OVERSIGHT

CMA probes former Imperial Bank board in Sh2bn bond issue

This is after a nod from the Supreme Court in its ruling on December 11, 2020.

In Summary

•Directors failed to provide oversight in the preparation, approval and publication of the information memorandum for a Sh2 billion medium term note issue .

•The bank proceeded with the bond, despite insider knowledge it was in trouble.

Imperial Bank depositors hold placards outside the Westlands branch during a past demonstration/FILE
Imperial Bank depositors hold placards outside the Westlands branch during a past demonstration/FILE

The Capital Markets Authority(CMA) has commenced  investigations on former board members of collapsed Imperial Bank.

The probe is over a Sh2 billion corporate bond issued a month before the lender was placed under receivership.

The move comes about four months after the Supreme Court ruled that CMA has the right to investigate circumstances under which the bank proceeded with the bond, despite insider knowledge it was in trouble.

"CMA) commenced its enforcement proceedings against former board members of Imperial Bank Limited on their failure to provide oversight in the preparation, approval, and publication of the information memorandum for a Sh2 billion medium-term note issue," the regulator said in a statement on Wednesday.

The board also failed to report the financial statements fraud to CMA and the investing public when it came to their knowledge on September 21, 2015, a day before the bond was allotted to the bondholders, CMA notes. 

Only Christopher Diaz, a former independent and non-executive board member, who served between February 1, 2015, and  October  13, 2015, attended the enforcement hearings before an Ad Hoc Committee of the CMA board to respond to the allegations.

After considering his written and oral submissions, the Ad Hoc Committee  did not take any enforcement action against Diaz, who had been newly appointed as an independent and non-executive board member when the bond raising process was already underway. 

The other former IBL board members declined to appear before the Ad Hoc committee and filed an appeal at the Capital Markets Tribunal.

Imperial Bank was placed under receivership in October 2015 over malpractices.

The Ad hoc Committee included CMA board members Thomas Kibua and John Birech, Retired Chief Justice Willy Mutunga and accountants  James McFie,  Anne Eriksson, and Patricia Kiwanuka.

Efforts by CMA to undertake the IBL bond enforcement proceedings had been delayed by the former IBL directors who filed court proceedings in 2016 in the High Court and which culminated in Supreme Court. 

In its judgment delivered on December 11, 2020 the Supreme Court directed that the CMA may proceed with its enforcement proceedings through its delegated authority under Capital Markets Act.

In compliance with the Supreme Court ruling the Authority constituted an Ad Hoc Committee on January 28,  2021 to conduct the enforcement proceedings. 

IBL applied for the issuance of a Sh2 billion medium-term note on April 30, 2015, which was approved by CMA on August 12, 2015.  

The offer period for the bond opened on August 24, 2015 and closed on September 17,  2015.

On September  21, the IBL management informed the chairman and some directors of IBL that there had allegedly been sustained financial statement fraud since 2006.

This had allegedly been perpetrated by the late Group Managing Director Abdulmalek  Janmohamed,  together with certain senior members of the bank’s management, until his sudden death on  September 15, 2015.

CMA suspended the listing of the bond to commence trading.

After a preliminary inquiry, CMA canceled the bond issuance and notified Kenya Deposit Insurance Corporation and the Central Bank of Kenya.