It is commonplace these days to see companies and individuals canvassing for funds from the public into various investment schemes.
They come in different nomenclatures-Mutual Fund, Ethical Fund, etc, but they have common objectives, chief of which is to encourage people to contribute money into a common pool for the purpose of investing the funds into profitable ventures.
The relevant law, which regulates Collective Investment Scheme is the Investment and Securities Act, 2007. This law sets out the obligations of those who invest in the funds and those who manage the funds on behalf of the investors. Section 153 of the Act defines “Collective Investment Scheme” as “a scheme in whatever form, including an open-ended investment company, in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio, and in terms of which (a)two or more contribute money or other assets to and hold a participatory interest in a portfolio of the scheme through shares, units or any other form of participatory interest;(b) the investors share the risk and the benefit of investment in proportion to their participatory interest in a portfolio of a scheme…”
I have endeavoured to quote the above section of the Act in order to bring this discussion into proper perspective. From the statutory definition, every investor must bear in mind two things: a collective investment scheme usually involves two or more people and the risk and benefits are shared according to the proportion of what each investor has put on the table.
The law requires that every collective investment scheme must be approved by the Securities and Investment Commission. So, you as an investor must do a thorough check to be sure that the scheme you want to invest in, is approved by the commission.
It is expected according to Section 155 of the Act that a manager of the scheme should administer it honestly and fairly, with skill, care and diligence and in the interest of the investors and the securities company.
Also, the manager of the scheme must make full disclosure about the scheme to the investors.
Having stated the major legal principles governing collective investment scheme, it is pertinent to say that investors must cautiously choose the investment company they want to use and ensure that the management of the company is made up of men of integrity.
If at any moment you intend to opt out, you should know from the beginning the procedure for so doing and you should be ready to comply with the procedure before you seek legal redress. The recent decision of the Court of Appeal (Lagos Division) in OLADAPO V STANBIC IBTC BANK PLC & ANOR (2015) All FWLR (PART 783) 1887 is quite enlightening, eye-opening and instructive. I would do a summary of the fact of the case and the decision of the Court for all to learn from. In the case, the Appellant, a customer of the Respondents (the 2nd Respondent is the investment company of the 1st Respondent) invested N24, 000,000 (Twenty Four Million Naira) with the Respondents in what is called IBTC Ethical Fund.
After investing in the Fund which of course is a form of Collective Investment Scheme, the Appellant changed his mind and opted out. He instructed his lawyers to write the Respondents to freeze his account by stopping all investment on same.
The Respondents in response wrote back to say that they cannot freeze the Appellant’s account since his fund was now part of a pool of funds and that if he desired to end his investment, he should fill Redemption Form which they attached to the letter they wrote. The Appellant did not fill the form but rather instituted an action against the Respondents. The trial Judge dismissed the Appellant’s case and he appealed to the Court of Appeal.
Upholding the judgment of the trial court, the Court of Appeal held that by the nature of the Fund, the Appellant added his money to a pool of funds collected from many investors for “investment in a portfolio of equity securities on the Nigerian Stock Exchange and in selected fixed income securities.”
The Court further held that the Appellant ought to have filled the form and submitted same to the Respondents when they sent the form to him to fill so that he could have his investment redeemed, before approaching the trial court. As at the time of filing the appeal, the Appellant had lost over twelve million naira of his investment because in the eyes of the law, the investment was still revolving as long as the Appellant had not filled and returned the Redemption Form.
No doubt, the Appellant has the right of appeal to the final court of the land-the Supreme Court of Nigeria-but some thoughts occupied my mind as I read the report. I know that N24, 000,000 is not the kind of money you come across so easily and if you have it, it is certainly not something you want to allow to waste away like that.
Rather, you would want the money to increase from your investment. If this investor succeeds on appeal to Supreme Court, lucky him, but in the event that the Supreme Court upholds the decision of the Court of Appeal, the loss may just be forever. Maybe filling the Redemption Form and returning same would have saved this huge loss. Dear readers please get the benefits of professional opinions from the experts and legal opinion from your lawyers. A stitch in time may just save nine!