Companies

Ex-CMC boss opens battle over secret Jersey accounts

MARTIN

Former CMC boss Martin Forster (left) at a past launch. PHOTO | FILE

Martin Forster, the former chief executive of motor dealer CMC, has launched a fresh legal battle aiming to quash a forensic report that accused him and other senior managers of stealing and funnelling millions of shillings to secret Jersey bank accounts.

Mr Forster is challenging the Capital Markets Authority’s (CMA) decision to hire the South African law firm Webber Wentzel to investigate CMC’s internal affairs.

He insists that the regulator’s powers are limited to appointing an auditor to conduct a specific inquiry on firms listed on the securities exchange.

The Webber Wentzel report accused Mr Forster and former CMC chairman Jeremiah Kiereini of illegally defrauding the motor dealer by colluding with suppliers to inflate invoices and skimming off the extra funds to deposit in Jersey bank accounts.

The report said that more than £1.7 million (Sh261 million) had been funnelled to Jersey accounts by the time Mr Foster left in 2011.

Mr Forster and Mr Kiereini were subsequently disqualified from being appointed as directors in firms listed on the Nairobi Securities Exchange (NSE).

“In the absence of lawful statutory authority under Section 11 (3) (m) of the Capital Markets Act, the appointment of Webber Wentzel by CMA in November 2011 to conduct a forensic investigation into CMC was illegal and invalid. CMA unlawfully abdicated its statutory power under the Act,” Mr Forster says in court papers.

The CMA is yet to respond to the suit.

Mr Forster says his action has been prompted by the fact that the regulator is seeking to recover money from him to compensate CMC, but has not stated how much he owes.

The law allows the CMA to recover twice the amount proven to have been acquired fraudulently by officials of NSE-listed firms.

Mr Forster now wants the court to declare the Webber Wentzel report invalid because it is a product of an unlawful action.

Mr Forster was dismissed from office in March 2011, and a few months later his successor, Bill Lay, was reported to have found documents in his office detailing the existence and contents of the Jersey accounts.

READ: CMC hires sleuths to recover millions in secret accounts

The fraudulent scheme is said to have begun with the founding of Fair Valley Trust, before 1996, whose proceeds were funnelled to a secret bank account named Corival in National Westminster Bank at St Heiler in Jersey, Channel Islands.

Mr Forster has in the past stated that he deliberately left the documents behind because the money in the offshore accounts belonged to CMC.

The Webber Wentzel report said that Mr Forster benefited the most from the offshore accounts, earning a total of £142,750 or 26.4 per cent of the £538,684 disbursed between 2008 and 2011.

Other top beneficiaries were Mr Kiereini, who was paid £32,000, and Mr Forster’s son, Greg, who was paid £19,500.

Mr Forster is also challenging the CMA’s decision to appoint retired judge Aaron Ringera, Jacqueline Kamau and James Boyd McFie to an ad hoc committee formed to hear his side of the story and make recommendations based on its findings.

He argues that the CMA can only appoint its board members to such a committee and that the outcome of the hearings he attended should also be quashed.

The committee was formed to rule on allegations that Mr Forster was part of the scheme that enabled CMC’s suppliers to overstate invoices by between 1.5-2 per cent and remit the surplus to the Jersey account.

“The proceedings, determinations, recommendations and report of the ad hoc committee are unconstitutional and invalid. The unlawful impugned decisions and actions of the CMA have occasioned the petitioner loss of office as director and deprived him of his right to earn a livelihood.

“Your petitioner therefore humbly prays that this court be pleased to make a judicial review order compelling CMA to compensate Mr Forster for the damage caused to him by its actions and the quantum of such compensation to be determined by this court,” Mr Forster adds.

Mr Forster had requested for a 30-day adjournment of the hearings two days before they commenced on April 4 to allow him prepare evidence and a defence in the matter.

This was, however, denied, and he now says the move robbed him of an opportunity to be tried fairly.

The former CMC CEO adds that the regulator has refused to furnish him with a copy of the reports compiled by the ad hoc committee and Webber Wentzel despite several demands.

He had also asked the regulator to furnish him with a copy of the CMA board resolutions appointing the committee and Webber Wentzel.

“Mr Forster requires the information in order to assist him to examine and challenge the legality and constitutionality of the impugned decisions and actions of CMA,” the court documents say.

The suit comes as Mr Kiereini faces a CMA tribunal to hear his side of the story before determining his fate. He had initially been slapped with the same sanctions as Mr Forster but moved to court last year challenging the decision.

Justice Fred Ochieng last month stopped proceedings in a civil suit filed by the CMA to recover Sh189 million from Mr Kiereini until the tribunal hearings are completed.

READ: Reprieve for Kiereini as court suspends Sh189m CMA case

Justice Ochieng said in his ruling that allowing the two hearings to proceed concurrently would amount to subjecting Mr Kiereini to double jeopardy, which is against the law.

He, however, held that striking out the case was also not appropriate as the amount of money at stake was substantial.

The CMA had earlier obtained a court order stopping Mr Kiereini from transferring any of his assets held at the Nairobi bourse until the suit seeking recovery is determined.

Other individuals said to have benefited from the Fair Valley Trust are former Attorney-General Charles Njonjo, former director Jack Benzima (deceased) and billionaire businessman Prahlad K Jani, also deceased.

The Webber Wentzel report said Mr Forster had indicated to his Jersey contacts that he would consistently destroy his copies of telefax and letters in Nairobi.

He and Mr Kiereini allegedly dug deeper into the fraudulent scheme by arranging for CMC to borrow the same money it had lost through the overcharges.

Based on an average exchange rate of Sh125 at the time, CMC lost Sh153.7 million in the overcharges even as it reported a loss of Sh181 million.