Board knew of fraud and loom­ing bankruptcy but still is­sued bond

Nairobi Law Monthly - - Cover Story - TNLM WRITER

As the Im­pe­rial Bank storm rages, fresh ques­tions are be­ing raised in re­gard to how the bank’s di­rec­tors al­lowed a Sh2 bil­lion cor­po­rate bond to pro­ceed even as it emerges they had been in­formed in good time by an in­ter­nal whis­tle-blower that the bank was about to col­lapse. The is­suance of the bond, which was eclipsed by its clo­sure, lead to un­prece­dented losses for in­vestors.

The Nairobi Law Monthly has es­tab­lished that the di­rec­tors of the bank were made aware of the fraud­u­lent ac­tiv­i­ties tak­ing place at the fi­nan­cial in­sti­tu­tion at least two weeks be­fore the Cen­tral Bank of Kenya (CBK) placed it un­der re­ceiver­ship in Oc­to­ber, 2015, the same day the bond was due to be listed at the Nairobi Se­cu­ri­ties Ex­change(nse). CBK ap­pointed Kenya De­posit In­surance Cor­po­ra­tion (KDIC) as re­ceivers of Im­pe­rial Bank Limited ow­ing to, amongst other rea­sons, fi­nan­cial im­pro­pri­ety and ir­reg­u­lar­i­ties that ex­posed de­pos­i­tors, cred­i­tors and the bank­ing sec­tor to fi­nan­cial risk.

As set out in the bond’s in­for­ma­tion mem­o­ran­dum, duly ap­proved by the board of di­rec­tors and signed on their be­half by the Chair­man, Al­nashir Popat, and the late MD Jan­mo­hamed, the di­rec­tors gave an un­der­tak­ing that they would in­form CMA of any changes in the bank sta­tus. The board of di­rec­tors fur­ther gave un­der­tak­ing that if at any time dur­ing the ten­ure of is­sue of the bond there was a sig­nif­i­cant change af­fect­ing the bond that would rea­son­ably af­fect the in­vestors, they would make it pub­lic too.

When the story broke out, the Cap­i­tal Mar­kets Au­thor­ity, the agency charged with su­per­vis­ing, li­cens­ing and mon­i­tor­ing the stock ex­change and the cen­tral de­pos­i­tory and set­tle­ment sys­tem, said it would take ac­tion against the di­rec­tors if it es­tab­lished they had kept in­for­ma­tion on the sta­tus of the bank se­cret.

“We are car­ry­ing out in­ves­ti­ga­tions, and if we es­tab­lish that there were per­sons who were in pos­ses­sion of ma­te­rial in­for­ma­tion that negated their re­spon­si­bil­ity to dis­close it to in­vestors but failed to do so or no­tify the CMA for nec­es­sary in­ter­ven­tionary ac­tion, then the Au­thor­ity will take ap­pro­pri­ate reg­u­la­tory ac­tion in line with its man­date, which is to en­sure fair and trans­par­ent cap­i­tal mar­kets in the country,” CMA Head of Com­mu­ni­ca­tions An­thony Mwangi said at the time.

Mwangi said that the Au­thor­ity ap­proved the is­sue and list­ing of the Sh2 bil­lion cor­po­rate bond in Au­gust last year on the ba­sis of an In­for­ma­tion Mem­o­ran­dum pre­pared by the bank’s di­rec­tors and its pro­fes­sional ad­vis­ers.

“In the par­tic­u­lar case,” Mwangi said, “given the is­suer of the Cor­po­rate Bond was a reg­u­lated Bank, the Au­thor­ity also re­quested – and re­ceived – a no-ob­jec­tion

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