Njonjo, Kiereini not off the hook in Jersey funds probe

The Capital Markets Authority (CMA) on Tuesday said it will not relent in its pursuit of former CMC directors to recover company funds that were shipped offshore and stashed in secret accounts.

Any money accruing from the recovery effort will go to the State-run Investor Compensation Fund (ICF), the capital markets regulator said, sending the clearest signal that the former directors are not yet out of the woods in the so-called Jersey affair.

“Proceeds from the enforcement action will be remitted to the Investor Compensation Fund established by law for the protection of investors,” the regulator said in response to our questions.

CMA, which is locked in a court battle with former CMC chairman Jeremiah Kiereini, said it is investigating other former executives of the motor dealer to assess their involvement in the loss of funds that were kept in secret Jersey Island accounts.

CMA’s investigations are likely to focus on former long-serving CMC directors Joshua Kulei, former Attorney-General Charles Njonjo, and former chief executive Martin Forster who were named as having benefited from the secret accounts.

“Upon conclusion of investigations, regulatory action may be taken as provided for under the law,” the regulator said.

ICF is operated by CMA and is granted as compensation to the tune of Sh50,000 for every investor who suffers financial loss resulting from the failure of a licenced stockbroker or dealer.

READ: Njonjo linked to CMC’s secret Jersey accounts

CMA has recently compensated investors who lost money with the collapse of Nyaga Stockbrokers, Discount Securities, Francis Thuo, Ngenye Kariuki and Shah Munge.

CMA’s decision to follow up on fraudulent offshore CMC accounts comes as the new owners of the motor firm begin the rollout of their plans for the business.

CMC is now owned by Al Futtaim which last year wholly acquired CMC Holdings for Sh7.5 billion and has signaled its intention to focus on expanding the company’s market share and grow its earnings.

A forensic audit by South African firm Webber Wentzel established that the Jersey secret slush fund had received a total of £8.6 million (Sh1.2 billion) in commissions between 1977 and October 2013.

The report says 25 persons benefitted from the slush fund including businessman Prahland Kalyanji Jani and top government officials in the Moi and Kibaki regimes.

“Kiereini, Forster, Jani and Njonjo were the directors of both Corival (1996) and CMC Group, the cheque signatories to the bank accounts,” said the Webber report.

The law allows the regulator to recover up to twice the amount accruing to an entity wrongfully plus restitution of the original amount, taking the total cash it is seeking to recover from former CMC executives to £25.8 million (Sh3.7 billion).

This would be a significant boost to the ICF that should cut the fund’s dependence on grants from the Treasury.

The investor compensation fund nearly doubled its cash pile to Sh727.7 million at the end of June 2013 compared to Sh422.3 million the previous year; buoyed by increased trading at the Nairobi bourse as well as interest income.

ICF derives its income through the 0.01 per cent levy charged on sale and purchase of shares, a 0.004 per cent fee paid on trading bonds and financial penalties imposed on operators for non-compliance with CMA rules and regulations. The fund also owns 10 per cent stake of the NSE.

CMA accuses Mr Kiereni of fraudulently receiving Sh65.2 million during his tenure as CMC chairman.

The regulator in September got a court order to freeze the trading of shares owned by the 85-year-old at the Nairobi bourse as part of efforts to recover Sh195.7 million from Mr Kiereini.

“As has been detailed in the proceedings of the Jeremiah Kiereini case, the authority is always guided by its twin objectives of market regulation – including protection of investors and maintenance of an orderly, fair, and transparent capital market – and development,” the CMA said.

READ: Kiereini accuses CMA of harassment over share sale ban

The Webber Wentzel report, sanctioned by CMA, shows that Mr Kulei allegedly received Sh35.2 million in the early 2000s when he was actively involved in CMC affairs.

Mr Njonjo, 93, is said to have received Sh82.9 million in his capacity as a director and shareholder of the motor dealer.

“At least £11 million (Sh1.5 billion) was paid out to individuals,” the report says describing the payouts as ‘salary top-ups’ and were made twice in a year in sterling pounds.

Former CMC managing director Martin Forster is alleged to have received Sh168.8 million while the biggest beneficiary was the company’s founder Jack Benzimra (deceased), who received Sh369.3 million.

The forensic report said CMC directors built the secret account over three decades by inflating import prices of Land Rover, Nissan UD and Suzuki vehicles. CMC would order the vehicles and strike a particular legitimate contract price.

The firm would then ask the international car makers to increase the bill by between 1.5 per cent and two per cent and present this as the full invoice to CMC Motors.

Allegations of legal and regulatory breaches at CMC Motors were unearthed in the wake of boardroom wars that initially pitted newcomers against the old-guard.

The warring shareholders reached a truce in February last year and agreed to sell the company to the Dubai-based firm.

CMA has since disqualified from appointment as directors of public listed companies all the executives who served at CMC.

“The action was taken pursuant to findings of the investigations by Webber Wentzel and the CMA team,” the regulator said.

High Court judge David Majanja in September last year quashed the CMA decision saying the regulator had infringed on Mr Kiereini’s rights to a fair administrative action, observing that the businessman was not given a chance to defend himself.