REPORT OF THE CMC ADHOC COMMITTEE ON FORMULATING

REPORT OF THE CMC AD-HOC COMMITTEE ON FORMULATING A UNIFORM POSITION FOR THE TREATMENT OF MULTIPLE SUBSCRIPTIONS TO PUBLIC OFFERS PRESENTED TO THE 1 ST QUARTER CMC MEETING HELD ON MAY 09, 2017 AT FEDERAL PALACE HOTEL, LAGOS By The Ad-hoc Committee Members

BACKGROUND • • During the 4 th quarter Capital Market Committee (CMC) meeting of 2016, which held on November 24, 2016, it was observed that one major source of unclaimed dividends remains the use of non-existent identity to make multiple subscriptions to public offers. While the entire capital market community recognizes this act as devious, a segment advocates for leniency to pardon this wrongful act. Contrary to this, another segment advocates that the unlawfulness of the act should be upheld. • In order to formulate a uniform position, it was adopted by the CMC that a Committee of experienced market operators drawn from the NSE, CSCS, ASHON, ICMR and CMSA should be constituted. • Following nominations made by the foregoing stakeholders, SEC constituted the Committee with following terms of reference: Ø To review the legal implications associated with the use of non-existent identity in subscribing to public offers; Ø To identify the possibility of granting forbearance or leniency of any sort to the affected investors; Ø And make recommendations in that regard. • This Report represents the outcome of the Committee’s deliberations and recommendations.

IDENTIFIED LEGAL IMPLICATIONS • After extensive deliberations, the Committee unanimously identified and agreed that: Ø The action of submitting Multiple Applications for the same Public Offer was, in every consideration, illegal. Ø The wrongful acts were carried out, by the perpetrators, under False Pretence. Ø There was no express law on forfeiture of shares but that SEC’s Rules on acts surrounding manipulation of allotments can be explored.

CLASSIFICATION OF THE CASES • Two groups of investors involved in multiple subscriptions were identified as follows: Ø Group A • This refers to the case of investors that actually existed but joggled their names in different forms to enable them purchase more than the permitted units of shares on offer. Ø Group B • This was the class of investors that did not actually exist but used fictitious names for the purpose of purchasing more than the permitted number of shares during public offers. • Members of the Committee unanimously agreed that both groups had fraudulent intentions and their actions were collectively illegal.

FORBEARANCE CONSIDERATION • The Committee observed, in its strongest terms, that the Nigerian Capital Market CANNOT and should not be seen to reward the wrongful acts/illegality of the perpetrators. This was with a view to ensuring the global sustainability of the Nigerian Capital Market’s Integrity and reputation. • It further opined as follows, that: Ø Multiple Applications/Subscriptions, in whatever form, were illegal and classified as cases of operating under false pretense. Ø The integrity and reputation of the Nigerian Capital Market should not be toyed with and therefore there should be no reward for criminality.

RECOMMENDATIONS • The Committee recommended as follows: i) That Group ‘A’ above should be considered for a level of forbearance by giving them six (6) months time frame within which to come forward and expressly prove their individual identities, subject to highest KYC criteria, to be defined by the SEC. Those owners, whose identities are established, would then be allowed to consolidate their accounts. After the expiration of the timeframe, unclaimed dividends, traceable to this category, along with their securities should be transferred to the Nigerian Capital Market Development Fund to be managed transparently in a separate basket under clear guidelines; ii) That since category ‘B’ refers to those securities with non-existent owners, the unclaimed dividends and related securities of this category cannot be ascribed to anyone. Therefore, both the unclaimed dividends and securities should be transferred to the Nigerian Capital Market Development Fund referred to in (i) above; iii) That, going forward, anybody who engages in the wrongful act of Multiple Subscriptions for the same Public Offer, should be prosecuted; iv) That the Market should endeavour to put in place adequate processes, leveraging on technology, towards detecting and identifying such cases of Multiple Subscriptions, in the future; v) The. Committee noted that, as part of measures to avert accumulation of unclaimed dividend, efforts should be made to amend the various sections of CAMA and ISA that will enable investors claim dividends forever.

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