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CAPITAL MARKETING REPORTING How Stockbrokers Rip Off Investors Tony Manuaka, Broad Street Journal, November 26, 2007 She never had any inkling that a stockbroker could turn out to be a swindler. So, after a long period of ruminating on how best to manage what she could rightly term her savings for over six years as an oil worker, Ada Ijene, 34, decided to invest in the stocks of First Bank of Nigeria. Not long afterwards, she concluded arrangements and handed a cheque of N1.3 million to a mere acquaintance who had over time, paraded himself as a stockbroker. The shares were to be bought from the secondary market, so it was agreed that the certificate was to be delivered in two weeks' time. Even though she knew next to nothing about operations of the stock market, she felt at ease with the promise. That was how several weeks rolled by and there was nothing to show that there was any transaction between Ijene and the self-acclaimed stockbroker. Several months later, it dawned on her that she may have been swindled. All along, the fake stock broker had maintained that the chief executive of the stock broking firm where he works had travelled to the United States and kept shifting the date of her return. With the intervention of some family members from both sides, it was later revealed that the N1.3 million was rather invested in a haulage business. Ijene broke down in tears but it was rather too late as the conman had already concluded arrangements to travel out of the country. But her case was just one out of several others in recent times. Investigations carried out by the magazine indicate that some market operators employ sundry methods to defraud unsuspecting investors these include non-lodgment of shares, non-payment of sales proceeds, failed requests for share transfer, non-purchase of shares paid for, non-receipt of share certificates and statements of accounts, fraudulent dealings on Central Securities Clearing System, CSCS, accounts, insider dealings, unauthorised conversion of shares, price manipulation and non-refund for unprocessed applications. There is also a preponderance of cases of stockbrokers divesting their clients' investments hoping to reap higher returns in their own names. Yet, there are several cases of illegal operators in the market who are not registered by the regulators but who go about scouting for funds to manage for investors. Further investigations, however, showed that the most prevalent form of infraction in the capital market is unauthorised sale of investors' shares by stockbrokers. A stock market analyst who spoke to the magazine on the condition of anonymity put the value of illegal transactions carried out by market operators in the last few years in excess of N300 million. In meeting with the challenges of preventing fraudulent and unfair trade practices in the market, the commission investigated over 1,500 complaints against operators between 1999 and 2006. Within the same period, SEC successfully prosecuted 91 cases and handed over to the police 14 cases of illegal operators for further investigation and prosecution. Also, SEC sources confirmed that 14 cases were referred to the Economic and Financial Crimes Commission, EFCC. However, if fresh steps being taken by SEC are anything to go by, then the days of scam operators in the market are numbered. Musa Al-Faki, director-general of the regulatory agency, has, over time, reaffirmed his resolve for zero-tolerance on capital market infractions as part of the ongoing financial sector reforms. To meet the challenges of a growing market with capitalisation in excess of N800 trillion, the commission is said to be working towards setting up a committee that will monitor activities in the market. Furthermore, SEC has strengthened its working relationship with the EFCC to facilitate the prosecution of criminal cases in the stock market.Lanre Oloyi, spokesman for SEC, told the magazine that although some of the cases listed against stockbrokers have been decided, investigation on several others are still ongoing. “The management of SEC frowns at any form of illegality in the market.