INTRODUCTION
Investment is fundamental to the growth and development of any economic entity. Returns on investments profits the individual and have positive effects on the society at large.
Generally speaking, investment refers to all economic activity that involves the utilization of resources to produce goods and services. Investments can be classified into two: real and financial investments. Real investments refer to investments in tangible assets, such as machinery, land, factories, and offices. These assets are used to produce goods and services for future consumption. This is regarded as capital investment. In the case of financial investment (choses in action) the investor’s sole interest is in the amount invested and the future streams of income it will generate. [1]
When investors invest in any scheme, their basic objective is that they receive returns on their investment.[2]However, this may not be the case as many Nigerians have fallen prey to fraudulent and phony investment schemes resulting from lack of due diligence on their parts.
The Fraud Saga has no doubt impacted seriously on the viability of investment in Nigeria and securities regulation especially.
Against the backdrop of the following, this article provides a general overview of the legal framework for combating fraudulent investment schemes in the Nigerian economy vis a vis the Nigerian Capital Market.
An Overview of the Laws combating Fraudulent Investment Schemes in Nigeria
Some laws have been put in place to prevent and combat fraudulent investment dealings in Nigeria. These laws are as follows:
- Companies and Allied Matters Act 2020
The Companies and Allied Matters Act, 2020 (CAMA) establishes the Corporate Affairs Commission, which is the regulatory agency overseeing the registration and regulation of business entities in Nigeria. The CAMA controls the formation and registration of business entities in Nigeria. It provides that any two or more persons may form and incorporate a company as long as the provisions of the CAMA are complied with.[3] One person can also incorporate a private company. The import of this is that a company seeking to do legal business in Nigeria is to be duly incorporated under the provisions of the Act. The Investment and Securities and Exchange Act, 2007 provides that every securities exchange or capital trade point shall be a body corporate incorporated under the CAMA.[4] It follows therefore that any company not duly registered under CAMA is prohibited from doing business or even soliciting for funds from the public by way of investment. The CAMA goes further to provide that a company may not be formed or incorporated for an unlawful purpose.[5]
Be as it may, where a company duly incorporated is used to as an instrument to perpetuate fraud, the CAMA provides that the member/shareholder who may also be an investor can bring an action against the company.[6]
- Investment and Securities Act, 2007
The Securities and Exchange Commission (SEC) is the apex regulatory body for the Nigerian capital market. The SEC performs the function of regulating investments and securities business in Nigeria, acting in the public interest having regard to the protection of investors and the maintenance of fair and orderly markets and, to this end, establish a nationwide trust scheme to compensate investors whose losses are not covered under the investors protection funds administered by securities exchanges and capital trade points. They also perform the function of preventing fraudulent and unfair trade practices relating to the securities industry by conducting research.[7]
The Investment and Securities Act, 2007 (ISA) states in mandatory terms that no person, natural or artificial shall carry on investments and securities business unless the person is registered under the ISA and its rules and regulations.[8] The Act, therefore, reinforces compulsory registration of securities and investments of public companies and collective investment schemes with the SEC. Failure to do so leads to penalty of a fine and/or prosecution for non-registration.[9]
It, therefore, follows that registration of capital market operators is a key element in the statutory regulatory scheme of SEC and plays an important role in protecting investors. Any company that purportedly offers investments and securities business in Nigeria to investors without being duly registered is guilty of an offence punishable with a fine and/or prosecution.[10]
- The Economic and Financial Crimes Commission (Establishment) Act, 2003
Another important law that combats fraudulent investment schemes in Nigeria is the Economic and Financial Crimes Commission (Establishment) Act, 2003 (EFCC Act). The EFCC Act which established Nigeria’s anti-fraud agency defines ‘economic crime’ as a nonviolent criminal activity committed with the objectives of earning wealth illegally.[11]
The functions of the Commission are as follows:[12]
– The investigation of all financial crimes including advance fee fraud, money laundering, counterfeiting, illegal charge transfers, futures market fraud, fraudulent encashment of negotiable instruments, computer credit card fraud, contract scam, etc.;
– The co-ordination and enforcement of all economic and financial crimes laws and enforcement functions conferred on any other person or authority;
– The adoption of measures to identify, trace, free, confiscate or seize proceeds derived from terrorist activities, economic and financial crimes related offences, or the properties the value of which corresponds to such proceeds;
– The facilitation of rapid exchange of scientific and technical information and the conduct of joint operations geared towards the eradication of economic and financial crimes;
– The examination and investigation of all reported cases of economic and financial crimes to identify individuals, corporate bodies, or groups involved;
– The determination of the extent of financial loss and such other losses by government, private individuals, or organizations;
– The identification, determination, of the whereabouts and activities of persons suspected of being involved in economic and financial crimes,
– The undertaking research and similar works to determine the manifestation, extent, magnitude, and effects of economic and financial crimes and advising the government on appropriate intervention measures for combating the same
– Taking charge of, supervising, controlling, coordinating all the responsibilities, functions, and activities relating to the current investigation and prosecution of all offenses connected with or relating to economic and financial crimes;
– The coordination of all existing economic and financial crimes, investigating units in Nigeria;
– Maintaining a liaison with the office of the Attorney-General of the Federation, the Nigerian Customs Service, the Immigration and Prison Service Board, the Central Bank of Nigeria, the Nigeria Deposit Insurance Corporation, the National Drug Law Enforcement Agency, all government security and law enforcement agencies and such other financial supervisory institutions in the eradication of economic and financial crimes;
– Carrying out and sustaining rigorous public and enlightenment campaign against economic and financial crimes within and outside Nigeria and;
– Carrying out such other activities as are necessary or expedient for the full discharge of all or any of the functions conferred on the Commission.
It should be noted that the Commission is empowered to cause investigations to be conducted as to whether any person, corporate body, or organization has committed any offence under the Act or other law relating to economic and financial crimes, cause investigations to be conducted into the properties of any person if it appears to the commission that the person’s lifestyle and extent of the properties are not justified by his source of income.[13]
The Commission is also charged with the responsibility of enforcing the provisions of the Money Laundering Act, the Advance Fee Fraud and Other Fraud Related Offences; the Failed Banks (Recovery of Debts) and Financial Malpractices in Bank Act, the Banks, and other Financial Institutions Act, as amended; Miscellaneous Offences Act, and any other law or regulations relating to economic and financial crimes, including the Criminal code of penal code.[14]
- Banks and other Financial Institutions Act, 2020 (BOFIA)
The Banks and other Financial Institutions Act, 2020 (BOFIA) is targeted towards regulating the activities of banks and other financial institutions in Nigeria. By Section 57(2) of the BOFIA, the Act seeks to regulate the activities of other specialized banks and other financial institutions (other than insurance, pension fund management, collective investment schemes, and capital market business) who solicits and accepts money deposits from the public and pays interests thereon, as a business, by whatever name called. The implication thereof is that any person or body corporate carrying on business of investment management is required to obtain a valid licence subject to conditions prescribed in Section 58.[15]
The Act prescribes the consequence for failure to obtain a licence. It states that any person who conducts or is involved in conducting the business of other financial institutions without a valid licence commits an offence and is liable on conviction in the case of a corporate body to a fine of not less than N10,000,000.00 and an additional fine of not less than N200,000 for each day during which the offence continues and in any other case, to imprisonment for a term not less than five years, a fine not less than N2,000,000 and an additional fine of not less than N50,000 for each day during the contravention continues or to both such fine and imprisonment. [16]
Flowing from the above, the Act seeks to combat fraudulent investment schemes by prescribing punishment for persons or body corporate who carries on businesses without complying with the statutory requirement of obtaining the required license.
CONCLUSION
The rise in fraudulent investment schemes in Nigeria has affected all aspects of the country, ranging from loss of money; undermining confidence in the market, and psychological effects on the investor among others. It is therefore important that investors carry out due diligence before investing in any company.
In Nigeria today, the few legislation highlighted above are some of the laws put in place to combat fraudulent investments schemes in Nigeria. However, it would appear that these laws as regulatory legislations are not sufficient as fraudulent investment schemes continue to plague the Nigerian system. There is, therefore, the need for agencies saddled with the responsibility of monitoring funds to embark on massive investors’ enlightenment campaigns to educate investors and potential investors about investment schemes. These regulators should also be proactive in issuing warnings to the populace for effective sensitization. The regulatory bodies within the national economy must put all hands-on deck in identifying when a Ponzi scheme enters the market and stop its intending negative impact.
FOOTNOTES:
[1]Https://an-examination-of-the-legal-framework-for-combating-fraudulent-investment-schemes-in-the-nigerian-capital-market/ accessed on the 14th of December, 2021
[2]Https://an-examination-of-the-legal-framework-for-combating-fraudulent-investment-schemes-in-the-nigerian-capital-market/ accessed on the 14th of December, 2021
[3] Section 18 of the Companies and Allied Matters Act 2020
[4] Section 29 of the Investment and Securities and Exchange Act 2007
[5] Section 18 (3) of the Companies and Allied Matters Act 2020
[6] Section 344 of the Companies and Allied Matters Act 2020
[7] Section 13 of the Investment and Securities and Exchange Act 2007
[8] Section 38 of the Investment and Securities and Exchange Act 2007
[9] Section 54 of the Investment and Securities and Exchange Act 2007
[10] Ibid
[11] Section 46 of the Economic and Financial Crimes Commission (Establishment) Act 2003
[12] Section 7 of the Economic and Financial Crimes Commission (Establishment) Act 2003
[13] Section 8 of the Economic and Financial Crimes Commission (Establishment) Act 2003
[14] Section 9 of the Economic and Financial Crimes Commission (Establishment) Act 2003
[15] Section 57 of the Banks and other Financial Institutions Act 2020
[16] Section 57 (5) of the Banks and other Financial Institutions Act 2020
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