Nigeria: How to Identify Fake Finance Houses

How do you explain investing in a firm that is not properly licensed by the
Securities and Exchange Commission and yet offers you ridiculous returns in
stocks such that not even the best and he biggest licensed stock broking firm
can ever think of making talk less of offering you? Abayomi Obabolujo, CRO,
Stocks Watch Magazine.

I got really excited when I read the April 29, 2007 edition of Stocks Watch. The Chief Research Officer of the reputable stocks magazine, Abayomi Obabolujo, wrote an enlightening essay on how to identify fake finance houses. What really got me going was that most of the points he made seemed to correlate with what I highlighted in my write-up NOSPETCO: Trumpeted on the Aegis of Lack of Electricity. The message he was trying to pass across is so important, I have decided to replicate it here. Brace yourself; you are in danger of being a little more financial literate!

Excerpts from the essay; the real meaning of investment-II: Identifying Fake Finance Houses by Abayomi Obabolujo, CRO, Stocks Watch magazine

The System:

To my mind, the system to which your fund is being sent to create more of itself should be plain and simple to understand and not a kind of abracadabra that people and firms say they do to generate the kind of interests they offer. For example, when you give your money to a stock broker for investment purposes, you sure know it is for the stock of a specific company, whose business is well defined and proven. If your fund/deposit is in a bank, we all know what they do, including round tripping (when it was fashionable) and the excess charges, import and corporate financing and all the rest but how do you explain giving your money to an institution or someone who says he is into oil and gas without a proper license and yet offers you unimaginable returns that no legal petroleum marketing company can offer. Similarly, how do you explain investing in a firm that is not properly licensed by the Securities and Exchange Commission and yet offers you ridiculous returns in stocks such that not even the best and he biggest licensed stock broking firm can ever think of making talk less of offering you? You see, you must come to certain realities or else you will continue to expose yourself to dupes.

Please take this warning- don’t ever let the desire for highest possible returns in the shortest possible period blindfold your ability to think right. There is no well meaning institution that will ever offer you too high a rate because professionally, they do understand the risk element that is often associated with businesses in a place like Nigeria and would also want to guard against unfulfilled promises. More so, all business owners and institutions are by nature selfish – they want to offer you lower rates to get more. It is not in their character to offer you more and get little for themselves in profit. Let me share with you the Business module or mode of operations of a typical fake finance house.

INCORPORATION:

In Nigeria of today, incorporation is easy; all it takes is a business name, a lawyer or accountant and some naira. With time, your company is up for business; therefore, conspicuous display of certificates of incorporation does not authenticate anything and one of the ways to identify a fake finance house is by requesting to see beyond the certificate, specifically their memo and article of association. If they ever make this available to you, consider their share capital; if you see that it is much lower than how much you intend to invest with them, please check it, they may be fake. If a child must be tall, they say in my village, the legs must be thin, so also a company that must access multiples of millions of naira as deposit from Nigerians must in itself be able to boast of a correspondingly high amount. Can you imagine some of these so-called finance houses have less than N2million share capital, which shows that they never spent much in putting the whole thing together. Please check very well; many of them may just have registered a business name and not even a limited liability company. The importance of share capital in the life of an organization cannot be overemphasized. That was what necessitated the recent recapitalization in the banking, insurance and stock broking firms; for whoever should manage your funds should himself have enough of his to manage. Take the time also to look at the nature of business as stated in the MEMAT. You will clearly see that those things stated there are nothing more than mere jargons.
Still talking about incorporation, please take note of the day and year that your wonder finance company was incorporated and request to see their accounts – management or audited; also ask them if they have done any remittance as tax or such to anywhere. This is not very likely. If you could go this far at your verifications, I believe that at this juncture, the operators of such a finance company would have lost interest in you whatever the seeming size of your deposit. May I ask; why do you think banks and legal finance companies do make copies of their financials to hang in their offices and sometimes in their presentations? It is not for a show; it is because such documents carry big messages; please note this. Look beyond the certificate of incorporation in the glass at that reception, all that are glazed are not so valuable.

Nature of Business:

Operators of illegal finance houses pretend to be involved in oil and gas, stock market, export and import businesses and sometimes, properties among others. Often times, you really would see shadow evidence of that which they claim to be involved in like a few trucks for those that say they are involved in oil and gas, a couple of shares by those who claim to operate in the stock market and such things here and there but if you think very well, you will simply discover the lies in them. If you do oil and gas so much that you make so much such that could afford you to offer ridiculous rates by which reason you have successfully gathered so much money from undiscerning members of the public, then you must be a major operator and at that, you must be visible in that industry by your filling stations, trucks and such. You should also be bold to present the names of your major clients or patrons for verification. If a company operates big without assets that can easily identify them, then something is amiss. It does mean that your business in itself is illegal, a faceless kind of business. My friend, we know the major and independent marketers of oil and gas products in the country. Let someone stop deceiving you just to get your money. Don’t tell me that these people are into bunkering for such does exist in Nigeria only as illegal business and I do not see the reason as to why you must deposit your funds with someone to carry out such a nefarious activity as bunkering that you know cannot last forever; In any case can you call such a deposit an investment? No, it is an advanced level of gambling. In the stock market, we know those that are real market operators; please don’t fall prey into the hand of a charlatan who calls himself a fund manager.

Let me quickly add this comment before rounding off for this week. The length of time a system has worked does not invalidate the fact that it is a fake and dubious venture. If I may remind you, Omana, Omana did not fail in his obligations to his clients up till the time he was arrested by the regulatory authorities for operating an illegal finance house. How did he do it and how are they doing it today, can’t you think? As of today, to access funds for a legal business from banks is one of the easiest things; the rates are also low enough. Why can’t these guys approach the bank to access facilities at 25% per annum instead of offering you 120% and in some cases, 360% per annum for your own funds?

culled from Stocks Watch (April 29)