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Peter Ololo is no Bernard Madoff

September 22, 2009

Peter Ololo is no Bernard Madoff. Even if found guilty, and he is yet to be. Other than the similarity that both worked in the capital market, Peter’s stock market foray tapers and pales when compared with Bernie’s Ponzi scheme. A Ponzi scheme, named after Charles Ponzi, is a pyramid investment swindle that pays profits to early investors from money paid by later investors. Madoff pleaded guilty to an 11-count charge and has been sentenced to 150 years behind bars.

Peter Ololo, on other hand, remains innocent until proven otherwise. Of the 131 charges filed against the four accused former bank managing directors on September 1st 2009, Peter Ololo and his companies: Falcon Securities, Petosan Oil and Gas, Petosan Farms and Petosan Property and Development were mentioned 15 times.

Madoff and Ololo were obscure persons, till the tide receded. Mr Maddof was a tight-lipped, ex-chairman of NASDAQ (America’s online over-the-counter-securities market) whose air of exclusivity earned the confidence of a well-heeled clientele; an A-list of Who’s Who of American high society. His business was in plain words a rip-off. He masterminded (single-handedly he claims) a brazen 19-year old scheme.

A lengthy credit and stock market boom helped keep a tight lid on his activities. The US Securities and Exchange Commission (SEC), regulators charged with protecting investors, were at best asleep. A close call, when one of the funds that invested in his business was charged, accused and wound-up, almost uncovered his scheme.

Yet to be convicted of any offence, Falcon Securities’ sway on the stock market petered out when the Economic and Financial Crimes Commission (EFCC) swopped on Mr Ololo after the Central bank of Nigeria (CBN), through unprecedented and contentious means, disclosed debtors of the five banks it rescued on August 14th 2009. Unlike the falcon, Ololo was not fast enough. But like the falcon, that fast and powerful bird of prey, Ololo’s Falcon Securities is alleged to have preyed on insider information that soared shares of banks to heights.

Bernard Madoff was no man of Bernadine virtues. He made off with 10 trillion naira. His credulous clientele – a hapless horde of retail and supposedly sophisticated investors, were bilked by his scam. The judge hearing his case described his Ponzi scheme as “extraordinarily evil”. Peter Ololo, on the other hand, ran legitimate businesses. Yet Ololo, despite putting his eggs in different baskets, was leveraged to the hilt. When the tables turned against him, his portfolio diversification could not take the hit.

Peering through the charge sheets, it’s obvious that he and most of the arraigned ex-CEOs were close. How else could one man have limitless access to such amounts of money? Four of the banks: Union Bank, Finbank, Afribank and Oceanic Bank handed Ololo’s businesses a whooping 88 billion naira. Yet, on these counts, Peter Ololo’s businesses aren’t in the same league as Bernard Madoff’s.

Ivar “the match-king” Krueger, the dapper Swede, is considered Bernie’s predecessor; the forefather of 21st century financial scandals. Mr Krueger’s labyrinth of legal businesses (he owned Ericsson, the telecommunications company) benefited from bond sales to American investors who lapped them up during the 1930s stock market boom because of their huge returns.

Ivar in turn loaned monies to European governments – he even bailed out France. In return, these countries granted their ‘leading lender’ match-making monopolies in their countries. Mr Krueger was feted by presidents like Herbert Hoover of America. In March 1932, when the US stock market crashed, Ivar Krueger was found dead in a hotel room in France. He had shot himself.

So, to what period and whom can the charges against Peter Ololo and his businesses be compared? The location remains the US, whose market depth, breadth and sophistication still produces mind boggling swindles. (Nonetheless, the ability of the US market to learn from its mistakes and right past wrongs is noteworthy). The ‘booming 80s’ produced Michael “junk bond king” Milken. He and his accomplices are the central characters in a financial market scandal chronicled in a business ethics case: The Storm on Wall Street.

Milken’s supporters consider him a financial genius. It isn’t implausible that Ololo has his fans also. Milken’s opponents, however, considered him a fraudster, a finance maven who used his knowledge to play and undermine the market’s integrity.  Ololo, like Milken, diversified his investments. But both traded in different securities.

Milken made a living from trading below investment grade (high risk) bonds. Ololo was de facto king of Nigerian bank shares. Michael and his gang are said to have fraudulently enriched themselves. They allegedly connived in insider trading, arrangement of illegal take-overs and fleeced their customers; activities that made Mr Milken a billionaire and an ex-con.

A 98-count charge was filed against Milken. Charges included insider trading, price manipulation, falsifying records, filing false reports, racketeering and defrauding customers. “Stock parking”, however, was the major indictment against Milken and his crony Ivan “greed is good” Boesky. Milken and Boesky (as front man) swapped securities in order to veil the true ownership of stocks traded – stocks of companies that Milken’s firm, Drexel Burnham Lambert, an investment firm, had confidential interest in.

A guilty plea (to six minor securities violations) landed Milken a $600 million fine, a 10-year prison sentence, but spent 22 months, and was barred for life from the securities industry. Boesky was fined $100 million. Milkens’s supporters maintain he did no wrong. They lay the blame on an archaic legal system. His actions, they say, were a trifling that did no one harm.

Trite as it may sound, the best of legal systems are fraught with loopholes that can be bent to near breaking point – that fine line between ethical and sharp business practices? Even after being corrected for past excesses eg, the Great Crash, the dotcom bubble etc, America’s financial system, as evidenced by Madoff’s scheme, is still vulnerable.

Contrasting America’s legal system with Nigeria’s cuts no ice. A gabbling exercise that will only accentuate the fact that Nigeria is light-years behind. Nigeria’s capital market is a tiddler in comparison to that of the US. Credit bureaus are just finding their feet, the Nigeria Securities and Exchange Commission (SEC) is undergoing an overhaul and other regulators were rattled to life after almost been drowned by CBN’s tsunami.

Nigeria’s problems are systemic. Values, politics, institutions: legal and economic, and education are almost necrotic. These have created a fertile condition for greed, deceit and reckless risk taking. Ololo’s multiple interests: market-making, asset management and proprietary trading, conflicted and competed. Without a Chinese wall, to keep parts of his company independent, information was bound to be whispered, texted and e-mailed, for a fee. That is, there was no measure to keep information about new listings, say, by the banks that loaned his company money, from leaking to the trading floor. Besides, the neat profits from such privileged information tend to make the wall paper thin.

Also, Falcon Securities was egged on, explicitly or implicitly, by its investors. A happy conspiracy that suited the beneficiaries of insider information and the banks who splurged money his way to spike their share prices – smoke and mirrors that deluded us into thinking Nigeria’s capital market was on the cusp of development. To deny that Peter “the market-maker” Ololo’s trading wasn’t an open secret is to play the ostrich. On the trading floor of the Nigeria Stock Exchange (NSE), Ololo’s Falcon was the bird to watch. A herd of stock brokers mimicked his trading moves. The market heaved to the whoosh of Falcon’s positions.

Nigeria’s financial system requires re-regulatory revamp. Needless to say, the sooner other reforms: legal, political and economic, are embarked upon the sooner. Otherwise, the ghost of this period will come haunting us by the next decade; just as that of the failed banks in the 90s is today.

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