CMA gets nod to pursue Imperial directors over Sh2bn bond

Imperial Bank depositors demonstrating outside the bank’s headquarters in Westlands, Nairobi. FILE PHOTO | NMG 

By SAM KIPLAGAT
More by this Author

Summary

• Imperial Bank under with the Sh2 billion in bonds, whose sale to the public had been cleared by the CMA in 2015, leaving investors bruised.

The Capital Markets Authority (CMA) has won a court battle with directors of the collapsed Imperial Bank, allowing the regulator to investigate them over the Sh2 billion corporate bond that the bank issued a month before it was placed in receivership.

Three appellate judges overturned a decision of the High Court barring the CMA from investigating circumstances under which the bank proceeded with the bond despite insider knowledge it was in trouble.

Imperial Bank was placed in receivership in October 2015, after the board alerted authorities to suspected malpractices.

Justices Erastus Githinji, Daniel Musinga and Otieno Odek said the CMA is empowered to investigate and take enforcement actions against directors of an entity under its watch for deliberately or negligently providing incorrect information to the regulator.

The lender went under with the Sh2 billion in bonds, whose sale to the public had been cleared by the CMA in 2015, leaving investors bruised.

Under the current law, depositors are given priority when it comes to compensation from funds recovered from a collapsed bank to a limit of Sh100,000 per account.

Bondholders, like other creditors, are paid what remains after insured depositors are compensated.

Imperial Bank directors being pursued include Alnashir Popat, Omurembe Iyadi, Jinit Shah, Anwar Hajee, Hanif Somji and three others.

The CMA went after the directors on grounds they abetted fraud and breached the fiduciary duty to depositors.

The regulator wrote to the directors on May 13, 2016 giving them seven days to respond to queries around the bond issue.

The directors successfully blocked the probe at the High Court, prompting the CMA to appeal the decision.

“It was therefore in the best interest of the public that as a regulatory body charged with supervising, licensing and monitoring stock exchange and control depository system to be allowed to promptly enquire into the circumstances leading to the subject bond issue,” the appeal judges said.

The Imperial Bank board approved the bond in March 2015 in the middle of a reported multi-billion shilling theft.

Court documents show that the theft was engineered by its former managing director, Abdulmalek Janmohamed, through fraudulent withdrawals hidden from the bank’s reporting system through software manipulation and some transactions written down on chits of paper.

This led to the loss of more than Sh34 billion over a period of 13 years.

The funds were invested in prime real estate, luxury apartments and assorted firms.

In September 2016, the Central Bank of Kenya (CBK) sued the directors of Imperial Bank, seeking to freeze assets worth Sh42 billion held in more than 40 companies.

It also sought to compel the directors and shareholders to pay back some Sh2.7 billion allegedly given to them fraudulently as dividends.