings; a summary, and sanctions which were able to fit into a 6 paged letter from SEC to Oando. A letter that Oando received a few hours after the SEC had already published its far reaching sanctions, not findings on its official website on Friday, May 31. By Sunday, June 2, SEC announced to the media that Oando would have an interim management team lead by Mr. Mutiu Sunmonu and on Monday, June 3, police were in Oando’s head office on the orders of the acting SEC Director General to manage law and order, one would assume this was an alternative way of saying manage the transition from the existing Oando principals to interim management team.

 

It‚Äôs a lot to happen in the space of 4 days and therein lies the problem. As the regulator of the capital market, SEC is well within its rights to ask for an audit and for transparency and independence get a 3rd¬†party to conduct this audit. In this instance it got Deloitte & Touch√© to carry out the audit. Under the International Standards on Auditing (ISA) 2007 Section 63, point 4.2g the auditor, in this case Deloitte Nigeria must communicate in writing to management, the Directors and the audit committee all material weaknesses identified during the engagement. The written communication should be made prior to the issuance of the auditor‚Äôs report on internal control over financial reporting. The same requirement is made in the Institute of Chartered Accountants Nigeria (ICAN) Technical Guidance on Assurance Engagement to Report on Internal Control over Financial Reporting, page 35, point 1 under ‚ÄėCommunicating Certain Matters‚Äô. Let‚Äôs assume that Deloitte Nigeria decided it wasn‚Äôt within its remit to share identified deficiencies with Oando as they had been hired by SEC to carry out the audit, and thus expected that SEC would share findings with Oando before the issuance of a final report and sanctions. The reason why the ISA and ICAN ask that findings be communicated before the issuance of a report is because¬†the ensuing engagement¬†will impact the final contents¬†of the report. Strike 1, if only for Deloitte‚Äôs credibility the report should have been shared with Oando.

 

Precedence from other SEC investigations shows that SECs procedure is to share its findings with the investigated party, allow them defend themselves and then make a decision on final outcome of investigation. Strike 2, SEC cannot at a whim decide against dialogue with the investigated party, a process SEC itself has instituted so as to enable it make a fair judgement and deliver appropriate sanctions.

 

For the Commission to share its findings and penalties first via a press release on its website speaks to a lack of respect for the organisations it is here to regulate; I am of the belief that the Commission has a job to do and has no business in being emotional in the delegation of its duties. However, SEC has a duty of care – a moral or legal obligation to ensure the safety or well-being of others ‚Äď SEC cannot honestly say sharing first with the whole world Oando‚Äôs alleged infractions and penalties was morally the right thing to do. Strike 3, SECs duty of care is first to the market and so it must act like its actions have been thought through, actions that must not cause panic in the market.¬† By releasing its sanctions via a press release on a Friday afternoon without prior engagement it must have foreseen push back from Oando and the attendant effect on the market.

 

It took SEC 18 months to conclude the investigation into Oando and two days to constitute an interim management. I want to believe that the interim management was constituted so swiftly to ensure there was no vacuum when Oando‚Äôs executive management and Board members resigned as per the directives of the SEC. However the speed and process of execution makes this questionable. The news was broken to the general public first, again this issue of duty of care, if not for the organization then shareholders who were still reeling from Friday‚Äôs news. Oando has said that to date they have not received any communication from SEC re the interim management nor has SEC published any information¬†regarding this¬†on their website. How do you successfully transition the management team of a company without prior engagement, without some kind of handover? Every organization has its own peculiarities in addition to day to day operations management ‚Äď what was SECs plan especially when bringing in an individual who had never worked in Oando and also had no idea of ongoing transactions, business operations, etc?¬† How was Mutiu Sunmonu supposed to effectively head an interim management¬†team¬†when thrown in the deep end without a life jacket? Strike 4.

 

Bearing in mind the SEC letter gave Oando until the 1st¬†of July to carry out an Extra-ordinary General Meeting (EGM) to appoint new Directors, and didn’t stipulate that Wale Tinubu, Group Chief Executive and Omamofe Boyo, Deputy Group Chief Executive resign immediately the assumption is that they had up until the 1st¬†of July to put their house in order. And if they didn‚Äôt have this time, that SEC would engage them, other senior executives and the Board accordingly to ensure a management transition that wouldn‚Äôt negatively impact the capital market.

 

Lest I forget this interim management was made up of only 1 person, Mutiu Sunmonu, a man who sits on the Board of three oil and gas companies ‚Äď Petralon, Eroton and¬†San Leon Energy.¬† What was the rationale behind asking a man who sits on the boards of competitors to head Oando‚Äôs interim management?¬† Mutiu has an excellent track record in the oil and gas sector but he is not the only experienced oil and gas professional, there are many not working for what Oando would deem the competition that could have been elected to take on this role. Strike 5.

 

The arrival of armed police on Oando’s premises on Monday, despite only receiving the letter from SEC after the close of business on the last day of the work week, Friday. Was the expectation that the arrival of the interim management team would cause a ruckus at Oando and thus the need for armed police men to ensure there were no scenes between the existing management team and the interim management team?

 

Once again the SEC’s intentions might have been good but the approach to date and their continued silence implies otherwise. They have not followed due process, they have not acted responsibly or shown a duty of care, they have acted in haste without thinking of the long term ramifications and public perception. Whether Oando is indeed guilty of the infractions levelled against it no one knows and increasingly no one cares because the light is now being shone on SEC and whether they acted appropriately. SEC as a regulator understands more than anyone or organization the importance of adhering to laws, policies and processes and thus the expectation is that at the very minimum they would live by the rule book they ask that others also live by.

 

Sins can, and should be forgiven, but if there are no concerted efforts to stop sinning then should the sinner continue to be forgiven? The SEC has a limited window to reverse this situation and the first step is in speaking up; if they don’t they show themselves to be a regulator that acts carelessly without regard for organisations, the capital market and the shareholders that they are here to protect. Let us elevate our conversations so they are less about the perceived guilt of Oando but instead they focus on whether SEC has acted as an impartial, transparent and credible capital market watch dog. If they haven’t we must call them to order if not your company could be next.

 

James Fajemirokun

James Fajemirokun is a civil rights activist

 

 

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