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The Capital Markets Authority (CMA) has finally started enforcement hearings of directors of collapsed Imperial Bank, six years after investors lost Sh2 billion through a bond issue by the bank.
CMA said it has commenced its enforcement proceedings against former board members of Imperial Bank Limited (IBL) on their failure to provide oversight in the preparation, approval and publication of the Information Memorandum for a Sh2 billion medium term note issue.
The regulator says it also wants them to explain why they failed to report the financial statements fraud to CMA and the investing public when it came to their knowledge on September 21, 2015, a day before the bond was allotted to the bondholders.
But this may come a little too late in the day given that the bank collapsed, going with billions of shillings of investors and depositors funds on top of the Sh2 billion bond offer.
CMA says that only Mr. Christopher Diaz, a former independent and non-executive board member, who served between February 1 2015 and October 13, 2015, attended the enforcement hearings before an Ad Hoc Committee of the CMA Board to respond to the allegations.
“Having considered his written and oral submissions the Ad Hoc Committee of the CMA Board did not take any enforcement action against Mr. Diaz who had been newly appointed as an independent and non-executive board member when the bond raising process was already underway,” CMA said in a statement.
The other former IBL board members declined to appear before the Ad Hoc committee and filed an appeal at the Capital Markets Tribunal.
Members of the Ad hoc Committee include Dr. Thomas Kibua (CMA Board Member), John Birech (CMA Board Member), Retired Chief Justice Dr. Willy Mutunga; FCPA Dr. James McFie; FCPA Anne Eriksson and Patricia Kiwanuka.
Efforts by CMA to undertake the IBL bond enforcement proceedings had been delayed by the former IBL directors who filed court proceedings in 2016 in the High Court and which culminated in Supreme Court Petition no. 29 of 2019 Alnashir Popat & 8 Others vs Capital Markets Authority.
In its judgement delivered on December 11, 2020 the Supreme Court allowed the CMA to proceed with its enforcement proceedings through its delegated authority under Capital Markets Act.
In compliance with the Supreme Court ruling the Authority constituted an Ad Hoc Committee on January 28, 2021 to conduct the enforcement proceedings.
IBL applied for the issuance of a Sh2 billion medium-term note on April 30, 2015, which was approved by CMA on 12 August 2015. The offer period for the bond opened on August 24, 2015 and closed on September 17, 2015.
On September 21, 2015, the IBL management informed the chairman and some directors of IBL that there had allegedly been sustained financial statement fraud since 2006, which had been perpetrated by the late Group Managing Director Abdulmalek Janmohamed together with certain senior members of the bank’s management, until his sudden death on September 15, 2015.
The disclosure to the IBL chairman and board was made prior to the following crucial dates in the bond issuance process and listing cycle: September 22, 2015 (date of allotment to the bond investors), September 28, 2015 (the settlement date), October 6, 2015 (before issuance of crediting of notes to CDS accounts and refunds, if any) and October 13, 2015 (date of Listing and commencement of trading on the Nairobi Securities Exchange).
CMA suspended the listing of the bond to commence trading. “After a preliminary inquiry CMA cancelled the bond issuance and notified Kenya Deposit Insurance Corporation and the Central Bank of Kenya accordingly,” CMA said.
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