Operator alleges fraud in N64b Starcomms’ 2008 placement

Operator alleges fraud in N64b Starcomms’ 2008 placement
Even while the House Committee Ad-hoc committee on the near collapse of the nation’s capital market is still digesting submissions by key players including the executives of the Securities & Exchange Commission (SEC), a fortnight ago, it has been invited to look into the June 3, 2008 private placement by telecoms firm- Starcomms Plc.
In a May 11, 2012 memo to the ad-hoc committee, Ayoleke Adu, chief executive of MorganCapital Securities Limited, described the private placement as the “grand-mother” of all questionable acts committed on Nigerians by the Issuer, the Issuing Houses (Chapel Hill Advisory Partners Limited and Stanbic IBTC Bank Plc) and other parties related to the transaction.”
In the petition slated for presentation on Tuesday, May 22, 2012, Adu lamented that the Starcomms placement raised about N64 billion and not N30.4 billion reported by a business daily at the time. Of this amount, N22.94 billion was taken out by the foreign investors –ACTIS & ECP, with Starcomms retaining the balance N41.05 billion for its operations.
The telephony company, he said, “sold its Private Placement at a price of N13; and these shares now trade at 50 kobo per share, which is the lowest technical value it could trade (otherwise it could have been trading at near 2 kobo per share!). This is a phenomenal loss in value of nearly 100 per cent in just a few months! I have recently discovered the way the Private Placement was packaged to be very confounding and I have dubbed it: the Madoff of Nigeria – the grand-mother of all scams in the Nigerian capital market.”
Adu wants the House to investigate the transaction, believing it was used to scam Nigerians of billions of Naira, in addition to passing a resolution “mandating the SEC to compel the Issuing Houses to refund all the monies (including interests at commercial rates from the 26th June, 2008 until the date of execution of this House Resolution) collected into the offer proceeds accounts, from prospective investors that were not on the list of 43 allottees cleared by the SEC.”
Thereafter, he wants the SEC to commence criminal prosecution of the entities involved, in line with section 41 (1), (2), (3), (4) and (5) of the Investment and Securities Act (ISA).
Whereas Chapel Hill Advisory Partners Limited and Stanbic IBTC Bank Plc, were issuing houses to the placement, First City Monument Bank Plc (Starcomms Collection Account No. 0011080405409001), Stanbic IBTC Bank Plc (Account Number 7200067098) and Fidelity Bank Plc, acted as receiving banks; and First Registrar Nigeria Limited, registrar.
The first fraud committed in the process, he said was that only 43 investors were revealed to the Securities & Exchange Commission (SEC) as participants, whereas “hundreds of Nigerian Investors paid monies into the offer proceeds accounts.” The SEC’s Rule 90 requires that only 50 investors should have been offered or allowed to pay into these accounts, yet only 43 Investors got allotted.
Most surprisingly, he said was that most of those who “deposited money into the offer proceeds accounts but who were not among the 43 Investors who were on the SEC-cleared allotment list, did not get their monies refunded to them as statutorily required.”
Instead, such monies were “converted, and they were thereafter issued share certificates through very questionable procedures that did not involve a share transfer form (another statutorily requirement for transfer of shares). This suggests that the several billions of naira collected from innocent Nigerians might have been converted for the purpose of the bogus Private Placement, even though the owners of the monies are not on the list of 43 persons approved by SEC,” he alluded further.
Adu averred that the issuing houses deceived the SEC and others, when they created
“Investment Vehicles to aggregate many subscribers and thus tried to circumvent the rule that a private placement should not be offered to more than 50 people. However, the use of Investment Vehicles and subsequent assignment of shares in a private placement had been anticipated as a fraudulent practice by the framers of the ISA, which has made such a practice to mean the underlying transaction was a public offer, even if it was called a private placement; and all requirements of a public offer must thus be met otherwise the subscribers to such a scam may rescind their decisions and ask for a reimbursement at anytime they so choose but before the winding-up of the Parties involved in the act.
“The information as to the proposed Private Placement was openly available on internet websites (like www.nairaland.com and www.stockmerketnigeria.com) and was published in BusinessDay Newspaper of 29/04/2008… where details of the Private Placement were given to the public by the issuing houses; and the public were asked to “state the volume of shares they desire, and at what price per share”.
He noted that although SEC directed the issuing houses, most of these monies were not returned, he urged the committee to compel the receiving banks to provide the full list of all depositors into the offer proceeds account as from the date the accounts were opened. Also ask each of the banks the number of depositors, and whether the issuing houses made refunds “to all those depositors who were not on the SEC clearance of allotment. Ask them if they did not make these refunds, where the monies of the depositors are? Is it with Starcomms or with the Receiving banks or the Issuing Houses or where? If they ever say it is with Starcomms or any of the Parties, ask them on whose authority did the monies get to Starcomms or any of the parties?”
Their answers, he believes, “will lead to the clear evidence of illegal and questionable conduct of conversion of monies, contrary to the ISA and SEC Rules & Regulations. As per the ISA, SEC Rules and Practice, nobody can touch monies in an offer proceeds account except it is for payment to the issuer (based on the SEC approved allotment) or refund to un-allotted prospective investors.
Adu further told the committee that the “Starcomms Collection Account No. 0011080405409001 at FCMB” is a trust account whose operation is strictly regulated by the ISA (2007) and the SEC Rules.
“As Joint Issuing Houses, both Chapel Hill and IBTC, are joint trustees of all funds in the said account for the purpose of the Starcomms Private Placement transaction. On or about 05/05/2008, Chapel Hill transferred the sum of N16 billion from that trust account to its private account kept with Access Bank Plc. The transaction was an RTGS transfer with transaction ID DC6573.
“Access Bank Plc was not a receiving Bank to the Private Placement and the sum of N16 billion is far in excess of any legitimate income of Chapel Hill in the Private Placement transaction.”
On how he became aware of these information, the MorganCapital CEO said: “I know the above facts to be true because i invested over N300,000,000 in the bogus private placement. When I sued for a refund of my money, it was now revealed that I was not on the list of 43 persons approved by SEC for the Private Placement transaction. How then did money move from the transaction action which is a trust account?
“SEC ought to have known by now there is litigation against Chapel Hill & IBTC in suit no: FHC/L/CS/902/11 upon reviewing the Quarterly Reports of these companies filed with SEC.
“Kindly ask SEC if they ever got the statements of the Offer Proceeds accounts prior or even after they had cleared the Allotment? Ask them to produce these statements, as you might find out that what SEC got was even different from what the Banks submitted or what I submitted as evidence from the Offer proceeds from FCMB (Starcomms Collection Account No. 0011080405409001).
“Mr. Chairman and dear members of this honourable House, you fully know the implications of financial organisations (especially banks) doctoring information; so kindly scrutinise these statements very well. Also ask 3rd party banks from where unsuspecting depositors made RTGs transfers into the Offer proceeds accounts to provide evidence of the bank account into which their transfer instructions were issued to be transferred to. On the list that I have submitted to you as exhibit 1, you will see numerous bank RTGs for transfers by unsuspecting depositors, so you may call those third party banks to provide the requisite transfer instructions, which I am sure will corroborate the fact that transfers were, indeed, made into the offer proceeds accounts” he stressed.