Board knew of fraud and looming bankruptcy but still issued bond
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