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By Dipo Olowookere

Promoters of Ponzi schemes and unregistered investment schemes in Nigeria could soon be in big trouble if the bill proposed by the National Assembly is passed and signed by the President.

On Thursday, a bill to amend the Investment and Securities Act 2007, sponsored by Mr. Babangida Ibrahim, representing MalumFashi/Kafur Federal Constituency in Katsina State in the House of Representatives, passed the House of Representatives. second reading.

The amendment is titled A Bill for an Act to repeal the Investments and Securities Act 2007 and to enact the Investments and Securities Bill to establish the Securities and Exchanges Commission as the supreme regulatory authority Nigerian Capital Market as well as Market Regulation to ensure capital formation, Market Protection to ensure capital formation, investor protection, maintain a fair, efficient and transparent market and reduce systematic risks; and for related questions.

The bill aims to combat the threat of Ponzi schemes and ensure the Securities and Exchange Commission (SEC) is well equipped to stem the tide.

According to Mr. Ibrahim, Nigerians have complained a lot about the activities of these schemes which promise unreasonably high returns and ultimately they rob Nigerians of their hard-earned money, hence the need for more regulations to monitor them. .

Under the Bill, “A Bill to repeal the Investments and Securities Act 2007 and to enact the Investments and Securities Act 2021”, which passed second reading yesterday in the House of Representatives, the SEC will be empowered to meet the challenges of Ponzi schemes.

Section 195(1) of the bill empowers the SEC thus: “The Commission shall have the power to enter into and seal all prohibited schemes and shall obtain a court order to freeze and confiscate all assets of such schemes for the benefit of of the Federal Government of Nigeria.

“(2) Costs and expenses incurred under paragraph (1) above shall be a first charge on the funds and property of the Illegal System, including the assets of its owners, promoters and/or managers, whether they be acquired legitimately or otherwise.

“(3) For the purposes of this Bill, “prohibited schemes”, including those commonly referred to as Ponzi scheme or Pyramid means: (a) Any investment program that remunerates existing contributors with funds raised from new contributors to the program promising high returns with little or no risk: (i) Whether or not the program limits the number of people who can participate in it, either expressly or through the application of conditions affecting a person’s eligibility to participate in or receive compensation under the scheme; or (ii) whether the System is operated at a physical address or via the Internet or other electronic means. (b) Any system in which participants attempt to make money by recruiting new participants, usually where: (i) the promoter promises a high return in a short period of time, and (ii) no genuine product or service is actually sold; or (iii) the primary focus is on recruiting new participants

“(4) The promoter(s) and operator(s) of any entity engaged in a prohibited program commits an offense and is liable, if convicted, to imprisonment for ten (10) years or a fine of N5,000,000 or both.”

According to Mr. Ibrahim, “The current 2007 ISA is old and we all know that a lot has happened between then and now, such as advances in technology. The capital market must be dynamic in today’s world in order to make its contribution to national development and this is one of the reasons why we are pushing this.

“A lot has happened between then and now, hence the need for an amendment. When this law came into effect, we didn’t have derivatives and commodities markets like we have. now these are some of the issues that require this amendment.

“The plan is to make this bill somewhat flexible so that a national government can approach the capital market to find funds either for development projects,” he added.

Another part of the amendment is to extend to six years the period within which a claim for compensation can be filed with the Investor Protection Fund from the date of occurrence of the misappropriation, revocation, cancellation , insolvency or bankruptcy of the trading company. The period provided for by current law is six months.

The purposes of an investor protection fund are to compensate investors who suffer pecuniary loss resulting from the insolvency, bankruptcy or negligence of a member company of a stock exchange; embezzlement committed by a Trading Member Firm or any of its directors, officers, employees or representatives in connection with securities, money or property entrusted to, or received or deemed to be received by the Trading Member Firm in the framework of its activities as a capital market operator; and the revocation or cancellation of a Trading Member firm’s registration.

Under the proposed amendment, two new paragraphs have been introduced to supplement the existing provisions on how a claim against the investor protection fund can be made.

This is a derogation from section 213(2) of the 2007 Act, which requires that a claim for compensation must first be made to the securities exchange.

In addition, subsection (4) of the Act has been amended to take into account any conditions precedent to indemnification which may have been prescribed by the Board of Directors.

Specifically, he added that a verified claim must be paid by the investor protection fund to an investor within 14 days of such verification by the securities exchange.

He said: “A claim for compensation under this part of the bill must be made in writing to the board of directors within 6 years from the date of the occurrence of the misappropriation, removal or cancellation of the registration of the Trading Member Firm and the insolvency or bankruptcy of the Trading Member Firm, and any claim not so made shall be barred unless the Board orders otherwise.

“No action for damages shall be brought against any stock exchange or against any member or employee of any stock exchange or of any board or sub-committee of directors by reason of any notice published in good faith and non-malicious for the purposes of this article.”

Mr. Ibrahim expressed his optimism that when the bill is enacted, it will give the SEC the necessary support to effectively regulate the capital market and underline the independence of the agency in accordance with the requirements of the Organization. International Securities Commissions (IOSCO).

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