CBN, wonder banks and the law

AT the behest of the Securities and Exchange Commission (SEC), the Investments and Securities Tribunal (IST) earlier this month gave judgment shutting down some 30 companies which were found to have been operating illegally as fund managers. According to SEC, the companies "solicited, advertised and invited members of the public to deposit funds with a promise of paying as much as 500 per cent returns within one operational week". The companies had been in existence for some time and had earned the sobriquet of "wonder banks" with some of their patrons reportedly affirming that the promoters kept their promises. But most depositors quite expectedly were bound to have their fingers burnt sooner or later.

The promised rates of return on funds were sufficiently out of the ordinary to alert any circumspect person to suspect a scam and keep any hard-earned money out of harm's way. Maybe the conspicuous consumption and apparent wealth of successful 419ers as well as the ostentatious affluence acquired overnight by treasury-looting politicians and their cronies whetted the get-rich-quick appetite of the gullible, who in their thousands besieged the companies and with envious eyes wide-open handed over their money for phony fund managers to increase and multiply five-fold within a week.

However, before the spurious banks met their certain collapse and disappeared with trapped deposits, the complaints suit filed by SEC led to the initial freezing of the bank accounts of the companies and suspension of their activities. After nine months, the Investments and Securities Tribunal issued its final pronouncements. Besides permanently closing the companies, the tribunal ordered, one, the Central Bank to determine the status of all investors' funds kept by the affected companies in 17 respondent universal banks; and two, SEC should withdraw and release to all confirmed depositors the said funds found in the possession of the banks.

The tribunal was rather slovenly because its ruling gives rise to several questions. First, it stands to reason that the apex bank must necessarily settle the issue of the status of the lodgments made by the wonder banks in deposit money banks before any refunds can be effected by SEC. Why did the tribunal, in nine long months of deliberation, fail to secure CBN's status report on the frozen funds? Second, why has neither SEC nor IST given the exact amount of money at stake in a matter of utmost public interest? The secrecy shrouding the matter creates room for yet another possible scam. Nigerians have a right to know. Therefore, the overall amount and the various sums which stand to the credit of the axed fund managers in the different banks should be made public without further delay.

Third, given the nature of the operations of the wonder banks, their frozen funds that would pass CBN scrutiny would most probably be less than confirmed investors' untainted deposits with resultant shortfall in the proposed refunds. What would then become of the misled investor?

Many a depositor lost heavily during the first coming of wonder banks in the late 1980s through early 1990s. Thanks to the SEC intervention, the present crop of investors can still look forward to recouping part of and even the total amount deposited. We therefore commend SEC for the proactive step that it has taken. The ruling by the Investments and Securities Tribunal should caution prospective investors that require the services of fund managers to seek out firms duly approved by SEC for that purpose.

Overall, the re-emergence or second coming of wonder banks casts doubts on the sincerity of the Central Bank and universal banks to enforce and abide by relevant laws designed to shut out fraudsters from the financial system for the public good. The closed companies infringed on Section 40 of the Banks and Other Financial Institutions Act 1991, but the CBN failed to move against them. Also, despite the fact that universal banks are required to carry out know-your-customer checks and report daily, certain types and volumes of transactions to the Central Bank and other security agencies, the spurious fund managers carried out unchecked quasi-banking operations and enjoyed the full cooperation and support of 17 odd banks.

In the light of the foregoing, the universal banks should be ordered to make good any shortfall in the refunds to confirmed investors together with appropriate interest to serve as a deterrent against active bank connivance with those intent on duping the public.

In addition, there is need to thoroughly investigate, swiftly prosecute and severely punish, one, the promoters of the closed companies; two, the respective universal bank officials who approved and monitored the bank accounts of the wonder banks; and three, the CBN schedule officers who acquiesced or neglected to promptly nip in the bud the illegal activities of the shut companies. It is incumbent on all Nigerian institutions and their employees to faithfully and patriotically uphold the national interest at all times.