The Capital Markets Authority (CMA) takes enforcement action against former Board Members and Senior Management of Chase Bank Kenya Limited (In Liquidation) and its Reporting Accountant regarding an inquiry into Chase Bank Kenya limited (In Liquidation) following issuance of Medium – Term Note (MTN) in 2015.
Nairobi, 3 August 2022…In line with its investor protection mandate, the CMA has taken enforcement action against former board members, Senior management of Chase Bank Kenya Limited (CBKL) (the MTN Issuer) and CBKL reporting Accountant for their role in the issuance and use of MTN in 2015.
CMA has taken enforcement action against:
- Duncan Kabui, the CBKL Group Managing Director at the material time, who has been fined Kshs. 5 million and disqualified from being director or key personnel of any issuer, licensed or approved person in the Kenyan capital market for a period of ten (10) years.
- Paul Njaga, the CBKL Chief Executive Officer at the material time who has been fined Kshs. 5 million.
- Ken Obimbo the CBKL Group Finance Director at the material time who has been fined Kshs. 5 million and disqualified from being a director or key personnel of any issuer, licensed or approved person in the Kenyan capital market for a period of five (5) years.
- Anthony Gross, CBKL board member and Chair of Audit and Risk Committee at the material time has been fined Kshs. 2.5 million and directed to attend a Corporate Governance Training for a period of not less than five (5) days.
- Laurent Demey, the CBKL board member and member of Audit and Risk Committee at the material time has been fined Ksh2.5 million.
- Muthoni Kuria, the CBKL board member and member of Audit and Risk Committee at the material time has been fined Ksh2.5 million.
- Richard Carter, the CBKL board member at the material time has been fined Kshs. 1 million.
- Rafiq Sharrif, the CBKL board and member of Audit and Risk Committee at the material time has been fined Kshs. 2.5 million.
- Deloitte and Touche, the CBKL reporting accountant at the material time has been fined Kshs 10 million. Further the Committee recommends that the conduct of the accounting partners during the respective audit periods be taken up by ICPAK.
In 2015, CBKL sought approval from the Authority to issue a medium-term bond for Kshs. 10 billion. The approval was granted and Kshs. 4.8 billion was raised in the first tranche which was listed on 22 June 2015. On Thursday April 7, 2016, the Central Bank appointed the Kenya Deposit Insurance Corporation (KDIC) as a receiver for CBKL for a period of twelve months.
Central Bank stated that CBKL had experienced liquidity difficulties, following inaccurate social media reports and the stepping aside of two of its directors, and consequently, it was not able to meet its financial obligations on April 6, 2016. This led to the suspension of trading in the Chase Bank Bond on 8 April 2016. Concerned by the developments at CBKL and in light of its investor protection mandate, the Authority commenced an inquiry in the matter to establish any possible Capital Markets regulatory infractions that might have led to the collapse of CBKL.
Following the Authority’s inquiry into CBKL, the Authority highlighted issues on preparation of false and misleading financial statements, failure to disclose material information and conflict of interest. As a result, the Authority issued Notices to Show Cause (NTSCs) to CBKL board members, some members of CBKL senior management and its auditor/ reporting accountants, Deloitte.
CMA then issued Notices to Show Cause to board Members and senior management of CBKL. An Ad hoc Committee of the CMA Board was appointed to hear and determine the allegations. The Ad hoc Committee included Mr. John Birech, CMA Board Member; Dr. Freshia Mugo - Waweru, CMA Board Member; Mr. Peter Mungai, CMA Board Member; Retired Chief Justice Dr. Willy Mutunga; FCPA Dr. James McFie; Mr. Mahmood Manji; and Ms. Patricia Kiwanuka.
Out of the 12 NTSC Recipients, Nine (9) appeared before the Ad Hoc Committee. The other three (3) filed a case at the Capital Markets Tribunal (Tribunal) and further went to High Court to obtain orders stopping the Ad Hoc Committee from conducting enforcement hearing against them. After the conclusion of the administrative hearings, the Ad Hoc Committee determined that that there was lack of effective oversight on the part of CBKL board regarding use of funds raised pursuant to issuance of MTN in 2015.
The approved and published Information Memorandum (IM) dated April 22, 2015, provided that the MTN proceeds would be used for Expansion of the branch network; Strengthening capital base to support growth; Investment into IT and product development initiatives; and supporting onward lending activities.
BACKGROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY
The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.