Investment implications of SEC’s punishment on Cadbury

By Friday Ekeoba Lagos

Musa Al Faki, DG, SECTransaction volume in the nation’s capital market, especially in the post-consolidation banking and insurance sub-sectors, could aptly be said to be the highest, since commencement of trading on the floors of the Nigerian Stock Exchange (NSE).

The consolidation in the financial sector of the economy was greatly buoyed by the pension fund which is estimated at N80 billion as at the last count earlier in the year and the injection of fund by foreign investors who wanted to take advantage of the Nigerian market in maximising profit.

Injection of funds from these two quarters, which, before now, hardly flow to the market, was said by financial experts to have been garnered owing to the sound international standard in corporate governance currently in operation in the Nigerian market.

Put differently, the issue of corporate governance has been the albatross of most institutions around the globe wherein the trust of investors as to investment in the market could hardly be guaranteed for any possible returns. This could be said to have driven the Securities and Exchange Commission (SEC) and the NSE to properly adhere to the tenets of corporate governance, most especially SEC being the market regulatory body on the issue of standard in the market.

The recent decision of the apex body on Cadbury Nigeria Plc, a confectionary conglomerate, appears to have hit on the head, the very grouse of investors in the nation’s capital market, who had been clamouring for a better performance from the regulatory body.

Investors’ complaint, before now, was that companies in the market had, in one way or the other, shortchanged them without being brought to book to answer to their offences. The decision of the commission greatly reverberated in the market, leading to financial experts’ comment that the market in the months ahead would react positively to the bold punitive measure handed down by SEC to ensure sanity in the capital market.

It will be recalled that the Securities and Exchange Commission had fined Cadbury Nigeria Plc a total of more than N21m for filing false and misleading annual reports and accounts in 2006. According to a statement from the Head, Media, SEC, Mr. Lanre Oloyi, all of the company’s directors at the time the offence was committed have been recommended for prosecution by the Economic and Financial Crimes Commission and banned from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria.

In addition, the company’s former auditors, which signed of the misleading accounts, Akintola Williams Delloite, was fined N20m and warned to be of good behaviour in future. The discovery of the accounting mis-statements led to the sack of erstwhile managing director, Mr. Bunmi Oni and finance director, Mr. Ayo Akadiri, while the company’s United Kingdom parent company, Cadbury Schweppes made a provision of 70 million pounds to fill the hole in the accounts. The Commission’s findings arose when it constituted an in-house committee, which carried out a thorough investigation on the matter and confirmed the report of misstatements in the account of Cadbury to the tune of approximately N13bn.

In March 2008, the commission, among other things, found out that Oni, with the concessionof the company’s board since 2002 used stock buy backs, cost deferrals, trade loading and false suppliers stock certificates to manipulate its financial reports that were issued to the public and filed with the SEC. The commission also found out that an undocumented and undisclosed offshore account was maintained and operated by the company, from which Oni, Akadiri and other executive directors were paid offshore remunerations without the approval of the committee responsible for fixing remunerations of executive directors and not recorded in the company’s financial report and account.

The breakdown of the fines the company imposed by SEC, showed that it was to pay a sum of N100, 000 in the first instance and a penalty of N5, 000 per day, from June 30, 2002, to December 14, 2006 within 21 days from the date of the decision, March 28, 2008, failure of which trading on its shares would be suspended.

Cadbury was also asked to pay another fine of N100,000 in the first instance and a penalty of N5,000.00 per day from August 24, 2005, to the date of the decision, March 28, 2008, within 21 days, for filing a rights circular for the N5bn irredeemable convertible loan stock, which contained false and misleading statements.

The commission also asked the company to, “Pay a penalty of N5, 000 per day, from June 30, 2002, to December 14, 2006, within 21 days, for failing to provide funds en-bloc for the payment of dividends to its shareholders despite the commission’s earlier directive.

“Messrs J.S.T. Bogunjoko, Abiodun Jaji, Andrew Baker and Christopher Okeke are suspended from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria for a period of five years from the date of the decision.

“Olusegun Aina, Akinbode Gbolahan and Tunde Egbeyemi are also suspended from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria for a period of three years from the date of the decision.”

According to the capital market apex regulatory body, Cadbury’s chairman, Mr. Uduimo Itsueli, Messrs Olatunde Falase, Raymond Ihyembe, Gabriel Onabote, Olusegun Oyewole, Matthew Shattock, Thomas Ayorinde, Z.C. Enuwa and S.J. Balogun, were among others, also suspended from operating in the Nigerian capital market.

The commission said it had referred the company and aforementioned to the Economic and Financial Crimes Commission for further investigation and prosecution. “Akintola Williams, Deloitte is ordered to pay a fine of N20m within 21 days, of the decision for its failure to handle the accounts of the company with high level of professional diligence failing which its registration with the Commission shall be cancelled. It is further directed to sign an undertaking to be diligent and of good behavior in its future dealings in the capital market.”

“Union Registrars Limited is ordered to pay a penalty of N5, 000 per day from June 1, 2002 to June 31, 2006 within 21 days of the decision, failing which its registration with the Commission will be cancelled and directed to sign an undertaking to be diligent and of good behavior in its future dealings in the capital market,” it said.

However, while reacting to the apex market regulatory body’s findings and subsequent punishment on it, the management of Cadbury informed the public that they would seek redress in a court of law for what it described as fundamental error on the part of the commission’s judgment.

In a swift remark by SEC on the Cadbury’s reaction, it noted that the statement credited to the confectionary conglomerate was expected, noting that the commission was only out to protect the investment of millions of Nigerians both at home and abroad.

The commission said misdemeanor was as a result of the selfishness of a group of people who were serving their personal interest and seeking to sacrifice the interest of millions of Nigeria .

“We were thorough in our investigation and if there is anything more than that, we would have done it. The finding of the commission is amazing, a corporate institution carefully sat down crafted a fraud right at the top echelon of management and have the gut to come and be saying SEC was not thorough in its investigation. I hope and wish they would challenge the decision, then the whole world will come to know the very details of their transaction.

“They hired warehouses where they were stock pilling goods that were not sold and were invoicing it as sold and were paying themselves offshore Pound Sterling and Swiss franc which were not recorded anywhere in the company’s account books. The MD said they were using it to cushion the effect of inflation on the pay of executive directors. They were offloading, pushing stocks on papers to distributors without the distributors demanding for them, they were doing all sorts of things”

SEC’s Director of Investigation and Enforcement, Mr. Charles Udora, gave this declaration while answering to allegation of fundamental error in the judgment of the commission in the Cadbury issue. He said that a lot of corporate executives are on their way to prison considering volume of allegations presently in the custody of the commission. The commission said the avalanche of evidences it’s presently investigating regarding some quoted companies in the nation capital market would definitely put chief executives of companies behind bars.

“I believe that decision on them would be harsher than that of Cadbury” He said there is no error in SEC’s judgment noting that the statement by Cadbury management was only a defensive mechanism which in every sense of the world is expected from such a conglomerate whose integrity has been impugned upon by that decision.

He said the decision of SEC is aimed at protecting the interest of millions of both local and international investors who have subscribed to the operations and dealings in the nation capital market.

Udora noted that what the commission decision entails is that it is a signal to other corporate body that it is no longer business as usual in market adding that the financial market is about integrity and once this is varied it has no value.

“Time has come in this country to shy away from sentiments and deal with facts, I believe day (Cadbury’s executives) would still be handcuffed as the matter has being referred to the Economic and Financial Crime Commission (EFCC)”, he added.


Speaking on the development Boniface Okezie president Progressive Shareholders Association of Nigeria said as far as the association is concerned SEC has done a good job and that this is what they have being expecting, that the SEC hammer should fall on those who perpetuated the misstatement in Cadbury.

He said the association worry is that Union Registrar where also penalize. “What is there role, where they part of the misstatement on the company financial results? Why were they penalize, because they are only Registrar to that company and if a company is declaring dividend a dividend, it is what the company gives to them that they post”

“I want to find out what is the crime that they have committed that has not being brought to the public”

“I affirmed my support on the decision taken on others. It would go a long way to ensure deterrence among other companies that they must be honest and transparent in their dealings”

Okezie lamented that it’s an indictment on Nigerians that most of the companies headed by blacks are running underground owing to one fraudulent activities or the other adding that now that the white have taken over those companies they are now back to profitability.

He said companies like , PZ cusson industry and Unilever Nigeria Plc have bounce back to profitability haven run aground by managing directors who were Nigerians but that the coming of white foreigners have made shareholders to be smiling on their investment in those companies.

He added that since a white man have taken over from Bummi Oni in a few years time Cadbury would definitely return to profitability against all other odds.

While chronicling the genesis of the Cadbury saga Okezie noted that “I started noticing problem in the company when they would declare a dividend and they would refuse to pay. Because they have a registrar serving them but those dividend warrant was never given to them for disbursement, rather they would refer shareholders to come to their office to collect their warrant which at the end of the day not issued”

“I wrote to SEC then to investigate those things but they turn around to accuse shareholders association that we are not shareholders of Cadbury that is when they got it wrong. Because the association do not need to be shareholder of Cadbury but people who are representing the interest of investors in the market”

On the stocks of Cadbury Okezie expressed worry that despite the decision of SEC as it relate to the company’s’ misstatement prices of the stocks is on the up beat in terms of price which the reverse ought to be the case.

According to him “when the incident happen and it was announced market operators reacted by dropping the price that is how it should be, but unfortunately the price has been going up trading at between N40 and N50.It is misstatement of account that has been leveled against the company for Christ sake and it would take about 2 to 3 years before the company would bounce back to life”

“So if you are buying the stock now you are taking a risk, because you don’t know how long it is going to take for them to come back to profitability, so that price ought to be dropping so that investors would buy and wait longer. So by the time the fortune of the company improve, you can sale and make your money, without relaying on dividend. But this has not come to be rather you see the price of the stock going up, for what interest is the price going up, what is driving the market this calls for concern”, he added.