Nigeria: NSE and Share Price Manipulation


The Dangote, AP Saga

Share price manipulation is no longer news in the Nigerian capital market.  Just about every company does it, especially when they are about to float a public offer.  In most cases, the companies create artificial demand for the stock and move prices up to a pre-determined point before applying for the public offer.

The African Petroleum (AP) Plc share price manipulation scam is making waves for two obvious reasons.  The first is that the price was manipulated downward in a rather clumsy plot executed clumsily.  No one lifts a finger in protest when share prices are manipulated upward.  AP was sailing perilously close to the infamous club of penny stocks when Femi Otedola bought into it. 

In fact, it was trading at N20.  It suddenly surged to N260 with the fundamentals remaining basically the same.  No one wanted to know how it got to N260. Now everybody is worried that it was manipulated down to N55.

The second reason is the name of one of those at the centre of the storm. Eugene Anenih, the managing director of Nova Finance and Securities Limited, is not a familiar name outside the bizarre enclave of Nigeria ‘s capital market, which a handful of miscreants have now turned into a nest of swindlers marauding as stockbrokers.

Aliko Dangote, on the other hand, is not only a golden fish in the stormy waters of Nigerian commerce and industry, but a big name in the global business community.  The man just cannot hide no matter how hard he tries. 

Dangote is the richest black man walking this planet at the moment. Even with the global financial meltdown, derelict regulation, insider dealings by stockbrokers and banks combining to reduce the value of his holdings in various companies quoted on the Nigerian Stock Exchange (NSE), Dangote, at the last count by Forbes magazine, remained the champion to be beaten in the race for the crown of the wealthiest black man on earth.  

Besides, he is the vice president of the Council of the NSE – a council that presides over some N5 trillion worth of investments in the nation’s embattled capital market.That position makes Dangote the next president of the Council of the NSE.  It further tells the world how much trust and confidence the nation reposes on the business mogul.

His name conjures earthquakes everywhere. That is why the mere mention of his name in the AP share manipulation scam has created so much media hype.The whole thing started like an unseemly scene where one man makes himself the sole operator in a market.

He offers his wares for sale and buys them back at the same time. In other words, no money or wares changed hands, since the buyer was equally the seller.  In the bizarre world of the NSE, that scenario is called cross dealing and it seemingly explains how the share prices of some quoted companies that raised funds in the capital market in the last three years might have suddenly surged to pre-determined points before offer applications were filed.

Anenih operated the one-man market for 30 trading days over a period of eight weeks.  As the custodian of the juicy Dangote holdings in the NSE, he offered the billionaire’s shares in AP with the right hand and bought them back with the left.

Since he was the buyer and seller rolled into one, no money changed hands except the fees that went to the regulators by way of transaction charges.

Anenih’s firm would also have got some stipends from the transaction by way of commission.  In view of the fact that less than two million shares were involved in the whole scam, the cost to the scammer would have been very minimal, given the damage he inflicted on the 160,000 shareholders of AP.

Over the period of eight weeks that the scam lasted, Anenih was able to force down the share price of AP from N203 to N55.  At the end of the scam, the market capitalisation of AP depreciated by N260 billion.

No one knows what the target of the scammer was.  However, there were fears that as the regulators of the market were snoring in deep slumber, the share price of AP could have been manipulated down to N20 if someone did not blow the whistle.

Each time he offered and bought back 50,000 shares of the company, the trading rule of the NSE allowed the scammer to bring down the price by five per cent.  The cross deal had the effect of creating a false sense of activity in the company’s shares, thus the share price movement could not be questioned.

Market watchers wonder why the alarming depreciation of the share price of AP failed to attract the attention of the NSE throughout the eight weeks it lasted. 

The exchange had, in 2008, suspended price movement on the shares of Transcorp Plc to halt a run on the company triggered by the federal government’s flip-flop policy on the company’s ownership of NITEL.  It took a similar step to halt a run on the share price of Wema Bank at the peak of the bank’s boardroom crisis.

Why then did it take an external whistleblower to notice the run on AP share price? The NSE and SEC are at a loss on why Anenih behaved the way he did.  The man had earlier told the NSE that Dangote gave him a verbal order on telephone to carry out the transactions.

He recanted that claim when Dangote’s representative confronted him at the hearing organized by SEC.  He conceded that he acted alone.  One is therefore tempted to conclude that, like some of his colleagues, Anenih had stolen Dangote’s shares in AP and sold them for personal gains.

The nation’s stock- broking community is replete with big names that ended up soiling their hands by stealing some peanuts.  A former managing director of the defunct Allied Bank went to jail for a similar offence.  Scores of smaller stock brokers are being investigated by the regulators on a weekly basis for similar crimes.

But the sinister thing about the AP scam is that no shares changed hands in the transaction.The shares in the crossed deal still belong to Dangote since the buyer was also the seller.  In a conventional cross deal, the stockbroker offers the shares from one of his clients and buys them back for another. He could as well buy it for his firm.  In the process, shares and money change hands.

But the AP deal was a sinister cross deal.  Anenih was the buyer and seller, so Dangote remains the owner of the shares – nothing gained, nothing lost.

The SEC, like the NSE, has decided to behave like a typical Nigerian capital market judge.  They ignored the overwhelming circumstantial evidence in the scam since the suspect offered to bear the torture stake alone.  By recanting his earlier statement that he acted on the orders of Dangote, Anenih had admitted, rather strangely, that he operated a one-man riot squad in a transaction that brought him no monetary gains.  He cuts the image of a despot who takes delight in seeing others suffer – which is what he has done to the shareholders of AP. 

The share price of the company started climbing laboriously after the scam was uncovered.  However, it may never get back to N203 because of the relentless depression in the market.

In a market equipped with trade alert device to avert schemes like the one Anenih hatched, one wonders how someone could transact deals on something close to two million shares over a period of eight weeks without the knowledge of the investor. 

My stockbroker transacted an unauthorized deal involving a paltry 2,000 shares in my holdings. The trade alert blew the whistle and I promptly verified the incursion.

Despite the fact that Anenih recanted his earlier claims that he was ordered on telephone to carry out the transaction, the regulators could still have gone beyond the surface by subpoenaing all the telephone networks used by the suspect to provide the transcripts of his conversations for the period for careful examination.

Besides, no one cared to find out why a stock- broking firm thoroughly battered by the inclement business weather in the capital market would pay regulatory fees running into millions for transactions that do not benefit the outfit.

That is by the wayside.  The interrogators at SEC would have jumped to the premature conclusion that they have a self-confessed sinner in their net.  The truth, however, is that the motive behind the AP scam far outweighs Anenih’s crocodile tears or the kid-glove treatment that the regulators meted out to him. 

One man cannot singlehandedly conjure the depreciation of a company’s market capitalization by a whopping N260 billion and get away with a paltry fine of less than N1million.My view on the matter is that the managing director of Nova Finance and Securities Limited has put his head on the chopping board by claiming that he acted alone in one of the capital market’s epoch-making scandals.

His head should therefore be chopped off to deter feeble-minded scammers like him in the future. The nation’s capital market has had enough scandals in recent times.  A market that lost N7 trillion in 13 months cannot afford to treat the AP share manipulation scam with levity.

Ndi Okereke-Onyiuke, the director-general of the NSE, once simulated the hypothetical scenario of two brothers – a lawyer and a construction labourer – who engaged some land speculators in a scuffle.  The lawyer delivered a fatal blow on one of the speculators.  The police were called in. Before the arrival of the police, the family of the suspects hurriedly held a meeting and persuaded the construction labourer to accept responsibility for the crime of the lawyer because the lawyer would be in a better position to defend his unskilled brother.

That probably is the fate of Eugene Anenih.  

culled from LEADERSHIP