CMA barred from punishing Imperial Bank owners in Sh2bn bond issue row

Imperial Bank depositors protest outside the lender's headquarters on Westlands Road, Nairobi. PHOTO | FILE
Imperial Bank depositors protest outside the lender's headquarters on Westlands Road, Nairobi. PHOTO | FILE 

The High Court has stopped Capital Markets Authority (CMA) from taking enforcement action against directors of collapsed Imperial Bank over a Sh2 billion bond the collapsed lender issued prior to its failure.

Justice Louis Onguto yesterday ruled that the involvement of some CMA officers in allowing the fraudulent bond issue to pass may make it difficult for the regulator to remain unbiased in the hearings.

The CMA had issued notice to show cause letters to Imperial Bank’s directors and was set to start hearings for alleged negligence in allowing the collapsed lender to publish an information memorandum that falsely painted a rosy picture of financial stability.

Trading of the bond on the Nairobi Securities Exchange was cancelled following the unravelling of a 13-year scam allegedly orchestrated by the late Imperial Bank managing director Abdulmalek Janmohammed that exposed depositors to a Sh44.9 billion loss.

The CMA claims that Imperial Bank directors should have detected that the lender was on the verge of collapse and stopped the issuance of the information memorandum.

Justice Onguto, however, held that evidence presented before him shows that the CMA is unlikely to be impartial in the hearings, as the regulator has steered clear of its own officers who scrutinised Imperial Bank’s planned bond issue.

“In the instant case, the CMA as the regulator was involved in the bond transaction. It is the body that approved the issuance of the bond. It is now conducting enforcement procedures against the petitioners. In my view, a well informed and fair minded observer would conclude that there exists a possibility of bias in the circumstances of the instant case.”

“There shall issue an order to remove into this court and quash the notice to show cause letters issued by the CMA to the petitioners on May 6, 2016,” he ruled.

Justice Onguto added that the CMA should have allowed Imperial Bank directors an opportunity to give their side of the story before issuing them with a notice to show cause.

The ruling in effect bars the CMA from carrying out any investigations or taking any enforcement action against the besieged Imperial Bank directors.

He, however, said the regulator is free to delegate the duties to the Capital Markets Tribunal.
“The CMA may file a reference to the Capital Markets Tribunal on any matter relating to the capital markets,” the judge added.

The collapsed Imperial Bank’s directors are Alnashir Popat, Omurembe Iyadi, Jinit Shah, Anwar Hajee, Hanit Somji, Vishnu Dhutia, Eric Bengi, Christopher Diaz, and Mukesh Patel.

The late Janmohammed and former chief finance officer James Kaburu handled all the meetings and correspondence between members of the Transaction Advisory Team (comprising Dyer & Blair, Hamilton Harrison & Mathews and PKF Kenya) with the relevant authorities being Central Bank of Kenya, CMA, and Nairobi Securities Exchange, according to the Imperial Bank directors.

They argued that the CMA had already found them guilty and was only conducting the enforcement hearings to sanitise its pre-determined position.

Imperial Bank directors have heaped blame on deceased managing director Janmohammed and Mr Kaburu, arguing that they represented the collapsed lender in preparation of the information memorandum.

Justice Onguto, however, dismissed an argument by the directors that the CMA had denied them documents crucial to defending the notices to show cause.