Private Placement Proceed Default: Appeal Court Finds Keystone Bank, 3 Others Liable
OpenLife Nigeria has reliably gathered that an appeal court sitting in Lagos south west Nigeria in it’s verdict based on an appeal filed against the decision of Investment Security Tribunal, has ordered Keystone Bank Limited and three of it’s subsidiaries,PHB Capital and Trust Limited,PHB Insurance Limited,PHB Asset management Limited to pay N100,000 to a limited liability company ,MTECH Communications PLC, and five others namely Sheri Williams,Chuka Nwobi, Chris Ubosi,Lateef Bello Osagie, and Security and Exchange Commission.
In a unanimous lead judgement delivered by Judge of the Court of Appeal, Justice, Onyekachi Aja Otisi,
MTECH Communications PLC which embarked on a private placement of its shares, alleged that Keystone bank Limited, that had acted as the Issuer, refused to render its statement of balance and transfer proceeds of its said private placement exercise.
The Keystone bank Limited had alleged that it had issued loans to, Sheri Williams,Chuka Nwobi,Chris Ubosi and Lateef Bello Osagie to buy additional shares in the MTECH Communications Plc private placement exercise,in respect of these loans, which were not backed by actual cash, the MTECH Communications company had issued a guarantee for the loans.Keystone bank therefore failed to avail the MTECH Communications Plc of the proceeds of the private placement exercise.
The 1st – 5th Appellants. MTECH Communications PLC, Sheri Williams,Chika Nwobi, Chris Ubosi and Lateef Bello Osagie sued the 2nd – 5th Respondents, Keystone bank Limited,PHB Capital and Trust Limited, PHB Capital Insurance Limited, PHB Asset management in the Federal and State High Courts to determine the legal existence of the alleged loans and availability of the MTECH Communications PLC’s funds.
The first Appellant MTECH Communications PLC Commission through its lawyers, also issued a complaint to the Security and Exchange Commission SEC, alleging that the 2nd – 5th Respondents failed to grant its access to its private placement proceeds Account.
The Enforcement and Compliance Department of the SEC carried out a preliminary investigation into the matter and upon review of the documents involved in the transactions, the Appellants and the 2nd – 5th Respondents were alleged to have violated certain provisions of the Investments and Securities Act (ISA) 2007, the SEC Rules and Regulations 2000 (as amended) and the Code of Conduct for Capital Market Operators and their employees.
Upon these findings by SEC the Appellants and the 2nd – 5th Respondents were invited to appear before the Administrative Proceedings Committee (APC) of the SEC to explain why sanctions should not be imposed on them for the alleged violations and infractions.
On 4/5/2011, the APC came out with its findings and decisions in which both the Appellants and the 2nd – 5th Respondents were found liable in different proportions to the allegations against them. Dissatisfied with the decision of the APC. the Appellants appealed to the Investments and Securities Tribunal (IST) on grounds contained in their Notice of Appeal filed on 6/6/2011 at the Registry of the lower Tribunal.
The lower Tribunal considered the Appellants’ appeal, and on 10/12/2012, delivered its judgment in which the appeal succeeded in part.
Further dissatisfied with the findings and decision of the lower Tribunal, the Appellants lodged the instant appeal before this Court by Notice of Appeal filed on 10/3/2017.
The parties filed Briefs of Argument, pursuant to the Rules of the
Court. The Amended Appellants’ brief, was settled by E.O. Etomi, Esq while the SEC’s brief was settled by Chief Philip Ndubuisi Umeh, SAN
The 1st – 5th Cross Respondents, and the Cross Appellants had appeared before the Administrative Proceedings Committee (APC) of SEC, following a complaint by the 1st – 5th Cross Respondents to the SEC,At the end of the APC proceedings,both the Respondents to Cross Appeal and Cross Appellants were found liable in different proportions to the allegations against them.
The 1st – 5th Cross Respondents were dissatisfied with the decision of the APC and appealed to the Investments and Securities Tribunal (IST), the lower Tribunal. The appeal succeeded in part. The lower Tribunal set aside a portion of the APC’s judgment and made orders against the Cross Appellants.
The PHB Capital and Trust Limited was ordered to pay a penalty of NI00,000.00; shall release forthwith to MTECH Communications its register of shareholders
The relevant Rule under Schedule IX is Rule 1(iii) which states that all operators in the capital market shall not engage in any act that would adversely affect the general investing public’s image of and confidence in the capital market.
The reason given by the PHB Capital and Trust Limited for not releasing the shareholders register to the MTECH Communication is that it was instructed by the SEC to keep the Register.
The capacity of the SEC to issue such an instruction to the Cross Appellant was not in question since the Respondents did not raise such an issue. What is in issue, according to the lower Tribunal, was whether in fact, such instruction was given to the PHB Capital and Trust Limited. The lower Tribunal in its judgment, found,
It was contended that the lower Tribunal, from the evidence established before it, had the power to order for the refund of monies unlawfully collected by the Cross Appellant, even if such relief was not sought.
The Court was urged to hold that the decision of the lower Tribunal was justified in law and that it had its discretion to do so was judiciously exercised.
The Court was urged to dismiss the Cross Appeal in its entirety and affirm the decision of the lower Tribunal.
The Record of Appeal reveals that an administrative cost of proceedings of N4 million was awarded only against the petitioners, who were the 1st – 5th Cross Respondents.
Tribunals, or Courts of law, by their special place in the adjudicatory process, are expected to hold the balance in an egalitarian way so that the parties and persons present at the proceedings will not accuse the body of partiality in any form or of bias;. If the administrative cost for proceedings were to be paid by all the parties, then impartiality may be discerned by a bystander.
But the order for the sum of N4 million to be paid as administrative cost for the proceedings of the APC on 25/9/2010 by the 1st – 5th Cross Respondents alone was not justifiable. On this basis, I will stand with the lower Tribunal that the sum of N4 million as administrative costs of the proceedings on 25/9/2010 awarded against the 1st- 5th Cross Respondents ought to be refunded to them.
Appellant was a direct loss suffered by the MTECH COMMUNICATIONS To this extent, it would not be remiss to order compensation in their favour. On this score, I also see no reason to disturb the conclusion of the lower Tribunal on its.
The lower Tribunal found the that conduct of PHB Capital and Trust Limited to be contrary to Regulation 43 of the SEC Rules and Regulations 2000 (as amended), which provides:
“Code of Conduct
All registered persons shall comply with the Commission’s Rules on orderly, fair and equitable dealings in securities and ensure that they maintain proper standards of conduct and professionalism in securities business. They shall also comply with the code of conduct for market operators approved by the Commission and contained in Schedule IX of these Rules and Regulations”
The Cross Appellants submitted that, the relevant Rule under Schedule IX is Rule 1(iii) states that all operators in the capital market shall not engage in any act that would adversely affect the general investing public’s image of and confidence in the capital market.
I find that I am at one with the lower Tribunal that conduct of that nature will affect the confidence of the investing public in the integrity of security market operators. I therefore do not see any reason to disturb the findings of the lower Tribunal on this issue.
The lower Court then handed down its judgment, page 1621 of the Record of Appeal, that:
The 3rd Respondent shall pay a penalty of N100,000.00; shall release forthwith to the MTECH COMMUNICATIONS PLC its register of shareholders and pay N5,000.00 per day for every day the unlawful withholding continues,and pay N2,000,000.00 as compensation to the Appellants. Interest shall run on the compensation sum at the rate of CBN’s current MPR from date of
judgment until final liquidation.”
In considering the complaint of the Cross Appellants on this decision, I find instructive the provisions of Section 303 of the ISA, 2007, which provides:
(1) Except as otherwise specifically provided under the provisions of this Act, any person who violates or contribute in the violation of the provisions of this Act or of any rule and regulation made thereunder is liable to a penalty.
I see no merit in this cross appeal. It fails and is hereby dismissed. The 1st – 5th Cross Respondents are entitled to costs, which is hereby assessed at N100, 000.00 against the Cross Appellants.
CROSS APPELLANTS
1.Keystone bank Limited
2.PHB Capital and Trust Limited
3.PHB Insurance Limited
4.PHB Assets management
AND
CROSS RESPONDENTS
1.MTECH Communications Plc
2.Sheri Williams
3.Cika Nwobi
4.Chris Ubosi
5.Lateef Bello Osagie
6.Security and Exchange Commission
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