SEC fines directors N417.692m
Oil coy calls for withdrawal of penalties, demands forensic audit report, fair hearing
Obinna Chima and Goddy Egene
The directive by the Securities and Exchange Commission (SEC) that the co-founders of Oando Plc, Group Chief Executive Officer, Mr. Wale Tinubu, his deputy, Mr. Omamofe Boyo, and other board members should resign and an extra-ordinary general meeting be convened to appoint new directors, on or before July 1, this year, appears to play right into the hands of Mr. Gabriele Volpi, the Chairman and main shareholder of Intels Nigeria Limited, who has been having a running battle with Tinubu and Boyo over the control of the oil and gas company.
This comes exactly two weeks after the Nigerian Ports Authority (NPA) terminated its boats pilotage monitoring and supervision agreement with Intels for failure to pay $145 million in revenues the the FG’s Treasury Single Account ( TSA).
Alhaji Dahiru Mangal and Ansbury Investments Inc., had written two separate petitions against Wale Tinubu and Mofe Boyo. Specifically, Ansbury, a firm set up by the 78-year-old Volpi, a multi-billionaire, who holds dual Italian and Nigerian citizenship, with extensive interests in oil and gas, ports logistic services and real estate spanning 40 years in Nigeria, had petitioned SEC, where it sought removal of the two executives over their inability to repay $680 million, which he loaned them for the acquisition of ConocoPhillips oil and gas assets.
After failing to repay him the loan as at when due, Volpi dragged the duo of Tinubu and Boyo to arbitration in London and won
The Oando founders, however, went on appeal, which is yet to be decided. Oando’s inability to repay the loan as and when due, was largely because of the collapse of oil prices in the international markets.
In 2012, Volpi had through his company, Ansbury, invested about $700 million in Ocean and Oil Development Partners Limited (OODP BVI), a special purpose vehicle registered in the British Virgin Islands, by acquiring a 61.9 per cent stake in the firm, while a company owned by Tinubu, Withmore Limited, held 38.10 per cent of the stake in OODP BVI.
It was reported then that Tinubu had approached Volpi to invest in the British Virgin Islands-registered firm when Oando Plc was seeking to acquire ConocoPhillips’ upstream oil and gas assets in Nigeria for $1.5 billion, a deal eventually consummated in 2014.
OODP BVI, in turn, owns 99.99 per cent of the shares of Ocean and Oil Development Partners Nigeria Limited (OODP Nigeria), which holds 55.96 per cent of the shares in Oando Plc, the oil and gas company listed on Nigerian and Johannesburg Stock Exchanges. The action of SEC in demanding the resignation of Tinubu and Boyo paves the way for Volpi to use his majority shares in OODP to choose the CEO, Deputy CEO and CFO in Oando Plc and establish full control. THISDAY checks reveal that Volpi has began consultations in this regard over the weekend and is looking to get Dahiru Mangal to join him in this pursuit despite Mangal making peace with Tinubu and Boyo and appointing 3 directors into Oando Plc. Mangal nominee directors will be the only surviving directors in the post SEC clampdown. But they would have no quorum to convene the board and take decisions, except new directors are appointed by shareholders led by Volpi controlled OODP in the SEC-ordered Extra-ordinary General Meeting.
Meanwhile, more facts have emerged as to the alleged infractions and false disclosures by Oando Plc which led the Securities and Exchange Commission (SEC) to order the oil firm’s Group Chief Executive Officer, Mr. Wale Tinubu, the deputy, Mr. Omamofe Boyo and other board members to resign. Tinubu and Boyo have challenged most of SEC’s findings and are citing lack of fair hearing in the entire process.
According to SEC, Oando and its Directors are to pay a total fine of N417.692 million for the various forms infractions the oil and gas company violated.
SEC disclosed this in a six-page letter dated May 31, 2019, that was addressed to the Chairman, Oando Plc, that was obtained by THISDAY last night.
But Oando, in a five-page letter dated June 1, 2019, and addressed to the Acting Director-General, SEC, Mary Uduk, demanded the withdrawal by SEC of the penalties listed in the letter within three days, insisting that the findings were largely unfounded and remained unsubstantiated in the absence of any representation from the oil and gas company before the regulator arrived at its sanctions.
The oil and gas company also demanded that it should be given the findings of the forensic audit as well as an opportunity to defend itself.
However, a breakdown of the fine the Commission asked Oando to pay showed that while SEC directed the company to pay the sum of N8.450 million for publishing untrue statement in its 2012 financial statements, in violation of Rule3(4) of the SEC Rules and Regulations, made pursuant to the Investment and Securities Act (ISA) 2007; the company was also expected to pay N7.850 million to the Commission for publishing untrue statements in its 2013 financial statements in violation of Rule 3(4) of the SEC Rules and Regulations, made pursuant to the ISA 2007; and another N42.750 million to the Commission, for non-disclosure of related party transactions in its 2012 financial statements in violation of Rule 39 (1&7) of the SEC Rules and Regulations, 2013, made pursuant to ISA 2007.
In addition, Oando was also asked to pay another N30.625 million as penalty to SEC for non-disclosure of related party transactions in its 2014 financial statements, in violation of Rule 39(1&7) of SEC Rules and Regulations, 2013, made pursuant to the ISA 2007.
Furthermore, Ademola Akinrele SAN, Ammuma Alli, a former permanebt Secretary in the federal ministry of Petroleum Resources, Engr. Yusuf Njie, Ike Osakwe, Oghogho Akpata and Tanimu Yakubu, Chief Sena Anthony and Oba Adedotun Gbadebo, all Directors of Oando, were directed to immediately refund to Oando Plc, the total sum of N145,767,316, being remuneration and other benefits paid to them above the provision of the Board Charter over a period of 5 years. It must be pointed out that no wrongdoing was established against the directors most of whom have sent in the refund cheques.
A further breakdown showed that Akinrele was directed to refund N24,351,158; Alli -N11,950,00; Njie -N3,115,000; Osakwe – N24,351,158; Akpata – N28,975,000; Yakubu -N24,000,000; Anthony -N11,250,000 and Oba Gbadebo -N20,000,000.
The letter also stated that for certification of untrue statements of material facts in the 2013, 2014, and 2015 financial statements of Oando Plc in violation of Section 60(2(b)(ii)of the ISA 2007, Mr. Jubril Adewale Tinubu, who is the Group Chief Executive Officer and Mr. Olufemi Adeyemo, the Chief Financial Officer were ordered to pay the sum of N91.125 million each to the commission.
“All monetary penalties referred above should be paid to the commission immediately,” it added.
“Mr. Jubril Adewale Tinubu and Mr. Godwin Omamofe Boyo are hereby barred from being directors of public companies for a period of five years for improper conducts in managing the affairs of Oando Plc to wit: market abuse, related party transactions not conducted at arm’s length, misstatements in the financial statements of Oando Plc.
“In view of the gravity of the corporate governance lapses and internal control failures observed in the company, every person who sat on the Board of the company when the failures occurred: Oba Gbadebo; Mr. Mobolaji Osunsanya, Mr. Olufemi Adeyemo; Mr. Oghogho Akpata, Chief Sena Anthony and Mrs. Ammuna Lawan Alli, should resign his/her position from the Board of Directors of Oando Plc, failing which such person would be barred from serving as a director in any public company for a period of five years.
“Oando Plc should convene an Extra-Ordinary General Meeting on or before July 1, 2019, to appoint new directors and articulate remedial measures for the observed corporate governance lapses,” it directed.
Full Details of SEC’s Findings
SEC recalled that following the receipts of two petitions by SEC from Mangal Dahiru and Ansbury Incorporated, the Commission in 2017, conducted an investigation into the activities of Oando Plc and observed certain infractions of securities laws by some members of the board of Oando Plc.
Additionally, it stated that the findings of the Commission were communicated to the Group Chief Executive Officer by a letter dated July 10, 2017.
Owing to this, the Commission said it further engaged Deloitte and Touche to conduct a forensic audit of the activities of Oando Plc, through which findings were made.
The letter revealed the findings to include: “There were several corporate governance lapses stemming from poor board oversight. These includes irregular approval of Directors’ remuneration, Directors’ participation in matters in which they had declared interest, unjustified disbursement to Directors and management of the company, failure of the audit committee to hold meetings with management, internal auditors and external auditors.
“Oando Plc failed to establish an effective system of internal controls as required under Section 61 of the ISA 2007, over its financial reporting, thereby compromising the integrity of the company’s financial controls and reporting as revealed by the misstatements in the financial statements, high number of related party transactions and unjustified disbursements to Directors.”
Continuing, the letter stated that in 2013, Oando Plc reported the sale of its subsidiary, Oando Exploration and Production Limited (OEPL), the Green Park Management Limited without obtaining the approval of the Commission, (in violation of the provisions of the Investment and Securities Act (ISA) 2007) and the consent of the Minister of Petroleum (as required under the Petroleum Act, 1969).
According to SEC, the purported sale of OEPL enabled Oando Plc to report a profit instead of a loss, thereby misstating its financial statement in 2013 and 2014 and “consequently misleading investors.”
“This fictitious profit reported in 2013, enabled Oando Plc to declare dividend. The 2013 misstated accounts and quarterly reports of Oando Plc were included in the 2014 rights circular, thereby misrepresenting the financial status of the company to the public in violation of Section 86 of the provisions of the ISA 2007.
“In 2012, 2013, 2014 and 2015, certain insiders of Oando Plc sold shares of the company during “closed periods” despite having knowledge of active closed periods by the company and contrary to the rules of the NSE.
“The insiders include Ocean and Oil Investment Limited (OOIL –represented by Jubril Adewale Tinubu and Godwin Omamofe Boyo), Ocean and Oil Development Partners (OODP – represented by Jubril Adewale Tinubu, Godwin Omamofe Boyo, Francesco Cuzzocrea), and ECP African Fund II (a company in which Nana Appiah – Korang was director).
“This violation is being referred to the Nigerian Stock Exchange. OODP, the major shareholder in Oando Plc represented by Jubril Adewale Tinubu, Gowdin Omamofe Boyo and Francesco Cuzzocrea authorised the sale of 1,210,000,000 units of OODP shares in Oando Plc valued at N21,455,909,256.”
SEC stated that the trace took place between January and October 21, 2015, preceding the release of the 2014 audited financial statements on October 23, 2015, in which Oando Plc declared an unprecedented loss of N183 billion.
During this period, these representatives of OODP were insiders of Oando Plc and had access material non-public information regarding the poor financial status of the company commencing December 2014, in violation of the provisions of the ISA 2007 regarding insider dealing, the Commission maintained, adding that the violation was being referred to the appropriate law enforcement agency.
Furthermore, SEC held the view that Oando Plc was involved in several related party transactions linked to key board members particularly Tinubu and Boyo. According to the capital market regulator, some of the related party transactions were not disclosed in the company’s 2012 and 2014 financial statements that these disclosures had been accurately reported.
“In 2014, Oando Plc paid interim dividends when the company was facing liquidity facing constraints. Oando Plc failed to fully comply with the SEC Code of Corporate Governance for Public Companies.
“The company falsely indicated full compliance with the Code in its annual reports for 2012 and 2013.
“Alhaji Dahiru Bara’u Mangal failed to disclose his substantial ownership in Oando Plc as required by CAMA. Similarly, Oando Plc failed to notify the NSE of his shareholding of five per cent and above as required by the rules of NSE. This is being referred to the Corporate Affairs Commission (CAC) and NSE).
“Oando Plc deducted an amount representing 24 per cent of the dividend paid to shareholders in 2014 as withholding tax. This exceeded the statutory requirement of 10 per cent as required by the Companies Income Tax Act(CITA). Oando Plc failed to comply with the several tax laws such as Companies Income Tax Act, Value Added Tax etc. These tax related violations are being referred to the Federal Inland Revenue Service (FIRS).”
Oando’s Point by Point Rebuttal
On its part, Oando which demanded the withdrawal by SEC of the penalties listed in the letter within three days, recalled that following SEC’s receipt of two petitions bordering on alleged gross abuse of corporate governance and financial mismanagement, the company received SEC’s letter dated 10th July 2017, requesting that it addresses the said allegations.
The company explained that it responded to the allegations in its letter dated [26th May 2017] and thereafter instituted a legal action before the Federal High Court in October 2017, challenging the propriety of the forensic investigations subsequently ordered by the SEC.
But it stated that it withdrew the petition on the assurance given by the SEC that the forensic investigation will be impartial and independent.
“Furthermore, the company in its reasonable expectation that it would be afforded fair hearing before a verdict is reached on the audit, consistently followed up with the [SEC] on the status and/or outcome of the forensic audit. It was therefore disappointing to note that the Company only became aware of the conclusion of the audit and existence of the Report following the publication of the press release on SEC’s website and thereafter, its Twitter page, a few hours before SEC’s Letter was delivered to the Company and its directors.
“The Company is of the position that SEC’s Letter contains generic and vague allegations and findings contained therein are unsubstantiated, invalid and calculated to prejudice the business and interests of the Company and its shareholders. Despite the Company according the forensic auditors maximum cooperation throughout the protracted duration of the audit, a copy of the Report and the recommended sanctions were never shared with the Company.
“As such it was not afforded the opportunity to defend or make any representations on the findings in the Report before it was published on the website of the SEC in addition to being communicated in your Letter,” it added.
In response to the specific points raised in by SEC in its Letter, in the area of corporate governance, Oando stressed that it prides itself as a pioneer Nigerian company in the adoption of best corporate governance practices.
Oando said it was the first NSE-listed company to achieve a cross-border dual listing of its 100 per cent shares on the Johannesburg Stock Exchange in 2005 and a further listing of 100 per cent shares in its upstream subsidiary on the Toronto Stock Exchange in 2012. These successful listings required the company to institute and maintain the highest international standards of corporate governance in its management and business operations.
“The company firmly states that it is not in breach of any corporate governance practice or SEC code as alleged by the SEC in its letter above. The company denies that there was any illegal approval of director’s remuneration at any period under review. All payments to directors were in accordance with the Board Remuneration Policy and in accordance with proper governance processes. All such payments were approved by the Board of the company and disclosed in the audited financial statements which were duly approved by the shareholders at the company’s general meetings.
“All remuneration (including expenses) to directors and management are approved and paid in accordance with the approved delegation of authority document of the company. Failure of the Audit Committee to hold meetings with management, internal auditors and external auditors.
“A review of the records of the Audit Committee meetings of the Company would confirm that the Committee holds regular meetings with the Management of the Company and its internal and external auditors. In addition, the Audit Committee meets separately with the internal auditor and the Management is absent at such meetings. The rationale behind this is to reinforce the independence of the internal auditor and to comply with the requirements of the Audit Committee that the internal auditor should have unfettered access to the Audit Committee,” it explained.
Responding to the issue of its Directors’ participation in conflicted matters, the Lagos-based company noted that the law requires Directors to disclose matters in which they have an interest. According to Oando, it is the practice and tradition of the Board of the company to have as the first item on the agenda in all Board Meetings, the disclosure of any interest they may have in the business of the day. Furthermore, in compliance with best corporate governance standards, directors of the Company who disclose an interest in a matter before the Board always recuse themselves from exercising their right to vote on that matter, it added.
The company denied the allegation that it does not have an effective internal control process in place as required by S61 of the Investments and Securities Act 2007, stating that in the absence of any specific instances or examples adduced by the SEC in its letter, “the company is of the position that there is no basis for this finding as statutory internal control processes are strictly followed in preparing the financial statements of the company. The SEC is therefore put to further proof of this allegation.”
It added: “The company reiterates that it did not violate the provisions of the ISA in respect of the sale of its subsidiary, OEPL to Green Park Management Limited as it was always the intention of the company to seek SEC’s approval prior to the completion of the sale. The same is applicable to obtaining the consent of the Minister of Petroleum to the sale. The practice is that SEC does not give consent unless and until the consent of the Minister concerned with that transaction has been sought and obtained. In fact, the transaction was one in which SEC’s approval was a condition subsequent to the sale.
“The accounting treatment accorded to the transaction at closing (prior to completion) was in full compliance with the International Financial Reporting Standards (IFRS) and the rules of the Financial Reporting Council.
“The company rejects the assertion by the SEC that the sale of OEPL in 2013 was fictitious or orchestrated to enable the company to record a profit and pay dividends. The subsequent events that resulted in the inability of the company to conclude this transaction with a third party on an arm’s length basis could not have been foreseen at the time the transaction was closed and appropriately recorded in the company’s books.
“The 2013 audited accounts and subsequent quarterly reports of the Company were the proper account to be used in the 2014 Rights Circular and at the time of inclusion, did not contain any untrue statement or mis-statement. There was no intention on the part of the Company to mislead the public as alleged by the SEC.
“The company has always maintained that its policy and procedure on Insider dealings and sale of shares during closed periods are in accordance with best corporate governance standards. We refer you to our letter dated [26th May 2017] for our detailed response on this allegation.
“The company has always in the spirit of transparency and accountability, fully disclosed all related party transactions with Board members and management in its audited financial statements. The SEC has not specified the details of the related party transactions that were undisclosed in 2012 and 2014. As a result, we are unable to respond in detail to this allegation and again put the SEC to further proof of same.”
It added: “The Commission claims that the company declared dividends in 2013 and 2014 from unrealised profits. The company has repeatedly denied this claim and provided evidence to the SEC in its earlier communication. The interim dividend declared in September 2014 and paid by the company in November 2014 was paid from the first half of 2014 profits of the company. At that point in time, the company had sufficient distributable reserves and it is acceptable under the law to pay out dividends if reserves exist at the point of declaration.
The declaration of the interim dividend on the basis of reserves available at the point of declaration, complied fully with the provisions of section 379 (2) of the Companies and Allied Matters Act.
“The SEC would observe that by the company’s letters dated 21st July 2017, 23rd August 2017, 24th August 2017, 28th August 2017 and 21st September 2017, Oando repeatedly brought to the attention of the SEC the fact that to the best of the company’s knowledge, Alhaji Dahiru Mangal held less than five of the shares in the company and requested that the SEC compel Alhaji Mangal to disclose his full beneficial ownership in Oando in accordance with Section 95(1-5) of the Companies and Allied Matters Act to enable the Company comply with Rule 17.13 of the NSE Rule book.
“The Company denies that it deducted and/or remitted any amount in excess of the statutory 10% Withholding Tax deductions from the dividend paid to shareholders in 2014 as required by the Companies Income Tax Act (CITA). We put the SEC to further proof of this allegation.
“Oando hereby states that the SEC did not follow the legal procedure prescribed under both statutory and case laws in making an order for the resignation of and/or barring the directors of the Company from holding the position of director in any public company. We therefore maintain that such order from the SEC is invalid, illegal, ultra vires and should be rescinded.”
It reiterated that SEC’s actions on the matter would have a hugely negative impact on the company’s reputation as a leading indigenous oil and gas company and its shareholders, investors and stakeholders, whose interests the SEC has a duty to protect. It condemned what it described as the disturbing pattern in which the SEC had repeatedly taken harsh punitive actions towards the company without according it the fundamental principle of fair hearing.
These, it maintained have had negative effects on the company’s share price, goodwill and commercial fortunes as well as those of its subsidiaries.
“In view of the foregoing, the company demands a withdrawal by the SEC of the penalties listed in the Letter within three days from the receipt of this letter as they are largely unfounded and remain unsubstantiated in the absence of any representation from the Company before the SEC arrived at its sanctions. The company hereby reserves its right to challenge the findings in the letter in the appropriate court of law,” it added.