[size=15pt]Insiders routinely manipulate share prices on exchange
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By Wale Fatade

August 21, 2009 06:39AMT
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Between January 2007 and March 2008, shares of African Petroleum rocketed skywards, rising by an atmospheric 627 percent. The broader market, by comparison, rose only 198 percent.

Then a funny thing happened: the Nigerian Stock Exchange placed the stock on technical suspension for the next 10 months, making it nearly impossible for investors to cash in on the gains.

The lofty price of AP shares was good for the insiders, most of whom were allotted large tranches by the issuing houses. It was especially good for Mr. Femi Otedola, the business mogul whose perceived wealth got him on the Forbes list of the world's billionaires for the first time this year.

But more importantly, the insiders holding millions of AP shares were able to maintain the illusion of bouyancy and prevent banks from calling in their margin loans. It was only after the market had lost over 75 percent of its value in the past 11 months that these loans turned tragically sour.

Share manipulation is rampant on the stock exchange presided over for the past seven years by Ndidi Okereke-Onyiuke, a quarter-century veteran of the exchange.

The shady practices, including insider trading, deliberate concealment of trading information from the public, and outright fraud, have become so pervasive that most foreign investors have fled the exchange in disgust.

More spectacularly, the margin loans granted by our banks and secured against these artificially pumped up share prices is one major trigger for the banking crisis, which has forced the Central Bank to dismiss five bank chief executives and pump hundreds of billions of naira into the distressed banks.

Many leading stock brokers and other members of the stock exchange, including Mrs. Okereke-Onyiuke, have been exposed as the country's worst debtors whose non-performing loans have brought the banking system to its knees. Those toxic loans had been guaranteed by shares that are now nearly worthless.

"Most of the exchange members had borrowed heavily, and they manipulate share prices to prevent a margin call," said one banking veteran who has watched these games from a slight distance. "In Nigeria, because most stock exchange council members are trying to protect their loans, they have always resorted to these technical suspensions. It is a racket."

Our reporters spoke to several long term stock brokers and other insiders in compiling this story. None were willing to speak for the record in order to protect their business relationships.

Repeated efforts, including a written request and several visits, to speak to Mrs. Okereke-Onyiuke proved fruitless. She is now under pressure to step aside from the Securities and Exchange Commission, which regulates the Nigerian Stock Exchange.

"It was for the SEC to say that this nonsense must stop," said another financial industry insider. "Obviously, up until now, they have not done so."

A feeding frenzy

Few stock listings exemplified the pervasive racketeering on the stock exchange as the AP public offer. When the "technical suspension" was finally lifted last November, the share price began deflating rapidly. It now trades at around N53, a drop of more than 80 percent.

The technical suspension aroused the curiosity of the House of Representatives Committee on Capital Market. The committee said earlier this year that maintaining the technical suspension gave AP undue advantage as its capacity to borrow money was influenced by its market capitalization. It buttressed this with a comparative analysis of two companies in the petroleum sub-sector.

During the period that

It was also AP whose shares were manipulated by Nova Finance and Securities, acting supposedly under the instruction of Aliko Dangote, president and chief executive officer of Dangote Group who was recently elected president of the Exchange Council.

This was a fallout of the bitter fight between two former friends, Mr. Dangote, and Mr. Otedola. An investigation by the SEC found no proof that Mr. Dangote was directly involved in the shares manipulation, though it found that Nova used "manipulative and deceptive devices and contrivances in its transactions on AP shares." Nova reportedly crossed the shares of AP 30 times in eight days, resulting in 160,000 shareholders of AP losing over ₦240 billion. The brokerage was suspended from the exchange for a year and its chief barred for five years.

Pressure on SEC

The SEC is now scrambling to to put its house in order. It recently got rid of its pliant director general, Musa Al-Faki, and is reorganising its leadership ranks. Its new muscular posture was reflected after the meeting in Abuja on Wednesday, at which it withdrew the power from Mrs. Okereke-Onyuike to place stocks on suspension without first obtaining clearance from the SEC.

"SEC as an institution has serious systemic problem for responsible oversight," a knowledgeable SEC analyst told NEXT in Abuja last week.

The rapid deflation of the market panicked the insiders earlier this year, and they began to look for government bailout. The NSE council sent a delegation to Vice President Goodluck Jonathan to ask for a bail out for the exchange in January this year.

Mr. Jonathan offered to pass the request to the President's economic team which subsequently selected a subcommittee to examine the issue.

Erastus Akingbola, former chief executive of Intercontinental Bank and Cecilia Ibru, former chief executive of Oceanic Bank, led the delegation. As it turned out, these two banks have the highest margin loan exposure among the five whose chief executives were sacked last week.

The delegation made its case but officials would not budge. "They huffed and puffed and made a fool of themselves because their case was so ridiculous," said a source present at the meeting.

Just in case government agreed to bail out the market, Mrs. Okereke-Onyiuke was prepared to take advantage of the opportunity. "She offered to select five stockbrokers to handle the transactions for the government," an official said.

Additional reporting by Bassey Udo and Daniel Osunkoya

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