By Camillus Eboh
ABUJA (Reuters) - Nigeria's stock exchange was at the heart of a web of fraudulent accounting that saw share-price manipulation, insider trading and millions of dollars misspent on a yacht and Rolex watches, the regulator said.
In a report filed to a parliamentary hearing on the capital markets on Monday, Securities and Exchange Commission (SEC) Director General Arunma Oteh said abuses leading to a financial crisis in 2008/09 were still scaring off local investors.
Oteh's presentation concerned a decade when Ndi Okereke-Onyiuke was its director general. Replacing her was one of the first things Oteh did when she was appointed SEC head in 2010 in an effort to clean up Nigeria's capital markets.
Okereke-Onyiuke herself was not accused of any specific wrongdoing in the regulator's report.
"The extent and nature of the market abuses carried out between 2006 and 2008 are primary reasons for the continuation of the investor apathy that we see today," Oteh said in the presentation to the parliamentary committee, a copy of which was obtained by Reuters on Tuesday.
The financial crisis saw shares lose 60 percent from market peak at the end of March 2008 to the same month a year later.
The central bank had to bail out nine banks at a cost of $4 billion.
Oteh told the hearing the SEC investigated alleged fraud behind the crisis, but it had been unable to publish findings because of a court injunction brought by Okereke-Onyiuke.
"There were incidences of financial skimming, misappropriation, false accounting, misrepresentation, and questionable transactions," Oteh told the hearing.
The stock exchange bought a yacht for 37 million naira ($235,300) that was meant to be presented as a gift during a 2008 award ceremony, yet there are no records of the receiver.
It also spent 186 million naira on 165 Rolex wrist watches as prizes, but only 73 were actually presented.
"The outstanding 92 Rolex watches valued at 99.5 million naira remain unaccounted for," Oteh said.
STOCK EXCHANGE FRAUD
Sub-Saharan Africa's second-biggest economy has been a darling of frontier markets investors, with a surging economy, a population of more than 160 million and a stock market that has frequently outperformed emerging market peers.
Weak regulation and impunity for senior officials involved in fraud have clouded its image, but in this case regulators made a rare move to take on Nigeria's powerful vested interests.
When central bank governor Lamido Sanusi bailed out the nine banks, he sacked the senior management of all but two, and the former managing director of Oceanic Bank Cecilia Ibru was sentenced to 18 months in jail for a $1.2 billion fraud.
Speaking at the hearing on Tuesday, Okereke-Onyiuke defended her record at the helm of the exchange from the year 2000, saying she had brought "a lot of positive developments".
These included a several-fold increase in market capitalization and several new listings. She argued that it had been difficult to be sure of malpractice in a stock exchange.
"Insider trading is usually very difficult to establish and prove ... even in the more advanced stock markets," she said.
Efforts to clean up Nigeria's banking sector and capital markets since have helped restore confidence, including, Oteh said, new margin trading and corporate governance rules.
Oteh noted that it was the banks' dealings in the capital markets that largely led to their demise.
Nigeria's banks saw surging balance sheet growth after a wave of consolidation in 2005, and went on to raise huge amounts of capital for loans - a good chunk of which went bad.
Abuses included banks borrowing money to buy their own shares, misusing banking funds to fund fuel import companies owned by its directors and buying and selling the bank's own shares in short-term plays to turn a profit.
"As a result of the SEC investigations with respect to the intervened banks, we instituted legal proceedings ... We are seeking declaratory orders for the illegally gained profits that were made to be disgorged," Oteh said.
($1 = 157.25 naira)
(Writing by Tim Cocks; Editing by Jon Hemming)