THE LEGAL FRAMEWORK FOR COMBATING FRAUDULENT INVESTMENT SCHEMES IN THE NIGERIAN CAPITAL MARKET
The effect of fraudulent investment schemes in any Country’s capital market includes:
- Money loss.
- Leakage in the country’s financial system, slowing down the process of capital formation and economic growth of that Country.
As a result of these, various laws and institutions have been put in place to help in the fight against these fraudulent schemes. We shall now consider some of these laws and institutions.
A. The Investments and Securities Act 2007, The Securities and Exchange Commission and the Investment Securities Tribunal
The Investments and Securities Act (ISA) is the primary statute for combating Fraudulent Investment Schemes (FIS) in the Nigerian capital market. Specifically, FIS offend the provisions of Section 67 of the Investment and Securities Act, which lists out the requirements which a company intending to make invitations to the public to acquire/dispose securities or make invitations for money deposits must fulfil. To wit:
(a) The company must be public and not private;
(b) A statutory body or bank empowered by any Act of the National Not State Assembly to accept deposits from the public; and
(c) That the public company must comply with the provisions of sections 73 to 87 of the ISA.
The ISA in order to protect the capital market from FIS regulates the securities that are offered in the market. All securities to be offered in the market must first be registered with the SEC. The application must provide information on the organization, financial structure and nature of the business of the company including any risk factor. A person who contravenes these requirements commits an offence and is liable on conviction to a fine of one million naira, or to a term of imprisonment of 3 (Three) years, or to both such fines and imprisonment. The SEC may in lieu of prosecution, impose a penalty of N1, 000, 000 (One Million Naira) and a further fine of N5000 (Five Thousand Naira) for every day of violation.
Furthermore, fraudulent investment schemes (FIS) violate the provision of the ISA because they are never registered with the apex capital market regulatory institution or any appropriate authority. However, some incorporate at the Corporate Affairs Commission and confuse their clients who may pass such registration for authorization of the scheme by the appropriate regulatory body.
The Securities and Exchange Commission through the ISA is the major regulatory institution of the Nigerian Capital Market. Together with the Investment and Securities Tribunal, the SEC works to combat the prevalence of fraudulent investment schemes in the Country.
B. The Economic and Financial Crimes Commission (Establishment Etc.) Act
The definition of economic and financial crimes in the Act covers the scope of fraudulent investment schemes. It establishes the Commission which is the Financial Intelligence Unit in Nigeria charged with the responsibility of coordinating the various institutions involved in the fight against money laundering, and enforcement of all laws dealing with economic and financial crimes in Nigeria. The Commission is charged with the responsibility of investigating 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 scams etc.
C. The Advance Fee Fraud and Other Fraud-Related Offences Act.
The Advance Fee Fraud (AFF) Act is an Act to create offences pertaining to advance fee fraud and other fraud-related offences; to provide for the arrest and trial of persons, who commit such offences and for matters connected thereto.
As a result of the proliferation of the Nigerian economic and financial scene with FIS and financial crimes, and the inadequacy of Section 419 to deal with the complexities of the offence, an independent Act was enacted to cover fraud in all its ramifications. The Act is divided into three parts with eighteen sections. The Act covers various offences ranging from obtaining property by pretences, other fraud-related offences, use of premises, fraudulent invitations, and receipt of fraudulent letters, amongst others.