CBK now admits losing Sh105m in bond trading fraud

Politics and policy

The Central Bank of Kenya building in Nairobi. The bank is seeking to compel the blacklisted bond trader to refund Sh31.2 million in stolen bond proceeds. FILE 

By GALGALLO FAYO, gfayo@ke.nationmedia.com

In Summary

• The admission is contained in a suit that CBK has filed against Tsavo Securities, seeking to compel the blacklisted bond trader to refund Sh31.2 million in stolen bond proceeds.
• The bank’s latest position is a marked departure from its strong denial last year of blacklisted bond dealer Fred Mweni’s claim that CBK staff connived with stockbrokers and investment bankers to steal government securities.
• CBK appears to have made a complete about-turn on that position, admitting that investigations had revealed fraudulent entries amounting to Sh105 million

The Central Bank of Kenya (CBK) has for the first time admitted that some Sh105 million was stolen from its hands two years ago in a Treasury bond fraud whose extent and origin it has always denied.

 

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The admission is contained in a suit that CBK has filed against Tsavo Securities, seeking to compel the blacklisted bond trader to refund Sh31.2 million in stolen bond proceeds.

The bank’s latest position is a marked departure from its strong denial last year of blacklisted bond dealer Fred Mweni’s claim that CBK staff connived with stockbrokers and investment bankers to steal government securities.

The CBK at the time termed Mr Mweni’s claim in suit papers challenging his suspension from trading in bonds at the Nairobi Securities Exchange as spurious.

CBK director Kennedy Abuga, in an affidavit filed in court on May 17, 2013, termed Mr Mweni’s claims of fraudulent creation of bonds as “serious and spurious,” saying it was “critical that Central Bank of Kenya makes a complete answer to the accusations failing which they may be taken as indicative of the truth.”

But the bank appears to have made a complete about-turn on that position, admitting that investigations had revealed fraudulent entries amounting to Sh105 million.

READ: CBK hits back at Mweni over bonds theft case

“Further investigations revealed fraudulent entries of Treasury bonds amounting to Sh105 million in the CDS (Central Depository Securities) accounts of two investors,” Mwenda Marete, CBK’s Director, Financial Markets, says in affidavit filed in court on Tuesday.

The central bank in documents filed on its behalf by Oraro and Company Advocates reckons that Sh65.6 million was credited fraudulently into the accounts of Manline Telecommunications Limited and an additional Sh39.5 million to Tsavo Securities.

The court papers further reveal details of the CBK’s secret agreement with Mr Mweni, a director of Tsavo Securities, on repayment of the stolen bond proceeds.

Mr Mweni struck a secret deal with the CBK to lift a freeze on the Sh25 million stolen bond proceeds that had been traced to his company’s bank account, promising to wire back the money to the regulator.

The CBK accuses Mr Mweni of reneging on the agreement to pocket part of the proceeds and has since failed to repay the outstanding amount.
This is what has prompted the CBK to move to court and reveal details it had kept secret.

The CBK’s court papers, however, do not say anything about the Sh65.6 million stolen through Manline Communications’ account.

Mr Mweni had in suit papers filed in court last year claimed that CBK staff connived with stockbrokers and investment bankers to steal government securities he was allegedly being crucified for.

The trader claimed that a total of Sh2.6 billion had been stolen in the bonds racket but later withdrew the document and dropped the figure in further filings.