The Need for a Revision of Nigerian Corporations and Securities Laws in the
Context of the Principles of Federalism and the Decision in AG Lagos State v Eko
Hotels (2007) 18 NWLR (PT 1011) 378. Part 3 (Concluding Part)
A notable decision is that of People v. Kline (1980, 1st Dist) 110 Cal App 3d 587, 168
Cal Rptr 185, 1980 Cal App LEXIS 2310, where in a prosecution for unlawful offer
and sale of securities, the evidence was sufficient to support defendant's conviction
of an unlawful offer to sell securities in violation of Corp. Code, § 25110, where the
record showed that defendant had signed an agreement to give the other party to the
agreement 500,000 shares of National Food Services Marketing, Inc. when that party
had provided to defendant the wherewithal and labor to construct and completely
finish building a prototype kiosk. Regardless of whether anything of value actually
passed to defendant from the other party to the agreement, the writing signed by
defendant constituted an offer to sell securities within the meaning of Corp. Code, §
25017, and the record showed that the shares had not been registered. The offer
was unlawful, notwithstanding that it had not been accepted by full performance.
Actual transfer of consideration is not necessary to constitute an unlawful offer to sell
securities.
The above shows that the sale of Lagos State shares in Eko Hotels in January 1997
to Oha Limited by Buba Marwa’s government was a purely civil contract within the
jurisdiction of the Lagos State High Court under section 272 of the 1999 Constitution
which provides thus:
272. (1) Subject to the provisions of section 251 and other provisions of this
Constitution, the High Court of a State shall have jurisdiction to hear and determine
any civil proceedings in which the existence or extent of a legal right, power, duty,
liability, privilege, interest, obligation or claim is in issue or to hear and determine any
criminal proceedings involving or relating to any penalty, forfeiture, punishment or
other liability in respect of an offence committed by any person.
(2) The reference to civil or criminal proceedings in this section includes a reference
to the proceedings which originate in the High Court of a State and those which are
brought before the High Court to be dealt with by the court in the exercise of its
appellate or supervisory jurisdiction.
Clearly, the phrase “any civil proceedings” would involve mere contractual disputes.
In other words, Lagos State Government was right when it instituted and published
Lagos State Legal Notice No 10 of 1999 setting up a Standing Tribunal of Inquiry Into
The Sale And Acquisition of Shares of Eko Hotel in 1997, made pursuant to powers
conferred on the Governor of Lagos State by section 12 of the Tribunals of Inquiry
Law, Cap 190, Laws of Lagos State of Nigeria, 1994.
For the avoidance of doubt, the incoming National Assembly is invited to correct the
ambiguities and make specific provisions taking mere corporate transactions that
have nothing to do with public offerings out of federal list. This is consistent with
other common law and federal jurisdictions.
IV. The Need for a Truly Federal System With Each State of the Federation Having
Its Corporation and Securities Laws.
Nigeria is a federation and not a Unitary State. Each state is supposed to have its
corporation laws as well as its securities laws. This is the situation in Canada and
the United States. In Canada, Alberta, British Columbia, Manitoba, Ontario, etc have
different Corporations Act as well as their Securities Act, separate and distinct from
the Federal Canadian laws. The same obtains in the United States, with Model
Corporations Code and Federal Securities Act pursuant to which the States have
fashioned their separate corporations and securities (“Blue Sky”) laws.
In the United States, state agencies are responsible for administering state
securities laws, a body of law that first emerged nearly 150 years ago. See generally
LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 31-34 (3d ed. 1989). In
California, for instance, the California Department of Corporations is the state agency
with primary regulatory responsibility over securities in California. In 2003, the
California legislature granted the state Attorney General concurrent authority to
enforce the state’s securities laws, reflecting the legislature’s commitment to
maximizing investor protection. See Cal. Sen. Bill 434, Ch. 876 (approved Oct. 12,
2003).
State Agencies’ principal responsibilities fall into two distinct categories: regulation
and enforcement. Regulation encompasses policy-making and preventive measures
such as adopting rules to guide industry participants; registering securities offerings
before they are marketed to investors; and licensing broker-dealers, investment
advisers, and their agents to help ensure that they have the integrity and competence
to deal fairly with the public. Historically, the states’ regulatory jurisdiction extended to
all types of securities – those traded on the national exchanges, intrastate offerings,
and investment schemes sold entirely outside the legitimate marketplace. See 12
JOSEPH C. LONG, BLUE SKY LAW § 5.1 (2005) (the states exercised plenary
parallel authority with federal regulators after the 1933 and 1934 Acts).
In 1996, with the passage of the National Securities Markets Improvement Act of
1996 (“NSMIA”), Congress substantially limited the states’ regulatory oversight of
national securities offerings. See 15 U.S.C. § 77r(a). Consequently, with respect to
rule-making and registration, the states’ role is now limited to local and regional
offerings that are not traded on the national exchanges.
However, States continue to play an important role, however, in reviewing more local
securities offerings, licensing firms and their agents, and educating investors.
Even more important than the states’ regulatory function is their enforcement role:
protecting the nation’s investors by bringing enforcement actions against the firms
and individuals who have committed – or are in the process of committing – fraud
and abuse in the offer and sale of securities. For nearly a century, state securities
regulators have tirelessly pursued those who commit securities fraud, from the con
artist operating a local Ponzi scheme to the Wall Street brokerage firm engaged in
dishonest practices on a national scale. Each year, state securities regulators file
thousands of enforcement actions under their securities codes seeking a wide
range of punitive and remedial sanctions, including fines, injunctions, restitution
orders, license revocations, and criminal penalties. See, e.g., NASAA Member
Enforcement Statistics. Available at
http://www.nasaa.org/issues___answers/enforcement___legal_activity/1002.cfm
(showing that state securities regulators brought nearly 3,000 enforcement actions
during the 2002/2003 reporting year)
In contrast with the states’ regulatory authority, the states’ antifraud jurisdiction has
not been restricted by Congress. On the contrary, in NSMIA and other federal
securities laws, Congress has expressly made clear that the states should continue
to exercise their antifraud authority unhindered and without regard to whether
securities offerings are local or national in character. See, e.g., 15 U.S.C. § 77r(c)
(NSMIA savings clause); 15 U.S.C. § 77p(a) (savings clause in Securities Act of
1933, preserving “all other remedies that may exist at law or in equity”); 15 U.S.C. §
77p(e) (savings clause in Securities Litigation Uniform Standards Act, providing that
state securities commissions retain jurisdiction to investigate and bring enforcement
actions).
In the United States, a State’s enforcement action regarding dealings in securities
would be held valid if it has all of the attributes necessary to bring it squarely within
the ambit of the savings clause. It must be (1) an enforcement action (2) brought by a
state agency, or office performing the functions of a securities commission, (3) under
the laws of the state (4) with respect to fraud or deceit (5) in connection with
securities or securities transactions.
If this were allowed in another common law jurisdiction, there is no reason why
Nigeria should lag behind. Lagos State, for instance, is home to numerous
corporations. It should be able to handle its own securities transactions and
corporations. Over the years, there have been numerous civil, administrative, and
criminal case law at the state level evidencing the strength of individual states in
United States in dealing with issues of securities: State v. Moore, 802 P.2d 732, 734
(Utah Ct. App. 1990) (criminal prosecution for fraud under state securities law for
misrepresentations and omission in prospectus used to sell promissory notes for
factoring business); Hines v. Data Line Systems, Inc., 787 P.2d 8, 11-12 (Wash.
1990) (private action for fraud under state securities law where prospectus disclosed
that success of company depended on key officer, but failed to disclose that key
officer had recently experienced brain aneurysm); In the Matter of Yorkshire Ventures,
Inc., SE8800451, 1988 WL 281997, at *1, 2 (Minn. Dept. of Commerce, Mar. 31,
1988) (administrative enforcement action under state securities law for fraudulent
misrepresentations and omissions in prospectus regarding use of funds being
raised); Kaplan v. Ritter, 519 N.E. 2d 802, 804 (N.Y. 1987) (criminal prosecution
under state securities law, in which court observed that “the securities fraud and
larceny counts were predicated specifically on petitioner’s failure to disclose the
bribe transaction in the Citisource stock prospectus, resulting in defrauding of
‘members of the public . . . .”); State v. Goodrich, 726 P.2d 215, 220 (Ariz. Ct. App.
1986) (enforcement action under state securities law for omissions of material fact in
prospectuses and in oral representations concerning financial condition, business
background, and prior disciplinary history); Danzig v. Superior Court of Alameda
County, 87 Cal. App. 3d 604, 607 (Cal. Ct. App. First Dist. 1978) (class action under
state law for securities fraud in prospectus); People v. Kaufman & Broad Homes of
Long Island, Inc., 378 N.Y.S. 2d 258, 261 (County Ct., Rockland County, NY 1975)
(criminal prosecution under state securities law for fraudulent prospectus and other
filings in sale of condominium units), aff’d, 393 N.Y.S. 2d 144 (N.Y. App. Div. 1977);
Curtis v. State, 118 S.E. 2d 264, 798 (Ga. Ct. App. 1960) (criminal prosecution under
state securities law for fraud in sale of stock, including false statements in
prospectus that officers were bonded and false statements about investments the
company would make); Coughlin v. State Bank of Portland, 243 P. 78, 83 (Or. 1926)
(suit under state law for misrepresentations in reports of bank’s financial condition,
in which court observed the general rule that a “corporation and its officers and
directors may be liable to persons who are induced to purchase stock by reason of
false statements in stock certificates, or in prospectuses or reports, issued by them .
. . .”); State v. Whiteaker, 129 P. 534, 535 (Or. 1913) (criminal prosecution under state
law for fraud involving prospectus issued by oil company); Lane v. Fenn, 146 A.D.
205, 208 (N.Y. App. Div. 1911) (action for damages under state law for fraud and
deceit in prospectuses for stocks and bonds issued by United States Independent
Telephone Company).
V. Conclusion
The above shows that any trading in stock that does not involve “interstate”
transactions—across the borders of different states, i.e., transactions that are purely
“intrastate” have nothing to do with the Federal High Court. Therefore, we shall call
upon the incoming Nigerian National Assembly to amend Item 32 of the Exclusive
Legislative List of the 1999 Constitution of the Federal Republic of Nigeria and
section 251(1)(e) of the 1999 Constitution which, presently, vests exclusive
jurisdiction in civil causes or matters arising from the operation of the CAMA on the
Federal High Court. The law must reserve (a) private sales of securities, (b)
securities regulations outside public offerings and interstate trading, and (c) issues
of incorporation, regulation and winding up of companies for the State Assemblies
and, ipso facto, left for the State High Courts. This is the modern trend, Nigeria must
not be left behind. Why do we need only one Corporate Affairs Commission in a
country of 140 million people?
*Olumide K. Obayemi hails from Ijebu-Jesa, Osun State , Nigeria.
Context of the Principles of Federalism and the Decision in AG Lagos State v Eko
Hotels (2007) 18 NWLR (PT 1011) 378. Part 3 (Concluding Part)
A notable decision is that of People v. Kline (1980, 1st Dist) 110 Cal App 3d 587, 168
Cal Rptr 185, 1980 Cal App LEXIS 2310, where in a prosecution for unlawful offer
and sale of securities, the evidence was sufficient to support defendant's conviction
of an unlawful offer to sell securities in violation of Corp. Code, § 25110, where the
record showed that defendant had signed an agreement to give the other party to the
agreement 500,000 shares of National Food Services Marketing, Inc. when that party
had provided to defendant the wherewithal and labor to construct and completely
finish building a prototype kiosk. Regardless of whether anything of value actually
passed to defendant from the other party to the agreement, the writing signed by
defendant constituted an offer to sell securities within the meaning of Corp. Code, §
25017, and the record showed that the shares had not been registered. The offer
was unlawful, notwithstanding that it had not been accepted by full performance.
Actual transfer of consideration is not necessary to constitute an unlawful offer to sell
securities.
The above shows that the sale of Lagos State shares in Eko Hotels in January 1997
to Oha Limited by Buba Marwa’s government was a purely civil contract within the
jurisdiction of the Lagos State High Court under section 272 of the 1999 Constitution
which provides thus:
272. (1) Subject to the provisions of section 251 and other provisions of this
Constitution, the High Court of a State shall have jurisdiction to hear and determine
any civil proceedings in which the existence or extent of a legal right, power, duty,
liability, privilege, interest, obligation or claim is in issue or to hear and determine any
criminal proceedings involving or relating to any penalty, forfeiture, punishment or
other liability in respect of an offence committed by any person.
(2) The reference to civil or criminal proceedings in this section includes a reference
to the proceedings which originate in the High Court of a State and those which are
brought before the High Court to be dealt with by the court in the exercise of its
appellate or supervisory jurisdiction.
Clearly, the phrase “any civil proceedings” would involve mere contractual disputes.
In other words, Lagos State Government was right when it instituted and published
Lagos State Legal Notice No 10 of 1999 setting up a Standing Tribunal of Inquiry Into
The Sale And Acquisition of Shares of Eko Hotel in 1997, made pursuant to powers
conferred on the Governor of Lagos State by section 12 of the Tribunals of Inquiry
Law, Cap 190, Laws of Lagos State of Nigeria, 1994.
For the avoidance of doubt, the incoming National Assembly is invited to correct the
ambiguities and make specific provisions taking mere corporate transactions that
have nothing to do with public offerings out of federal list. This is consistent with
other common law and federal jurisdictions.
IV. The Need for a Truly Federal System With Each State of the Federation Having
Its Corporation and Securities Laws.
Nigeria is a federation and not a Unitary State. Each state is supposed to have its
corporation laws as well as its securities laws. This is the situation in Canada and
the United States. In Canada, Alberta, British Columbia, Manitoba, Ontario, etc have
different Corporations Act as well as their Securities Act, separate and distinct from
the Federal Canadian laws. The same obtains in the United States, with Model
Corporations Code and Federal Securities Act pursuant to which the States have
fashioned their separate corporations and securities (“Blue Sky”) laws.
In the United States, state agencies are responsible for administering state
securities laws, a body of law that first emerged nearly 150 years ago. See generally
LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 31-34 (3d ed. 1989). In
California, for instance, the California Department of Corporations is the state agency
with primary regulatory responsibility over securities in California. In 2003, the
California legislature granted the state Attorney General concurrent authority to
enforce the state’s securities laws, reflecting the legislature’s commitment to
maximizing investor protection. See Cal. Sen. Bill 434, Ch. 876 (approved Oct. 12,
2003).
State Agencies’ principal responsibilities fall into two distinct categories: regulation
and enforcement. Regulation encompasses policy-making and preventive measures
such as adopting rules to guide industry participants; registering securities offerings
before they are marketed to investors; and licensing broker-dealers, investment
advisers, and their agents to help ensure that they have the integrity and competence
to deal fairly with the public. Historically, the states’ regulatory jurisdiction extended to
all types of securities – those traded on the national exchanges, intrastate offerings,
and investment schemes sold entirely outside the legitimate marketplace. See 12
JOSEPH C. LONG, BLUE SKY LAW § 5.1 (2005) (the states exercised plenary
parallel authority with federal regulators after the 1933 and 1934 Acts).
In 1996, with the passage of the National Securities Markets Improvement Act of
1996 (“NSMIA”), Congress substantially limited the states’ regulatory oversight of
national securities offerings. See 15 U.S.C. § 77r(a). Consequently, with respect to
rule-making and registration, the states’ role is now limited to local and regional
offerings that are not traded on the national exchanges.
However, States continue to play an important role, however, in reviewing more local
securities offerings, licensing firms and their agents, and educating investors.
Even more important than the states’ regulatory function is their enforcement role:
protecting the nation’s investors by bringing enforcement actions against the firms
and individuals who have committed – or are in the process of committing – fraud
and abuse in the offer and sale of securities. For nearly a century, state securities
regulators have tirelessly pursued those who commit securities fraud, from the con
artist operating a local Ponzi scheme to the Wall Street brokerage firm engaged in
dishonest practices on a national scale. Each year, state securities regulators file
thousands of enforcement actions under their securities codes seeking a wide
range of punitive and remedial sanctions, including fines, injunctions, restitution
orders, license revocations, and criminal penalties. See, e.g., NASAA Member
Enforcement Statistics. Available at
http://www.nasaa.org/issues___answers/enforcement___legal_activity/1002.cfm
(showing that state securities regulators brought nearly 3,000 enforcement actions
during the 2002/2003 reporting year)
In contrast with the states’ regulatory authority, the states’ antifraud jurisdiction has
not been restricted by Congress. On the contrary, in NSMIA and other federal
securities laws, Congress has expressly made clear that the states should continue
to exercise their antifraud authority unhindered and without regard to whether
securities offerings are local or national in character. See, e.g., 15 U.S.C. § 77r(c)
(NSMIA savings clause); 15 U.S.C. § 77p(a) (savings clause in Securities Act of
1933, preserving “all other remedies that may exist at law or in equity”); 15 U.S.C. §
77p(e) (savings clause in Securities Litigation Uniform Standards Act, providing that
state securities commissions retain jurisdiction to investigate and bring enforcement
actions).
In the United States, a State’s enforcement action regarding dealings in securities
would be held valid if it has all of the attributes necessary to bring it squarely within
the ambit of the savings clause. It must be (1) an enforcement action (2) brought by a
state agency, or office performing the functions of a securities commission, (3) under
the laws of the state (4) with respect to fraud or deceit (5) in connection with
securities or securities transactions.
If this were allowed in another common law jurisdiction, there is no reason why
Nigeria should lag behind. Lagos State, for instance, is home to numerous
corporations. It should be able to handle its own securities transactions and
corporations. Over the years, there have been numerous civil, administrative, and
criminal case law at the state level evidencing the strength of individual states in
United States in dealing with issues of securities: State v. Moore, 802 P.2d 732, 734
(Utah Ct. App. 1990) (criminal prosecution for fraud under state securities law for
misrepresentations and omission in prospectus used to sell promissory notes for
factoring business); Hines v. Data Line Systems, Inc., 787 P.2d 8, 11-12 (Wash.
1990) (private action for fraud under state securities law where prospectus disclosed
that success of company depended on key officer, but failed to disclose that key
officer had recently experienced brain aneurysm); In the Matter of Yorkshire Ventures,
Inc., SE8800451, 1988 WL 281997, at *1, 2 (Minn. Dept. of Commerce, Mar. 31,
1988) (administrative enforcement action under state securities law for fraudulent
misrepresentations and omissions in prospectus regarding use of funds being
raised); Kaplan v. Ritter, 519 N.E. 2d 802, 804 (N.Y. 1987) (criminal prosecution
under state securities law, in which court observed that “the securities fraud and
larceny counts were predicated specifically on petitioner’s failure to disclose the
bribe transaction in the Citisource stock prospectus, resulting in defrauding of
‘members of the public . . . .”); State v. Goodrich, 726 P.2d 215, 220 (Ariz. Ct. App.
1986) (enforcement action under state securities law for omissions of material fact in
prospectuses and in oral representations concerning financial condition, business
background, and prior disciplinary history); Danzig v. Superior Court of Alameda
County, 87 Cal. App. 3d 604, 607 (Cal. Ct. App. First Dist. 1978) (class action under
state law for securities fraud in prospectus); People v. Kaufman & Broad Homes of
Long Island, Inc., 378 N.Y.S. 2d 258, 261 (County Ct., Rockland County, NY 1975)
(criminal prosecution under state securities law for fraudulent prospectus and other
filings in sale of condominium units), aff’d, 393 N.Y.S. 2d 144 (N.Y. App. Div. 1977);
Curtis v. State, 118 S.E. 2d 264, 798 (Ga. Ct. App. 1960) (criminal prosecution under
state securities law for fraud in sale of stock, including false statements in
prospectus that officers were bonded and false statements about investments the
company would make); Coughlin v. State Bank of Portland, 243 P. 78, 83 (Or. 1926)
(suit under state law for misrepresentations in reports of bank’s financial condition,
in which court observed the general rule that a “corporation and its officers and
directors may be liable to persons who are induced to purchase stock by reason of
false statements in stock certificates, or in prospectuses or reports, issued by them .
. . .”); State v. Whiteaker, 129 P. 534, 535 (Or. 1913) (criminal prosecution under state
law for fraud involving prospectus issued by oil company); Lane v. Fenn, 146 A.D.
205, 208 (N.Y. App. Div. 1911) (action for damages under state law for fraud and
deceit in prospectuses for stocks and bonds issued by United States Independent
Telephone Company).
V. Conclusion
The above shows that any trading in stock that does not involve “interstate”
transactions—across the borders of different states, i.e., transactions that are purely
“intrastate” have nothing to do with the Federal High Court. Therefore, we shall call
upon the incoming Nigerian National Assembly to amend Item 32 of the Exclusive
Legislative List of the 1999 Constitution of the Federal Republic of Nigeria and
section 251(1)(e) of the 1999 Constitution which, presently, vests exclusive
jurisdiction in civil causes or matters arising from the operation of the CAMA on the
Federal High Court. The law must reserve (a) private sales of securities, (b)
securities regulations outside public offerings and interstate trading, and (c) issues
of incorporation, regulation and winding up of companies for the State Assemblies
and, ipso facto, left for the State High Courts. This is the modern trend, Nigeria must
not be left behind. Why do we need only one Corporate Affairs Commission in a
country of 140 million people?
*Olumide K. Obayemi hails from Ijebu-Jesa, Osun State , Nigeria.
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