Why directors of de-listed firms should be prosecuted

The Nigerian Stock Exchange (NSE) is poised to take 21lawless companies off its register.The loquacious leaders of shareholders associations who claim to be canvassing the position of the inconsequential majority are angry. But the managers of the nation’s stock market are not bothered.  In fact, they are surprise at the outburst over an action the NSE feels is in the interest of investors.
Small retail investors, who have no way of influencing decisions in the board of the companies where their investments are now endangered, are worried that no one is talking to them about the fate of their investments.
Even the guarantors of the stocks marked for de-listing, who were so vocal during their initial public offers (IPOs) are maintaining deafening silence about the fate of the companies they so garrulously defended.  However, the exchange does not want unsuspecting investors to buy into listed companies with inscrutable financial records.That is why they must be de-listed.
Some of the companies to be de-listed have not published their financial reports for upwards of three years. The listing requirement of the NSE demands that quoted companies furnish the exchange with their quarterly and annual financial reports. Defaulting firms face monetary penalties.
The last line of action is de-listing, which the NSE is now threatening.
The de-listing threat has triggered a rather strange spate of buck-passing among investors, the NSE and even stockbrokers. Some investors believe that the exchange has been passive about protecting their investment right from the beginning. Some blame stockbrokers, while brokers and the NSE push the blame back to investors.
The listing requirement of the exchange concentrates more on corporate governance issues and pays little or no attention to the financial health of the company seeking listing and consequently hopingto mobilize funds from investors.
Apoorly managed company, churning out huge losses could be listed and allowedto float an IPO, once it flaunts three years financial reports. Some of the companies slated for de-listing were in deep financial asphyxiation when they were listed and allowed to float IPOs.After the successful IPOs, some of them have not submitted even a quarterly financial report.
The law expects the investor, not the exchange or stockbrokers, to know the directors of the company he intends to sink his hard earned money into.
The law sees the NSE as a market where traders display their wares for buyersto buy at their own risk. The operator of the market does not share any risk in the decision ofthe buyer.
That is the elitist concept of the capital market. It is based on the perception that the capital market is meant for the rich. Rich investors have the means of verifying the directors of a company they intend to invest their money. Some even have enough shares in the companies to be represented on the board. Such investors cannot blame the operator of the market when the company fails to meet the listing requirements and is slated for de-listing.
That elitist concept of the capital market ended in Nigeria with the Banking Consolidation exercise of 2005. When the Central Bank of Nigeria (CBN) imposed a minimum capital of N25 billion on banks, the money market in its marketing ingenuity, raided the capital market for funds through IPOs in most cases.
For the offers to succeed in a saturated market, the banks induced pepper sellers andnewspaper vendors to enter into the hitherto elite business of shareholding. Other firms took the queue from banks and mobilized funds from the lower end of the market. Today, a good chunk of the shares of companies listed in the NSE are owned by people at the lower end of the market who have no way knowing thosewho run the companies they invested their money.
The weak and uninformedhave been exposed to the intrigues of clever crooks in the corporate world, without the law offering them any protection.
Some clever crooks work hard to get their firms quoted in the NSE.  They float IPOs and raise funds from unsuspecting members of the public and use the funds for purposes other than what was listed in the public offer documents.
They know that the maximum penalty for not publishing their financial reports is de-listing.  Ironically, that penalty is a blessing in disguise to them. Most of the dubious firms marked for de-listing cannot publish their annual reports because of audit queries on fraudulent transactions by their directors.
A few directors of one of the companies that the NSE de-listed in 2012 are working behind the scene to register it as a private limited company. More than 15, 000 shareholders of the company have not heard a word from the directors since the de-listing.
Nigerian lawmakers should take steps to protect thousands of uninformed and weak investors from the intrigues of crooks in the corporate world.
An act of parliament should ensure the prosecution of directors of a company de-listed by the NSE for breaking rules as simple as filing their annual reports.
Until that happens, the warning to investors from the frequent de-listing in the NSE is: Buyers beware!

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