The High Court has ordered the Capital Markets Authority (CMA) to pay former Sanlam Investments CEO Kennedy Riungu Sh7.5 million after the regulator prejudiced his employment with Genghis Capital Investment Limited by issuing a damaging and unverified report to his prospective employer.
Justice Lawrence Mugambi ruled that the CMA had violated Mr Riungu’s right to fair administrative action after it secretly shared negative, unverified information, from his former employer Sanlam Investments, with Genghis in 2018, thereby denying him a prime employment opportunity as a fund manager.
The court established that CMA shared the report without informing Mr Riungu.
“It is evident that at the time CMA wrote to Genghis Capital giving information that Mr Riungu was under investigation, it had just met Sanlam senior executives who were yet to get tangible evidence to lodge a formal complaint against him. That is why even when the CMA wrote to Sanlam on October 4, 2018, Sanlam responded by stating that it was still carrying out forensic investigations,” said the judge.
He found that the CMA’s move to share information with Genghis was against Section 24A(3) of the Capital Markets Authority Act, which addresses the issue of ‘fit and proper’ assessment. It states that CMA should give a person an opportunity to be heard before determining whether the person is fit for a job.
“In my view, the CMA acted with lack of concern for potential consequences in regard to the risk or impact of its decision at a very early stage in the process and put the petitioner in a very prejudicial position,” said the judge.
“The CMA cannot thus be heard to say it had no control over what the Genghis would do with the information. The CMA was simply reckless and malicious and never bothered to consider potential harmful effect of its actions when no proper complaint had been properly laid before it at the time,” Justice Mugambi said.
Loss of employment
Mr Riungu sued CMA in October 2022 seeking compensation of Sh45.9 million for loss of income from the missed employment opportunities due to the conduct of CMA.
He complained that the conduct of CMA and its inordinate delay in responding to his ‘fit and proper’ application caused him to lose two jobs.
Although CMA informed Genghis that it was carrying out investigations, it kept the matter in abeyance indefinitely, resulting in Mr Riungu termination of employment, as the employer feared being deemed non-compliant for employing persons who had not been certified as fit and proper.
Mr Riungu said he had submitted two ‘fit and proper’ applications, the first being on September 14, 2018. He claimed that the CMA’s delay caused him to miss out on two significant employment opportunities at Genghis Capital Investment Bank and Mayfair Asset Managers.
It was not until July 2020 that CMA issued him with a show cause notice, informing him of regulatory infractions for allegedly misrepresenting or materially understating investments made by Sanlam Investment Ltd for Sanlam Insurance Ltd in two commercial papers.
The second application was made in March 2022.
Describing himself as a professional in the finance services and investments industry, Mr Riungu narrated that he left his employment at Sanlam Investment Limited in December 2017 to begin his new role at Genghis Capital Limited.
He applied for the ‘fit and proper’ assessment with the regulator through his new employer, in line with the requirement under the Capital Market Authority Act, for the CMA to grant approval or objection for key personnel in companies licensed in the sector.
However, CMA did not make that assessment. Instead, in a confidential letter dated January 16, 2019, it informed Genghis that Mr Riungu’s application had been put on hold. It stated that he was under investigation and indicated that it was ‘prudent to refrain from confirming him before conclusion of its investigations which concerned his suitability’.
Mr Riungu decried that as a consequence, he lost his position at Genghis because he was forced to vacate his acting status to avoid contravening the CMA Act.
The court questioned why it took CMA eight months from the date of receipt of the complaint from Sanlam to invite the petitioner to defend himself yet it was so quick to notify Genghis about the investigations.
Second job
Mr Riungu filed another ‘fit and proper’ application on March 25, 2022 regarding May Fair Asset Managers Limited, and once again he was subjected to the same treatment by the CMA.
He claimed that, due to the CMA’s delay in processing his applications, he had lost income estimated at Sh45.9 million.
He alleged that the CMA, despite not responding to his applications, went ahead and issued him with a notice to show cause in relation to disciplinary proceedings arising from a complaint filed by Sanlam Life Insurance Limited against him during his tenure as the CEO of Sanlam Investments.
The court noted that the CMA’s actions were malicious and that, by October 2018, the regulator had begun soliciting information against Mr Riungu from Sanlam Group Plc after he applied for a ‘fit and proper’ assessment.
“At the time, Sanlam did not even have the information because it wrote indicating that it was still carrying out its in-depth audit, meaning the complaint had not crystallised yet, they were still hoping to find evidence against the petitioner. The action by the CMA was thus reckless and ill-informed,” said Justice Mugambi.
He ruled that this was unreasonable and unjustifiable in the circumstances.
“The CMA’s claim that the petitioner did not demonstrate that the investigations and administrative action commenced by CMA caused Genghis to rescind its decision to retain the petitioner as the CEO is unacceptable, given the circumstances of this case,” he stated.
The court found that the CMA had not treated the petitioner fairly, and had not taken into account the impact of providing prejudicial information to the employer, which it was under a duty to assess objectively first.
Furthermore, the CMA did not explain why it took so long to get the petitioner to respond, so that it could make an objective assessment.
