The above is one of the constant requests that were received on this page from readers. It is a question that strikes the core of the practice of investment. But it is question you ask before you invest, not after investing. Unfortunately, the readers asking such question have already invested in the company in question. However, asking the question reflects increased awareness of the existence of fake and illegal investment companies.
The problem of fake and illegal company has continued to plague the nation's financial sector. Only last week, the Securities and Exchange Commission shut the Port Harcourt and Sokoto offices of a Women-In Oil, for operating illegal investment fund.
There is a difference between a fake company and an illegal company and it is important that you know the difference. A fake company is a company registered or not registered but with the intention to defraud. Such company, if registered, does not play by the rules and they hide their real intention from the regulators and public, by falsifying documents etc. An illegal company is one that is not registered and hence not authorised to do the business it is doing. Both abound in the capital market.
One of the reasons why it is important to differentiate between the two is the possibility of recovering your investment. If a company is illegal, and you transact business with it, if anything goes wrong, you are on your own. If you patronise an illegal stockbroking or Fund Management Company, if the company defrauds you, you are on your own.
If it is a fake bank, the deposit insurance protection of the Nigeria Insurance Deposit Corporation does not cover your money. And if it is a stockbroker or illegal fund manager, whatever investor protection fund is offered by SEC and NSE may not cover you. Of course, if the company is shut down by the regulators, they would return money to the investors but that is provided there is money that can be traced to particular investors. However, if a company is fake, if it is registered, if anything goes wrong, you can report to the authority that issued the licence. In this case, there is hope of recovering your investment.
That is why before you transact investment business with any company, you must ascertain if the company is licensed to do so. In Nigeria, before a company can operate in the capital market, be it as stockbroker or fund manager or investment adviser, the company must be registered and licence by the Securities and Exchange Commission (SEC). If by any reason the company is registered by the Corporate Affairs Commission, in as much as it is not licensed by SEC, it is an illegal company.
Doing business with such company is at your own risk. Also, before a company can operate as a bank, savings and loans, mortgage bank, bureaux de change, finance company, it must be licensed by the Central Bank of Nigeria. Any company doing any of this business and it is not licensed by the CBN is an illegal company, even if it has CAC registration. Anybody transacting business with such company does so at his/her own risk.
Source: Vanguard
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