Between Cadbury And Oando: Comparing Two SEC Forensic Audit Scenarios

Exactly a month ago, on Wednesday, October 18, 2017, management of the Securities & Exchange Commission (SEC) ordered the full suspension of the shares of Oando Plc for an initial two days, followed thereafter by somewhat indefinite technical suspension.
Full suspension is a situation where a company’s shares are barred from trading on the Nigerian Stock Exchange (NSE), while the other describes a situation where the stock trades but price movement is frozen for the period the suspension subsists.
The SEC also appointed a team of five firms to conduct forensic audit, including Deloitte.
In this piece, Investdata News compares the current situation in Oando to that of Cadbury Nigeria Plc 10 years ago.
One similarity between both that immediately comes to mind is that it was Cadbury Nigeria’s board under Dr. Uduimo Itsueli that announced the commission of an independent firm of auditors to review the company’s recent financial statements. This, Itsueli explained at the time, arose from “an internal review.

In the Oando case, its top officials accused the commission of using information freely provided it as if they were some discoveries. One of such is the corporate governance infraction noted by the SEC, which the company says were reported in its audited financial statements over the years.
The difference is that while the SEC’s action in the Oando case followed petitions by shareholders, Dahiru Mangal, and Ansbury Incorporated, who the commission would later dub “whistleblowers,” alleging gross misconducts, including corporate governance infractions against management, it was Cadbury’s board that called attention to the various infractions.
Also, similar is that Cadbury was fined “for filing a Rights Circular for the N5bn irredeemable convertible loan stock which contained false/misleading statements, failing which trading on its shares will be suspended,” just as in its letter of October 17, 2017, the SEC said Oando’s 2014 Rights Circular “contained misleading information.”

Also, while Bunmi Oni and Ayo Akadiri, then managing director and finance director respectively of Cadbury were suspended to allow for an impartial audit, the SEC announced suspension of Oando’s shares on the NSE, leaving the management in place. Also, while Oando’s management got an injunction from the Federal High Court, Ikoyi, Lagos against the planned forensic audit, Cadbury full cooperated, leading to the sack of the Oni-led management, as well as the board. It must however be noted that a court ruled that his ouster breached his contract of employment, directing that he be paid his entitlements for upward of six months.
Related to this is the fact that while the NSE announced suspension of Cadbury’s shares at the time to forestall erosion in value and welcomed by all, the SEC suspension is generally viewed as punitive for investors.

For Cadbury, Akintola Williams Deloitte was the firm of external auditors indicted by the SEC and ordered to a pay fine, while PricewaterhouseCoopers was hired to conduct the forensic audit. Today, Deloitte is appointed by the commission among the team of five firms for forensic investigation of a company audited by Ernst & Young, another international audit firm.
The SEC alleges that Oando declared N1.4bn dividends from unrealised profits, disposal of an asset was not at arms’ length, just as it released false financial statements to the public, while Oni, rather than the board and management, was accused of false accounting/book cooking, stocks buy-back, trade loading, tax default, false stock certificate and undisclosed interest in the company, as if it was his unilateral decision.
Both Oando and Cadbury were flagged for corporate governance infractions
While Cadbury was accused of paying dividend from non-existing profit, Oando allegedly also paid dividends to its registrar in piecemeal, a clear violation of SEC regulations.
Unlike the Cadbury case, Oando’s independent auditors- Ernst & Young, according to the SEC, auditors drew attention to the going concern status of the 2016 account, among others. E&Y had noted that Oando Plc’s liabilities exceeded the assets by as much as N263,8bn, for which reason the commission could have directed the board of the company to recapitalize.

While only PwC was appointed by the SEC to conduct forensic audit on Cadbury, the commission named a consortium comprising Akintola Williams Delloite, United Securities Plc, SPA Ajibade & Co, TJADAP Consulting and Associates, and Nasiru Muhammad and Co. to audit Oando
While it is not clear who paid the audit fees in the case of Cadbury, the commission directed that Oando bears the N160m cost of the audit, which as has been noted, would be another sore point when it comes to bearing the cost.
 
Over-Reaction?

For Oando, while the commission insists that its preliminary findings are weighty enough to warrant further investigation, the company’s management believes the regulator over reacted, given the prescribed penalties as set out against the infractions. None of them, the company argued, singularly or together warrant the institution of a forensic audit, full or technical suspension of trading of the company’s shares on the NSE.

It therefore wonders how: “The SEC arrive at its findings if it cannot be sure of the veracity of those findings, and more importantly how did it ascribe the appropriate level of weight to be given to those findings, enough to warrant an immediate suspension followed by a technical suspension of the shares of the company, especially if those findings are still mere allegations at this point, as the Commission has clearly communicated?”

Is Oando truly guilty as charged? Did the SEC over-react? Only the courts can truly answer those questions, among many others.
But, like most lawsuits in Nigeria, the contenders know when it begins, only the divine knows how and when it would be finally dispensed with. Meanwhile, the fate of investors, particularly retail, and traders, hangs on a delicate balance, amidst the wait to see the end of the legal tango between a regulated company and its regulator. But then, must regulators wait for the worst case scenario?


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