55 Questions SEC Must Resolve Starcomms 2008 Offer

September 11, 2012

The following questions have been prepared as a matter of public interest and not an indictment of any party involved in the transaction. Having followed the developments in the private placement offering and the subsequent fall-out(s) therefrom, it appears appropriate to situate the concerns related to the transaction in an investor rights and protection perspective. We believe that the SEC is engaged in a process of review, enquiry or/and investigations into the numerous petitions submitted to it by investors and believe it would use its best judgment to provide closure to the development. One area through which closure can be achieved will be through the resolution of the questions presented below given the larger issues it raises and addresses beyond the specific case itself. We strongly believe that this offers the institution an opportunity to look inwards and help take decisions that clarify the law, practice and confidence in our markets. Any aspersions to parties involved in the transaction or the regulator is not intentioned and regretted. The objective of these notes is to properly contextualize an understanding of the way regulation in our markets work and the larger questions about investor protection and efforts at improving the rules, laws and regulations guiding the practice. At some stage, the SEC will recognise the window of opportunity this transaction presents to the institution to rebrand, reposition and reinvigorate its internal processes and external perception as a key arbiter in the capital market by determining what must happen to bring the practice, process and profession to the world class standards desired by the SEC. QUESTIONS PRIVATE PLACEMENT OR PUBLIC OFFER: This question is germane to the understanding of the Starcomms transaction. Given the developments thus far, it becomes pertinent to understand/appreciate the type of approval granted by the SEC for the 2008 Starcomms offer - Was it for a Private Placement or a Public Offer? Whichever the decision, the factual decision, ab initio, forms the foundation/basis for determining the conduct of operators during the exercise. More importantly, it would determine if the acts/actions that took place was consistent with the rules existing at that time AND if such interpretation might have misled the market (nay participants) into entering into the transaction. It would therefore be necessary to understand the regulators interpretations of the following: 1. The use of Investment letters and PPM: The question here relates to the determination of which is the valid document for the purpose of the

transaction that was approved? What would form the basis of a seller-buyer relationship where either or both was used? 2. For a Plc, which Starcomms was; would it be acceptable for more than 50 entities to participate in a Private Placement? (please see SEC Rule 90 (i)) 3. Was the use of Investment vehicles known to the SEC at this time (prior to, during or after approval) and would this be considered in order even when no law provided for such under a private placement? Would this be applicable to a public offer or a private placement or both? The applicable laws have to reflect this and also make a provision for such to be known to parties going into such transactions. 4. In the event that more than 50 persons participating in a private placement, what is the recourse for the investor?

NIGERIAN COMMUNICATIONS COMMISSION: the management of inter-regulatory approvals presents a new challenge for the market and the following questions may come in handy. This should be part of the learning curve with respect to inter-regulator issues which will form part of the new market going forward as more companies from other regulated-sectors come into the capital market: 5. Is SEC aware that by condition 15.6 of the Universal Access Service License; pursuant to Section 64 of the Nigerian Communication Act 2003, that the approval of the NCC must be obtained before Starcomms could alter its shareholding structure? Did SEC secure this approval? 6. Is SEC equally aware of the Nigeria Communications Commissions (NCC) Letter of 21st April, 2008, that gave Starcomms Plc approval to raise money via Private Placement, including a preferential allotment to Circle Tel? 7. Is the SEC aware that, despite receiving this approval with the specific mention of CircleTel as a Strategic Core Investor to be given preferential allotment, that this was NOT disclosed in the Private Placement Memorandum (PPM) that was approved by the SEC? 8. Is the SEC further aware that Circle Tel was not on the list of 43 allottees cleared by the SEC? 9. If points 7 & 8 above were NOT disclosed to the SEC, can this be considered material non-disclosures? 10. If points 7 & 8 above were disclosed to SEC, why were they missing in the approved PPM dated about a month after the NCCs approval? Would this qualify as a deliberate omission of a material fact? Was there a change in circumstance for which the primary regulator (NCC) ought to have been informed/briefed about? 11. If point 8 was disclosed to SEC, what explanations did SEC get from Starcomms (or its Advisers) as to who CircleTEL were, and their significance as part of the required due diligence from a core investor in the Nigerian Capital Market?

ALLOTMENT PROCESS: Here, clarification is sought as to how SEC applies the rule on verification and validation of transactions. 12. Will it be safe to assume that the issuing houses made returns to the SEC for this purpose and provided to the SEC copies of the offer proceeds accounts in each of the three receiving Banks (namely FCMB, Stanbic IBTC and Fidelity Bank) and that this was sent to the SEC ahead of its clearance as the Basis of allotment, as required under your Rule 185.

13. If the responsible official(s) in charge of the review of these accounts received and vetted these returns (as to money laundering, validation that actual money were paid and so on), at what stage did the use of investment vehicles become known to the SEC or was it already covered in the approval granted? 14. If the SEC was aware that the Issuing Houses, through their sister companies, created Investment Vehicles through which shares were assigned to Investors was this documented so that each individual Investor knew which investment vehicle they were represented in? 15. Would this be considered a loophole to circumvent the rule guiding the maximum of 50 entities in a Private Placement? Can this be a practice going forward for which clarity needs to be made to provide a level playing field? 16. Was there a misrepresentation of information regarding subscribers to the offer as the letter addressed to SEC by the issuing houses clearly indicated that ONLY 43 persons applied for the offer? How was the inconsistency/discrepancy resolved and how do we avoid such in the future? 17. Was the Afrinvest Teleops Fund approved by SEC before it was approved in the list of 43?

REGISTRARS: Following from the above, it would seem that the use of investment vehicles included in the list of 43 approved entities tactically approved the use of investment vehicles necessitating the issuance of share transfers. 18. If that were the case, what provisions/guidelines are we to glean from this regarding the rules guiding share certificate transfers? 19. If the SEC did not intend for this and had asked for monies to be refunded to un-allotted subscribers, what follow-on process can investors rely on from SEC? 20. Does the SEC have a list of persons for whom it expected monies to be refunded? 21. It has now been established that the Registrars (First Registrars) issued share certificates to individuals, most of whom did not sign any transfer form(s) as required under the law? Which operator/ stockbroker handled the transaction and how/when was/were payments received for the transfer? 22. If point 21 above was not conducted as the law required, how possible was it for those shares to become legal documents upon which legitimate claims may be made? 23. Has the register of members been adjusted to reflect the reality as revealed by the statement of accounts and list of subscribers to the shares since 2008? 24. Can we say now that we can clearly identify the true and accurate list of subscribers to the shares of Starcomms from the primary transaction?

INVESTMENT VEHICLES: Is the SEC aware that the use of an Investment Vehicle as confirmed by its approval of 43 entities open to interpretation as a direct confirmation that the said capital raising exercise was a PUBLIC offer rather than a private placement? (See ISA section 69 1c). 25. Can the SEC clarify the understanding that the use of Investment Vehicles and thereafter assigning of the shares - is a direct contravention of the ISA; given that the ISA stipulates clearly that any such use of an Investment Vehicle makes an offer a Public Offer, whether you called it a Private Placement or Not.

26. If the context and construct of the offer is of a public nature, the ISA further stipulates that ALL the requirements of ISA sections 71 shall be fulfilled; and it is evidenced that these were not fulfilled by the Parties. 27. Is the SEC aware that Starcomms (and/or its Advisers) organized any Investor Forums? If in doubt kindly go through the appendixes provided here - http://proshareng.com/news/Public%20Offers%20Private%20Placements 28. Can it be considered appropriate and/or legal to organize Investor Forums for a PRIVATE placement? (please see ISA section 69) 29. Is the SEC aware that during these Investor Forums, certain documents were presented, including a Pilot-fishing presentation, where the intended offer was referred to as an Initial Public Offer by officers of Starcomms, with their Issuing Houses listed on this same document? See list of appendices below.

RECEIVING BANKS: The use of receiving banks is meant to provide a control point whereby the SEC is in a position to validate proceeds as well as discharge its validation/verification responsibilities, as envisaged by the law. A few questions naturally arise here: 30. The SEC must by now be aware that receiving banks received monies into the Offer Proceeds Accounts ahead of the SEC approval of the Placement Memorandum when the Placement had not opened? This opens up investors to ridicule and forms the fundamental question about the trust and confidence question in the market. 31. How could such accounts have been opened without a SEC approval? 32. If it is possible to do so, are we not leaving room for an unsuspecting market to fall prey to a scheme which may never get a SEC approval in future? 33. It would be expected that the Receiving Banks and/or the Joint Issuing Houses sent in the complete details/particulars of the Proceeds A/Cs to the SEC within seven (7) days of opening of such accounts, as stipulated by the SEC regulations? If this was not done, at what stage was this done? 34. Has the SEC confirmed if the Joint Issuing Houses notified the Receiving banks, in writing, upon opening the proceeds A/Cs, of the authorized uses of the proceeds amongst others, as well as forwarded a copy of the Private Placement Memorandum to the Receiving banks, as stipulated by SEC rules? 35. Would the responses to these questions not place the regulator on enquiry as to possible collusion between the Joint Issuing Houses and the Receiving Banks? 36. Is the non-disclosure of the amount of monies received even before the approval date of the Placement Memorandum, in the Placement Memorandum not a Material non-disclosure and/or misinformation? 37. Is the SEC in possession of the Offer Proceeds Accounts (for each of the three (3) receiving banks) that were submitted to SEC as part of the clearance for the basis of allotment? 38. In reconciling these lodgments with the letter presented by the joint issuing houses, what explanation was provided for the aggregations? 39. Are you aware that some names on the final list of 43 represent were merged applications without requisite forms related thereto?

TRUSTEESHIP: We believe that as Joint Issuing Houses, both Chapel Hill and Stanbic IBTC were Joint Trustees to the offer proceeds accounts within the interpretation of the rules and practice in the market. The following questions naturally become pertinent, viz:

40. The SEC represents to the market that an offer proceeds account is a Trust Account. If that is the case, is the SEC therefore aware of any withdrawals from any of the Offer Proceeds Account(s) before the date the SEC cleared the basis of allotment? 41. Is the SEC aware of any other withdrawals (before or after the allotment) not consistent with the practice in the Capital Market and SECs approval? 42. While scrutinizing the Offer Proceeds Accounts as the SEC ought to do, did the SEC official(s) notice any anomalies; particularly the withdrawal of N16bn from the proceeds a/c with FCMB 0011080405409001 on 5th May, 2008, via RTGs by Chapel Hill to its private account with Access bank? 43. Would this be consistent with the practice and indeed, is it an acceptable and legal practice for such a withdrawal stated in 42 above, to have taken place without the prior approval of SEC, or in negation of SECs approval and standard practice? 44. The markets understanding is that upon discovery of such an anomaly, and in the absence of a prior approval by the SEC of such, the SEC is statutorily compelled by the ISA sections 41 (1), (2), (3), (4) and (5) to ask the Issuing Houses that made the illegal deductions to refund the monies and in addition to further actions reflecting such criminal action? 45. What would be the SECs reaction to a capital market operator withdrawing money illegally from a Trust A/C as stated in Section 41 of the ISA, especially subsections 3 & 4? What lessons can the market take from this action? 46. For what purpose was the money withdrawn? Was it to the company? If not, to what and for what purpose?

STARCOMMS DIRECTORS: Are the Directors of Starcomms culpable for any nondisclosure and/or material misinformation in this transaction?

JOINT ISSUING HOUSES: The role of the JHIs is so critical to market integrity and as such it is important to review conduct along practice lines here: 47. Is the SEC aware of and did it approve that certain Investor Letters and Commitment forms be sent out by the Issuing Houses under the authority of the Issuer before the Private Placement was approved by it? 48. If the SEC was not aware, would this constitute a binding document under the SEC rules? 49. Extending the interpretation of this practice, would it be legal and/or ethical for a SEC-regulated operator and a PLC, to send out Investor letter(s) and use same as a basis of collecting deposits from members of the public, without the prior approval of the SEC as stated in the ISA Section 68 (1) and SEC Rule 89? 50. Further, under this scenario, would it be the fault/blame of the trusting investors who relied on the reputation of SEC regulated operators and the fact that Starcomms was a PLC whose conduct for the proposed Private Placement (a regulated securities as per ISA 54; and SEC Rule 40) and its

Issuing Houses would be expected to be in FULL compliance with the ISA and SEC regulations? 51. Is the SEC aware that its order in a letter dated 19/06/2008 directing the Issuing Houses (Chapel Hill and IBTC) to refund monies collected from prospective investors that were not allotted shares back to them not later than 26/06/2008, was not obeyed pursuant to your rule on return monies? 52. Is the SEC aware that refunds were not made to persons/entities who paid monies into the Receiving banks, and who were not on the list of 43 allottees cleared by SEC? This again, goes back to the fundamental assumptions made earlier based on/and your interpretation of the allotment process. 53. Was there a human error in the allotment verification process? 54. When an Investor Letter of Invitation states that subsequent to the Offer, application will be made to list ALL THE ISSUED SHARES of the Issuer on a Stock Exchange; does this statement make that offer a PUBLIC offer as stated in ISA Section 69 1-d? 55. Is the SEC aware that most of the Investors that SEC cleared on the allotment never received a copy of the Private Placement Memorandum, and never filled the particular form attached to that PPM? What then is the whole essence of SEC approving the PPM, if the JIHs and the Issuer did NOT to utilise these statutory documents? What lessons can be gleaned from this?