Market regulator recommends prosecution of CMC officials

CMC made a net loss of Sh181.1 million in the year ended September, compared to a net profit of Sh406.6 million a year earlier, reflecting a steady decline in profitability since its 2008 peak net profit of Sh927.1 million.

The loss is a double blow to investors who could miss out on dividends while their shares remain suspended at the Nairobi Securities Exchange.

A protracted boardroom war could further hurt the auto dealer as the government –its single biggest client—is cutting back on vehicle purchases.

The capital markets regulator will recommend for prosecution directors and senior staff of motor dealer, CMC, who are found to have defrauded the company.

Chief executive officer of the Capital Markets Authority (CMA), Stella Kilonzo, said on Tuesday the watchdog would be guided by regulations of the Capital Markets Act in taking action on those suspected to have been involved in irregular deals at the company.

A forensic audit report by PricewaterhouseCoopers (PwC) says the motordealer lost more than Sh1.1 billion in inflated bills charged by Andy Forwarders, a logistics firm that is owned by CMC boardmember, Peter Muthoka. The findings of another CMA-commissioned forensic audit are yet to be made public.

“If there are certain findings beyond the CMA Act we would obviously refer them to the relevant authorities but we will deal with matters within our ambit,” said Ms Kilonzo on Tuesday.

Double blow
The regulator said CMA will consider evidence laid out in the PwC report taking into account the methodology of the auditors and reliability of information they used to make their conclusions. She added that CMA will also consider “the laws of natural justice” in making a judgement on the suspicious transactions.

Mr Muthoka has sharply criticised the PwC report which he said was commissioned by CMC’s chief executive, Bill Lay, without reference to the board of directors.

He cites a disclaimer by PwC in arguing that the report is not reliable as per forensic audit standards. PwC said in the report that it relied on documents provided by CMC’s management and that the procedures did not constitute an examination or a review in accordance with generally accepted auditing standards.

Mr Muthoka has also accused Mr Lay of hiring an agent, Pewin Motors, which could have cost CMC millions of shillings more in inflated bills.

CMC made a net loss of Sh181.1 million in the year ended September, compared to a net profit of Sh406.6 million a year earlier, reflecting a steady decline in profitability since its 2008 peak net profit of Sh927.1 million.

The loss is a double blow to investors who could miss out on dividends while their shares remain suspended at the Nairobi Securities Exchange.

A protracted boardroom war could further hurt the auto dealer as the government –its single biggest client—is cutting back on vehicle purchases.