Court Forecloses Reprieve for Wonder Bank’s Investors

Business law

After 14 years of trying to recoup their investment through a case that went up to the Supreme Court, investors in Nospetco Oil and Gas Limited lost everything when a Federal High Court in Lagos dismissed their suit, thereby sending a strong message to investors in Ponzi schemes to beware, Wale Igbintade writes

Efforts by Nospetco Oil & Gas Limited investors to recover their investment worth N22, 445,571,446.84 billion suffered a technical setback recently when a Federal High Court in Lagos dismissed their suit against the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC).

Justice Lewis Allagoa in his ruling on the preliminary objection, filed by counsel to the CBN, Mr. Olumuyiwa Aduroja (SAN) held that the suit filed by Nospetco investors is statute-barred and no longer legally enforceable owing to a prescribed period of limitation has lapsed.

Fourteen Nospetco investors through their lawyer, Debo Adeleke, had on behalf of 13,741 other investors, instituted suit number FHC/L/248/2012, against SEC, CBN, and Nospetco Oil & Gas Limited. The plaintiffs prayed the court to mandate the 2nd defendant (CBN) to release a sum of N22,445,571,446.84 presently in its custody on the instruction of the 1st Defendant. They also prayed the court to mandate the CBN to release the N22,445,571,446.84 billion back to the investors through their solicitor or the court in a profit-yielding account.

In addition, the plaintiffs also prayed the court for an order compelling the 3rd defendant, (Nospetco Oil & Gas Limited) to stop forthwith its illegal, unlawful, and fraudulent business and banking activities, which it has been relentlessly carrying out under the covers since May 2007. 

Also, they demanded N10 million damages against the defendants.

However, Justice Allagoa in his ruling upheld the submissions of CBN counsel, Aduroja that the plaintiffs failed to commence the suit within the statutory period of three months as prescribed under CAP. P41, LFN, hence the court has no jurisdiction to entertain the suit.

The senior lawyer, Aduroja had in a preliminary objection brought pursuant to Section 6(6) (b) of the Constitution and Section 53 of Banks and Other Financial Institutions Act, argued that the plaintiffs’ cause of action arose in May 2007, and the suit was filed in 2012. He argued that the suit was filed five years beyond the three months within which the plaintiffs were allowed to bring an action against a public officer including corporate or statutory corporations or bodies like the CBN.

He urged the court to hold that the issue of limitation touches on the jurisdiction of the court and can be raised at any time. He stated that the 2nd defendant (CBN) became involved in the transaction in the process of carrying out its statutory duties under Section 2 of the CBN Act 2001, saying that by the provision of Section 53 (1) of BOFIA, the 2nd defendant was protected against any adverse claims for anything done or omitted to be done in good faith in connection with the execution of any power conferred upon the bank.

He further argued that the provision of Section 53 (1) of BOFIA applies to the 2nd defendant not only when it is implementing the provisions of BOFIA but also when it is carrying out its statutory duties under the CBN Act, 2007.

But, the plaintiffs through their lawyer, contended that the provision of Section 53 (1) of BOFIA does not apply in this particular situation. They also argued that the suit is not statute-barred as the acts of the 2nd defendant (CBN) are continuous.

He submitted that the 2nd defendant is to promote a sound financial system in Nigeria and act as a banker and provide economic and financial advice to the federal government.   

The 14-years-old legal battle began in 2008 when SEC declared a scheme founded by Nospetco Oil and Gas Limited illegal.

Nospetco was registered solely for the importation, sale, and distribution of petroleum products and cooking gas. The firm started a collective investment scheme between 2004 and 2005 and encouraged thousands to invest N450,000 per slot, with a promise of a monthly N40,000 return on investment on each slot.

Shortly after the investors invested in the firm, SEC, in 2007, opped the firm’s operations, describing it as illegal. The regulatory agency also froze its various bank accounts and deposited the money with the CBN on behalf of the investors.

Miffed by this, Nospetco filed a suit at the Investment and Securities Tribunal (IST) with suit No: IST/OA/19/07 in 2011, challenging SEC’s power to declare its business illegal and lost.

Adeleke on behalf of the investors also filed a suit at the IST, Lagos, for payment of the seized money and got a favourable judgment.

Dissatisfied with IST’s judgment, the firm appealed to the Court of Appeal in Lagos, urging it to set aside the decision, but the Court of Appeal upheld the decision.

Still dissatisfied, the company again appealed to the Supreme Court to quash the appellate court’s decision. But the apex court dismissed Nospetco’s claims, declaring that the money was actually to the investors. The apex court also dismissed Nospetco’s claims that the money should be paid into its coffers. It, however, asked the investors to go to the appropriate court for the recovery of their money.

Delivering the judgment through zoom, Justice Amina Augie leading Justice Osegi, said the three other justices of the apex court that formed the five-man panel agreed that since it is a collective investment scheme, the case can be prosecuted in a representative capacity and directed the investors through their lead counsel, Debo Adeleke, to go to the appropriate court to ventilate their grievances.

This was why the case was filed at the Federal High Court in Lagos. With the declaration by the court that the case is statute-barred, observers believe that the investors who are desperate to recover the money, may have to wait until the appeals are exhausted, otherwise, they have lost their investments.

According to research conducted by an investment banking financial firm, Norrenberger Financial Investments Scheme, Nigerians lost over N300 billion in Ponzi schemes in five years. 

Over time, poverty, lack of financial literacy, and greed have been identified among the reasons for the growing number of persons that fall for the intoivities of illegal investment companies as well as Ponzi scheme operators.

In addition, the undying and unrestrained appetite for get-rich-quick syndrome has also seen operators of such schemes swindle unsuspecting members of the public. Ponzi scheme operators also capitalise on the harsh economic environment to offer unrealistic returns on investments to gullible persons with Nigerians reported reporting lost billions to criminals masked as investment portfolio managers. These illegal schemes have also expanded through the use of online services.

On their part, investment analysts cited scarce justice from security outfits as a major factor that makes Nigeria a breeding ground for Ponzi schemes.

Findings revealed that the Ponzi scheme has been evolving in different forms to attract people of different generations. For instance, from the days of famous wonder banks such as Planwell, ‘Umana Umana’ to Nospetco Oil and Gas, Ponzi schemes in Nigeria have evolved with the times into community scams like Ultimate Cycler.

This is why the Nigeria Deposit Insurance Corporation (NDIC) last week issued a warning signal to Nigerians who invest with illegal fund managers, saying it does not insure them. The deposit insurer said in a statement that with the recent increase in investment channels arising from innovative products, there has been an increase in illegal fund managers who have been using different platforms soliciting the public to invest their funds with them, promising excessive returns on such investments.

Recently, the International Center for Investigative Reporting (ICIR), an independent, non-profit news agency with a mission to use investigative journalism to impact good government, submitted that public endorsement of Ponzi schemes by Nigerian celebrities, greed, and poor financial investment knowledge have been identified as some of the major enablers to the loss of billions of naira by investors.

 “Most Nigerians get into the Ponzi scheme knowing it is a bubble, hoping they get in early enough to make some profit. Most players know it is a gamble, so they put in only small amounts they can afford to lose,” the Managing Director of Norrenberger Financial Investments, Tony Edeh, told the ICIR.

The financial expert, who spoke further on how low financial knowledge is a key enabler of the Ponzi scheme in Nigeria, stressed that many victims of the Ponzi scheme did not have the knowledge to pick out flaws from an offer.

He added: “Financial literacy is still low in the country. As a result, few can tell when an offer is too good to be true. Many investment scams mask themselves as legitimate by flaunting business registration certificates.”

Experts have accused the Economic and Financial Crimes Commission (EFCC) of not doing enough to curb Ponzi schemes in the country. They wonder why the agency should rely on the information provided by victims to act.