Former members of the board of Imperial Bank are in the soup after the regulator received the go ahead to investigate them over their failure to offer adequate oversight prior to issuance of a KES2 billion bond in 2015.
The Capital Markets Authority (CMA) is accusing the bank chiefs of failure to report the financial statements fraud to the regulator as well as to the investing public when it came to their knowledge on September 2015, a day before the bond was allotted to the bondholders.
The CMA has cleared Mr Christopher Diaz, a non-executive board member at the time of the bond issuance from the ongoing investigations while other board members had declined to appear before an adhoc committee, instead challenging their indictment in court.
Mr Diaz had been newly appointed as an independent and non-executive board member when the lender’s bond raising was already underway.
The court has, however, issued guidelines requiring the other accused board members to appear before the watchdog’s committee for questioning.
“In its judgement delivered on 11 December 2020 the Supreme Court directed that 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 28 January 2021 to conduct the enforcement proceedings,” CMA said in a statement.
The ad hoc committee is constituted of CMA board members: Dr Thomas Kibua, John Birech, Retired Chief Justice Willy Mutunga; Dr James McFie, Anne Eriksson and Patricia Kiwanuka.
Imperial Bank applied for the issuance of a KES2 billion bond on April 30, 2015, an application that received the regulators greenlight on August 12, same year.
The offer period for the bond started on August 24, 2015, and closed a month later, on September 17.
On September 21, 2015, however, Imperial Bank management informed the chairman and some directors of the bank that there had been sustained financial statement fraud since 2006. The decade-long statement misrepresentation had been carried out by the late Group managing director, Mr Abdulmalek Janmohamed together with some senior staff. Mr Janmohamed died suddenly on September 15, 2015.
The disclosure of the critical details to the bank chairman and board was made prior to the following crucial dates in the bond issuance and listing cycle in 2015: September 22 (date of allotment to the bond investors), September 28 (the settlement date), October 6 (before issuance of crediting of notes to CDS accounts and refunds) and October 13 (date of listing and commencement of trading at the NSE).
The markets regulator consequently froze the listing of the bond for trading. After initial investigations, CMA invalidated the bond issuance and notified Kenya Deposit Insurance Corporation and the Central Bank of Kenya which put the bank under receivership in October 2015.