The capital markets regulator has penalised three former Chase Bank executives, five board members and reporting accountant Deloitte and Touche over their alleged role in the issuance of Sh10 billion medium-term bond in 2015.
The Capital Markets Authority (CMA) has fined former Chase Bank managing director Duncan Kabui Sh5 million and disqualified him from being a director or key personnel of any issuer in the Kenyan capital market for a period of ten 10 years.
Former CEO Paul Njaga has been fined Sh5 million while former finance director has been handed Sh5 million fine and a five-year ban from participating in the Kenyan capital market.
The regulator has also fined board members Anthony Gross, Laurent Demey, Muthoni Kuria and Rafiq Sharrif Sh2.5 million each for their role in the issuance and use of the bond.
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The four were members of the audit and risk committee. Mr Gross has also been directed to attend corporate governance training for a period of not less than five days.
Another board member, Richard Carter, has been fined Sh1 million.
“Deloitte and Touche, the CBKL reporting accountant at the material time has been fined Sh10 million. Further the Committee recommends that the conduct of the accounting partners during the respective audit periods be referred matters be taken up by ICPAK,” CMA said in a statement.
CMA investigations early this year revealed that Chase Bank auditors Deloitte did not inspect the failed lender’s IT system in annual audits, creating a loophole used by the bank’s management to hide details of billions of shillings siphoned from the bank.
A Sh14 billion hole created by the loophole was only discovered in 2015 after the Central Bank of Kenya (CBK) ordered an IT audit.
Deloitte reported Sh14 billion interest receivables after a specialist IT team conducted work in response to the CBK directive during 2015.
This was odd given that banks' interest receivable should be no more than a month‘s worth of interest.
Chase Bank’s monthly interest was Sh1.2 billion which indicated that the huge receivable was from legacy problems, overstated and could represent bank balances that were invalid and unsupported.
The investigations said that board member Ms Kuria blamed Deloitte for errors that sank the bank, saying the auditors omitted interest when communicating directly with the customers to seek direct confirmation of the amounts outstanding for confirming debtor balances.
She said a dispute then arose on how to treat the error and Deloitte demanded the bank either provide for the interest receivable or they would qualify the accounts.