NSSF gets nod to sell 1.5 million Shah Munge shares

The National Social Security Fund (NSSF) has been allowed to attach the last known assets of fallen stockbroker Shah Munge, taking the provident fund closer to recovering some of the money it lost in the 2002 Euro Bank collapse.

The decision was made after the NSSF moved to court seeking orders to discharge a separate one that Shah Munge got blocking the sale of the broker’s assets.

The NSSF was in a 2009 judgment awarded the Sh258 million it lost in the Shah Munge scam, which has to date earned interest to stand at Sh619 million.

The NSSF says in court papers that the stockbroker’s collapse had made recovery of its investment close to impossible as its assets have remained a secret.

The fund had last July sought to attach Shah Munge’s Nairobi Securities Exchange (NSE) shares following fears that the stockbroker would sell them after the NSE allowed transfer of the same with the demutualisation of the market.

The NSSF move was blocked by Southern Bell, another company that broke onto the scene claiming it bought the shares from the stockbroker in 2011 and had been unable to formally transfer them because of the law on pre-emptive rights that was only lifted in April last year.

Justice Jacqueline Kamau last week dismissed Southern Bell’s claim over the 1.5 million shares registered in the name of Shah Munge at the NSE, paving the way for the pension scheme to sell the property.

The judge found that Southern Bell had failed to prove its ownership claim, making it impossible for the court to stop the shares from being attached to settle the debt.

“Southern Bell had no title to the shares as envisaged in the Companies Act. Southern Bell may or may not have been an innocent purchaser but the fact that it was not the legally registered owner of the shares means it could not bar NSSF from attaching the same,” she said.

READ: Shah Munge fights fresh NSSF bid to seize its property

The judge dismissed Southern Bell’s argument that it had signed transfer documents after the shelving of some laws on pre-emptive rights at the NSE but did not get approval to transfer the shares because of a “glitch at the Central Depository and Settlement Corporation (CDSC)”.

The firm had claimed that it later tried to follow up on the matter, but the CDSC informed it of a court order barring the sale of the shares.

“The fact that Southern Bell signed the transfer forms in April 25 and paid stamp duty in July 2014 was immaterial. The bottom line was that the shares were still in Shah Munge’s name. NSSF was therefore legally entitled to attach the same,” she added.

The judge further faulted Southern Bell for not providing proof that it had paid Shah Munge Sh13 million for 300,000 shares that have since matured into 1.5 million.

The NSSF has since losing the funds in 2002 pursued the collapsed stockbroker but only found the Nairobi bourse assets through its lawyers, Shapley Barret & Company.

One of the stockbroker’s directors, John Munge, has been touted as one of the architects of the investment scam having also served as a director at Euro Bank and commissioner general at the Kenya Revenue Authority (KRA).

Shah Munge collapsed in 2002 amid revelations that it had deposited Sh1.4 billion in Euro Bank on behalf of a number of State corporations.

The bank in turn collapsed shortly after Shah Munge’s demise. The money, in the form of proceeds of Treasury Bills trade, was held at Euro Bank under Shah Munge’s office account, a move that was later discovered to have been fraudulent.

Euro Bank scandal’s biggest casualty was the National Hospital Insurance Fund which lost Sh479 million, Kenyatta National Hospital (Sh421 million), the Kenya Post Office Savings Bank, the Kenya Tourist Development Corporation, the Kenya Pipeline Company, the Kenya Sugar Board which lost a combined Sh235 million.

Justice Luka Kimaru in 2009 found Shah Munge, the Central Bank of Kenya (CBK) and Ben Mtuweta, a managing trustee at the time of the scandal, responsible for the loss of the funds.

Mr Mtuweta, who has since died, was found responsible for ordering the CBK to transfer Sh258 million for investment in Euro Bank.

The challenge of collecting the amount awarded in the 2009 judgment has seen the NSSF contemplate writing off the debt, but Justice Kamau’s ruling has given it a chance to minimise the losses suffered as a result of the scandal.

Shah Munge had asked the court to stop the NSSF from claiming the money, arguing that the pension scheme had waited too long (five years) to execute the judgment.

Justice Kamau, however, ruled that the NSSF was still within its right to claim the money as the 12-year period provided for by law to seek the funds from a judgment is yet to elapse.