SEC Imposes Heavy Penalties For Unapproved Securities Issuance

The Securities and Exchange Commission (SEC Nigeria) has unveiled new rules governing the issuance and allotment of securities by private companies, imposing significant penalties for non-compliance.

The regulations stipulate that any individual or entity issuing or allotting securities without prior approval or violating any provision of the rules will face hefty penalties. According to the SEC, violators could be liable for a penalty of no less than N10 million initially, with an additional daily fine of N100,000 for each day of violation.

In addition to financial penalties, the SEC outlined other sanctions for non-compliance, including suspension or withdrawal of registration for involved capital market operators, disgorgement of transaction proceeds, and potential ratification or rescission of transactions by the Commission.

“The rules apply to Debt securities issuances by private companies either by way of public offer, private placement or other methods as may be approved by the Commission; Registered exchanges and platforms which admit debt securities issued by private companies for trading, price discovery or information repository purposes; Registered capital market operators who are parties in issuances and allotment of debt securities of private companies,” it explained.

The new rules require private companies to list their securities on a registered securities exchange within 30 days after allotment. To be eligible for securities issuance, companies must be duly incorporated under relevant laws and have a track record of at least three years.

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The regulations set a maximum fundraising limit of N15 billion within a one-year period for private companies. Companies intending to undertake further debt securities issuance must re-register as public companies.

Furthermore, the rules mandate issuing houses to file a summary report with the SEC within 21 working days of allotment, containing post-allotment information and details of allottees.

Private companies with existing debt securities held by qualified investors must file an application for registration within three months of the rules’ issuance. Failure to comply will result in penalties.

The rules strictly prohibit private companies from offering equity securities to the public and mandate that debt securities be sold only to qualified investors. Only registered capital market operators are permitted to participate in debt securities issuances.

“The issuer is prohibited from using the proceeds of the issue for purposes other than those stated in the offer document without the prior approval of the Commission.

“The issuer shall file with the Commission not later than ninety (90) days after the conclusion of an issue on the appropriate SEC Form, detailed information on the utilisation of proceeds.

“Evidence of such utilisation shall be provided as appendix to the report. The rendition shall be on a quarterly basis until issue proceeds are fully utilised,” the commission said in the circular.

Regarding the utilisation of proceeds, issuers are barred from using funds for purposes other than those stated in the offer document without prior SEC approval. Companies must file detailed reports on proceeds utilisation quarterly until fully utilised.

The SEC emphasised that the rules were formulated in accordance with Section 43 (1) (b) of the Business Facilitation (Miscellaneous Provisions) Act 2022, which empowers the Commission to regulate the issuance and allotment of private companies’ securities.