BREACH OF CONTRACT ...SCAM STOCK-BROKER @ FCMB

Fedelity Finance Company Limited and First City Monument Bank opened a joint account with the Central Security Clearing System where all settlement on the trading floor was to be made.

            Fedelity Finance Company Limited (FFCL) is a Stock-broking Company licensed to carry on the business of stock-broking, situated at 48/50 Odunlami Street, Lagos.

            Sometime in April few years back, FCMB, in furtherance of various discussions with FFCL offered a term loan in the sum of N250 million which was accepted by FFCL. In November same year, FCMB offer FFCL a Margin Trading Facility in the sum of N1 Billion.

            Few months later, flowing into the following year, FCMB offered FFCL another Margin Trading Facility of N1 Billion to enhance the previous Margin Trading Facility. 

 

 

           

 

 However, after lots of talks and persuasion from FCMB for FFCL to renew the Margin Trading Facility which proves abortive, the two companies finally agreed to merge.

The sum of N250million short term loan facility and N2Billion Margin Facility were put together for easier accounting and to enhance the trading activities of the FFCL thereby having a Margin Trading Facility of N2.25Billion.

            By the terms of the contract between FFCL and FCMB, FFCL contributed 30% of the investment sum while FCMB contributed N1billion by virtue of the addition of the Shares purchased, the N1Billion advance by the FCMB. The total shares worth 1.3Billion were placed in a special account over which the FCMB had a lien and unilateral right of sale in the event of default in repayment by FFCL.

            This N1.3Billion worth of Shares provided 130% security cover the sum of N1 Billion advance by FFCL.

            However, in fulfillment of the conditions of the contract between FFCL and FCMB on the Margin Trading Facility, FFCL executed various undated letters of authority in favour of FCMB to dispose of the share pledged as security. By the terms of the contract between FFCL and FCMB, FCMB had a duty to monitor the daily price movement of the stocks pledged as security and to collect a trading statement to confirm daily transactions

            FCMB under the terms of the contract had the right and duty of selling the pledged shares in the event where FFCL defaults in making payment or providing stocks to shore up the value of the security where the value falls below the agreed security value. It was the intention of the parties to the contract that FCMB’s duty and obligation to monitor and when necessary dispose of the shares held as security for the transaction, was to ensure that in the worse scenario, FCMB suffered no loss at all on the transaction and FFCL suffers minimal or limited loss on the transaction.

The contract between FFCL and FCMB on the Margin Trading Facility of N2.25 Billion expired shortly after the business began.

But in spite of the expiration of the contract between FFCL and FCMB, the bank refused or failed to sell the stock pledged as security but instead continued to accumulate interest and other charges on the account of Stock-broker and made continuous demands for payment of various illegal sums as alleged outstanding balance.

            By the terms of the contract between FFCL and FCMB, FCMB represented to FFCL its professional knowledge, expertise and ability to safeguard the transaction, the security cover and indeed FFCL’s 30% contribution investment.

From the terms of the Contract between FFCL and FCMB, the following obligations on the part of the FCMB implied;

           

To take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems

To conduct its business with due skill, care and diligence, maintain proper standards and observing movement of share prices and other market indices

To arrange adequate protection for FFCL’s assets, contributed to the transaction and take responsibility for losses to the asset…

 However, in breach of its obligation and duty under the terms of the contract between the two companies, FCMB negligently allow FFCL to lose its N300,000,000 (Three hundred million naira) contribution to the transaction.

            FFCL paid FCMB over N574 Million as repayment on the facility but FCMB continued to mount interest and other charges on the transaction in breach of its contract with the Broker.

            FFCL in view to determine the extent of the fraudulent acts of FCMB on its account instructed its auditor to carry out a forensic audit of its account with FCMB, upon conclusion of the forensic audit, fraudulent charges totaling N247,692,555,92 were found to have wrongfully debited to FFCL’s account.

            FFCL is asking for N1 Billion as general damages from FCMB.