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Opinions of Friday, 7 September 2018

Columnist: The Truth Afric

An open letter to Securities and Exchange Commission Ghana: Are you sleeping?

We (The Truth) wish to know from the board and management of Securities and Exchange Commission Ghana (SEC) if their aim is to protect the interest of the public and the ordinary poor citizen or the interest of the owners and shareholders of those institutions they regulate.

For the past 7 to 10 years, to say the least, it looks as if your institution was sleeping when it comes to the implementations and enforcement of the laws and the regulation to the safety and the interest of the poor citizens while the fund managers were enjoying the fortunes of illegalities. Converting themselves (Fund Managers) into deposit-taking institutions. Our checks and research have it that you have finally come to the realization of the need to enforce your laws and apply sanctions but would all this be in the benefit of the ordinary poor citizen who ignorantly invested their hard-earned funds with those institutions you regulate? Is the public aware of your new directives to the Fund managers?

(To those who do not know or cannot easily identify these Fund Managers, Fund Managers are institutions licensed by Securities and Exchange Commission to give financial management and advisory services to the public and institutions dealing with securities (financial investments) under the Securities Commission. In Ghana, most of them brand themselves by adding names such as Capital, Investment Bank, Asset Manager, Fund Manager, Advisors, Securities, Financial, Bank and so on and so forth to their names. E.g. KK Capital, XYZ Advisors, MMM Securities, KTT Bank, Whatever Fund Managers etc. As at December 2017, the total licensed fund managers in Ghana was 157 institutions. They are not deposit-taking institutions because they are not mandated as such neither do they have any capital reserve with any regulator.)

On the 5th Of June 2018, SEC did made it clear to the Fund Managers (i.e. investment Banks, Financial Advisors, Asset Management, Capital, Fund Managers, Securities etc. ) that they are not deposit-taking institutions and as such cannot engage the public in a fixed term deposit taking business popularly known as the Fixed Deposit. You equally gave them up to December 31st 2018 as the deadline to return all such funds mobilized under such category to their respective owners (investors) or divert them into the Collective Investment Schemes (CIS) upon maturity in consultation and approval from the respective client.

It would interest you to know that some are still advertising on social media’s and calling for people to come and invest in their Fixed term Funds even after 3 months of your directives for them to desist from such.

Our question then is this, is the public or the investors aware, have you run a communique on the media’s to the interest of the public and if not why. How about those Fund Managers (Investment Banks and whatever capitals they call themselves) who do not have a registered or licensed CIS product to divert the said mobilized Fixed term investments (fixed deposit) funds to.

To confirm this, our checks reveals that as at march 2018, you have 148 licensed Fund managers but with 53 Licensed CIS, so in short, about 70% of the Licensed Fund Managers do not have registered or licensed Collective Investment Scheme (CIS) So where would those fixed term funds they have mobilized for the past years be diverted or invested .

Our research has also revealed that most of them do not have any regulated funds under their management but take the delight in operating in the wrong territories of fixed term deposit, enticing the public with high interest rates. What then constituted the basis for which you certified them to operate as Fund Managers and with what follow up checks did your institution took to ensure that they were operating within the limits and the comforts of the laws regulating them.

(The truth) can tell on authority that about 95% of all Fund Managers who were engaged in the fixed term investments do not have the physical cash to pay its client even if you give them up to December 2028 or even more years. In confirmation of this point our further research into your operations and compliance desk has proven that from 2017 to May 2018, all the complaints that was tabled before you (SEC) was about redemptions of matured bill for which till date about 92% of such complains have still not been honored nor resolved.

It would interest you to know that some of the fund managers have device other means of time buying since they can’t pay back all such funds they mobilized from the public. They are;

Diverting and moving clients investment or funds invested in the fixed term securities into their CIS product without any communication or seeking the permission and approval of the clients, but we know and believe such cannot happen without the written or signed consent of the client says your regulation.

Some have also created another product or chosen to rebrand their fixed term products by calling it Managed Account, Consolidated Fund, Trust Fund etc and then still selling rate of a fixed term to the client convincing them that it is a directive from SEC to operate under such reforms. Telling client they are now going to manage the funds under various diversify portfolios with percentage margins given by SEC ie 30% to T-Bills, 15% into Mutual Funds and so much lies to say the list. In simple terms the money is not there so when they do that, they can just create a statement to convince the client that their funds are secure only to buy time.

The bigger question is, is this current actions of these Fund Managers, sanctioned by you?

Can you convert a client funds into something else or other investment portfolio without the client authority and approval?

And in the event where these Fund Managers collapse or files for insolvency who bears the liability considering the legality of such transactions and the limitations of its liability.

In our own small way, we wish to alert you on some of the reasons or practices which has led us into this mess and why we know for a fact that 95% of the Fund Managers cannot pay or do not have such funds to pay for what they took or mobilized from the public under the fixed term products;

Most of them were running what we term the “ridiculous Economics” – Taking a short term funds to finance a long term business or projects is purely psychosis. All the issued fixed term bills were with maturity periods of 91days, 182days bill and 1 year (3 months, 6 Months and 1 year respectively) yet this Fund Managers saw it to be prudent to invest such funds in long term business such as in the real estate industry and Equity financing, which we all know that this would not take less than 10 years to recover the said investment in whole. Can a proper house or building facility be built even within 3 months and be sold outright to pay back the funds invested into putting up such. Hmmmm Ghana.

Selfishness and greed has engulfed some that they use the clients invested funds as their personal pocket money. Most of the owners are the principal signatories to the institutional accounts and are able to withdraw same for their personal and friends comfort. They appoint MD’s, CEO and boards who are just rubber stamps to dance to their tune. Some could even appoint boards today and dissolve them tomorrow, some board members and chairs have no clue nor knows Eve from Adam in this securities industry yet they are put in charge to control affairs at the highest decision making sections of this companies.

Some have equally spenta chunk of the funds in acquiring other companies and establishing new ones from scratch. You and I know that no one would be willing to sell his company that is of good standing in terms of profit and liquidity. And certainl,y it would not take less than 2years to breakeven or make profit talk less of paying off the bulk funds these shareholder(s) took at a go in acquiring or putting up such new Business or company. This should tell you that, most of the so called business men and women see’s the securities industry as a cash cow where they could come and milk funds for their intended or main business. What is the stated capital requirement, yet they go into the market and mobilize millions of Ghana cedi’s from the poor and innocent victims

Unsecured or collateralized trade such as commodity trading oil and gas became the norm for some of them. Some have lost 80% of clients funds they took into commodities trading due to poor knowledge and lack of due diligence.

The concept of Ponzi Scheme or in simple words “robbing Peter to pay Paul” was what informed their decisions in engaging in some of the pointless and ridiculous economic practices they were engaging in.

They had this believe of continues inflow of cash or mobilization. They also had the luxury of enticing the public with higher and juicy interest rates in the never ending cycle system. Since the previous mobilized funds has already been used by the shareholder or the owner, there must be a way to convince others to bring inn their funds to pay off that of those maturing and there goes the chain of continuity and the rising interest rate. This concept is just like a Tank with two separate holes below it, draining the content at a faster rate and so to maintain the flow of the liquid via those holes, the worker would have to work extra hard to always keep the tank full in order to maintain the stability and evenly distribution of it content one to the shareholder and two to the previous client whose bill is due collection.

The alarming and the disturbing factors in this scenario is, where would they get the funds to pay the existing clients or investors when you have directed them to desist from taking fixed deposit. Meaning, the hard working workers would no longer be task to keep the tank full for that equal flow again. (Because they are not licensed Deposit taking institution).

Currently, the banks are also struggling to meet the require 400 million to meet their regulator Bank of Ghana’s (BoG) demands on them, so even if it is about loans or credit facilities where and how would these Fund Managers get it and pay these investors.

This we think is a major concern which should not be politicized nor concealed but be made open and broad level headed consultation in resolving than just the current directives you have given, our opinion anyway.

It would also interest you to know that the mobilization targets of the fixed term income or investments for some of this institutions are in the ranges of 100 million and 500 million Ghana cedis and above per year and with increments of 50% to 100% each preceding year.so in short if an institution has operated for say 5 years, they may have in excess of about 500 million net and above as their liability since not all investors do redeem their bills upon maturity.

On 25th of August 2018, the host of News File on Joy News TV, Samson did speak of one such Fund Manager with the name something Capital (The actual name was not certain) just disappeared from it premises of operation and the building being put out for rent to the dismay and the disappointment of its customers. What signal does this relay to you (SEC) as the regulator, some would certainly run with people’s money since they can’t pay or for better words the physical money does not exist but rather on papers and data, meanwhile, they have no collective Investment Schemes to divert those papers and data into just to even buy sometime from their customers rage and anger.

For instance as at December 2017 the licensed Fund Managers were 157 but as at March 2018 per your own records is short of 9 licensed Fund Managers, what happened and how did they left or exited, is the public aware of them, have they paid back the mobilized funds to their rightful owners if they really did operated or mobilized funds from the public.

On issues with the Collective Investment Schemes (CIS) we know for a fact that some Custodians and administrators/trustees of most of these CIS are just for the papers and documentation sake. Most fund managers uses different Banks (unlicensed Custodian Banks) as their collection and disbursing banks. In short clients are made to deposit funds into banks that were not registered as the custodian bank to such a product and equally do same when paying clients of their benefit. So who then prepares the report of the custodian who were just hanging somewhere else?

We also know of some fund managers who operates or deposits and withdraw same from about 15 different banks. Is the various bank charges not impacting negatively on the said funds under their management when they should have been paying an annual approved fee to the named custodian bank in regards to that specific product? So is the reported daily, weekly and monthly valuations of such CIS and their unit and share prices accurate when some of the mobilized funds pays for unapproved bank charges.

Recommendations

Our views or suggestion is;

You to take custody of all funds under such management and the respective Data or papers to say, appoint a temporal registrar and push or move such funds into T-Bills with the Central Bank (BoG) for safe keeping. In that term, the T-Bill rates may apply to the funds. Communicate to the public about the restructuring and your measures put in place to protect their funds.

Seek mandate or powers from the court to liquidate all assets and other related business both local and abroad that was acquired after the establishment of the investment firm (fund Manager) of the said shareholders who could not provide or cough out the exact amounts in respect to their total Liability. We made the law for ourselves and can amend or change them to the interest of larger public interest. The court can do that certainly.

If the investors or the clients so wish to invest in any CIS, they should communicate to the registrar or take the funds and go and do so in person.

Restructure the system and allow those who wish to pick up their funds to do so with the temporal registrar and BoG and not the Fund managers.

Review the licenses of all and if possible cut down the number please. This economy is too small for 147 Fund managers please.

Can you equally come up with a proper rule or regulatory frame work to control your members and their quest for the group of company’s syndrome? Where most of them have suddenly surrounded themselves with group of company’s kind of thing like the spider and it web kind of system. They use the fund management as a group of a source of funding to create other subsidiaries.

Reconsider your capital requirement and for the fund managers since after this directives, the CIS portfolio size would multiply into hundreds of millions once the fixed deposits are migrated into the CIS

Put together a strong and a better asset allocation frame work and policy to regulate the management and investment of such funds in the CIS portfolio.

Consider decentralization and reginal presence to ensure effective management and supervision

Engage the public periodically to know what exactly is going on in the industry.

We would like to conclude with this riddle: Imagine “Ghana police service” developing a strategic plan to help them control crime in Ghana to the interest of the public, and after fine tuning their strategic plan, gives it to the criminals to go through and make inputs and suggestion to the proposed strategic plan before they go ahead and implement it”

(The Truth Afric)

Cc: Bank of Ghana.