Govts, Firms Risk Expulsion for Funds Diversion

security and exchange commission
  • Govts, Firms Risk Expulsion for Funds Diversion

Governments and companies that divert or misapply funds raised from the capital market will henceforth be expelled from the capital market, in addition to monetary sanctions and “naming and shaming” exposure of such diversion to the general public.

Authorities at Securities and Exchange Commission (SEC) said they have decided to strengthen the deterrence measures against misapplication and diversion of funds after they discovered many instances of misapplication of funds.

Under the new rules undergoing rule-formulation process, SEC will be able to suspend any erring government or company from accessing the capital market for such period as the Commission may determined. SEC will also be empowered to undertake “naming and shaming” by publishing the erring government or company on the Commission’s website.

The suspension and “naming and shaming” provisions are part of a new robust deterrence measures that include additional monetary sanctions on companies and governments that divert or misapply funds raised from the capital market.

Under the proposed amendments, any company or government that diverts or misapplies funds raised from the capital market will pay additional penalty equivalent to two per cent above the subsisting monetary policy rate (MPR). The MPR is at 14 per cent, implying a proposed penalty of 16 per cent at the current rate.

SEC noted that it had received reports on instances of misapplication of issue proceeds, referring to the practice by some issuers to use funds raised for a specific purpose for another purpose without recourse to the Commission for a variation of the use of the net proceeds.

“To curtail such diversion and misapplication of issue proceeds, it became necessary to propose a stiffer penalty,” SEC stated.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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