Stockbroker, Shah Munge and Partners, received a severe blow when the High Court confirmed its suspension from trading at the Nairobi Stock Exchange (NSE) over a Sh251 million scandal involving National Social Security Fund and the collapsed Euro Bank in 2002.
A three-judge bench ruled that the Capital Markets Authority (CMA) was legally justified to carry out investigations against the company’s involvement in the transfer and subsequent loss of Sh251 million from NSSF to Euro Bank.
The Judges, Justice Hatari Waweru, Benjamin Kubo and Mary Kasango upheld the three-year suspension imposed on the stockbroker by a government appointed tribunal which barred the directors from holding office in any stock brokerage firm operating under the auspices of CMA for one year and slapped a Sh1.5 million penalty for flouting the rules.
Shah and Munge had initially been suspended for 30 days from October 18, 2002 by the market regulator and its directors penalised. The directors, aggrieved by the tribunal’s findings, moved to the High Court for redress.
The judges also dismissed the appeal lodged by Shah Munge and its directors John Paul Munge, Arthur Runyenje Namu and Franklin Kariuki Kurigia. The court exonerated Paul Anthony Spence from any blame and subsequently lifted sanctions imposed on him.
Rogue stockbrokers The court ruled that CMA had powers to discipline rogue stockbrokers and the procedure the regulator adopted in carrying out its probe was described as above board.
The Judges also noted that the punishment pronounced by CMA and enhanced by the tribunal was within the law. Shah Munge was found to have acted against the CMA regulations by placing client’s money in its office account instead of the client’s account as required by CMA regulations.
However, the stockbroker argued that by placing the money in Euro Bank, it was merely following instructions by NSSF and its (Shah Munge) directors could not be held liable for any loss or impropriety arising out from the transaction.
Justice Njagi together with Barclays Bank managing director, Adan Mohamed, former KCB managing director, Terry Davidson and City lawyer Nelson Kaburu conducted the inquiry between August 20 and October 15, 2003 and found Shah Munge and Partners to have acted unprofessionally.
“The firm was in violation of the requirements of the Capital Markets Act and Regulations with regard to the handling and mismanagement of client’s funds,” observed the tribunal.
The judges said the tribunal regulated its own procedures and was empowered to take into consideration evidence it considered relevant, even if such evidence would not be admissible in court.
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