CMA penalizes ex-Chase leaders and EY for market rule violations

The Capital Markets Authority has imposed penalties on the former chairperson and top executives of Chase Bank Kenya Limited (which is now i...

The Capital Markets Authority has imposed penalties on the former chairperson and top executives of Chase Bank Kenya Limited (which is now in liquidation) for their involvement in the 2015 release of a Sh10 billion Medium-Term Note and the allocation of funds.

It has also fined financial advisory firm–Ernst & Young The accounting officer responsible for the Uchumi Supermarkets Limited (USL) Rights Issue in 201, Sh10 million.

This aligns with its responsibility for investor protection and regulatory supervision, the CMA stated yesterday.

The former chairman of Chase Bank, Zafrullah Khan, has been penalized with a fine of Sh5 million and barred from serving as a director or key individual of any issuer, licensed, or approved entity in the capital market for a period of 10 years.

The CMA Board Ad Hoc Committee determined that Khan, as the chair of the CBKL board, did not exercise proper supervision over the bank's management, resulting in the creation and release of inaccurate and deceptive financial statements outlined in the published Information Memorandum (IM).

CMA stated that Khan did not manage to reveal significant information regarding his bonus payment in a supplementary IM, as the IM had already been released, andwas uncertain about leading and taking part in approving his own bonus without revealing the conflict.

The former finance general manager of CBKL, Makarios Agumbi, has been penalized with a Sh3.5 million fine and barred from serving as a director or key figure in any capital market entity, including those that are licensed or authorized, for a period of five years.

"The Ad Hoc Committee found that Mr. Agumbi, while serving as the general manager of finance at CBKL, was involved in preparing false and deceptive 2014 financial statements as published in the IM. Additionally, he improperly paid a lump sum bonus to Mr. Khan, in violation of the board of directors' resolution," CMA states in its statement.

Former general manager of corporate assets, James Mwaura, has been penalized with a Sh2.5 million fine and barred from serving as a director or key figure in any issuer, licensed or approved entity within the capital markets for a period of two years.

The Ad Hoc Committee, CMAsays, concluded that Mwaura, in his role, was responsible for preparing false and deceptive 2014 financial statements, which included errors in classification and incorrect reporting concerning the non-disclosure of related party loans and advances (Musharakah Investments).

Moreover, he improperly arranged the lump sum payment of the bonus to Khan, in violation of the board of directors' resolution.

Khan, Agumbi, and Mwaurawere were also required to participate in corporate governance training in order to be considered for appointment as a board member or key staff of any issuer, licensed, or approved entity in Kenya's capital markets.

The CMA gave approval for CBKL to issue a Sh10 billion medium-term bond in 2015. The initial tranche collected Sh4.8 billion and was listed on the Nairobi Securities Exchange on June 22, 2015.

On April 7, 2016, the Central Bank of Kenya designated the Kenya Deposit Insurance Corporation (KDIC) as the receiver for Chase Bank for a period of twelve months. This resulted in the halt of trading of the Chase Bank Bond on the NSE on April 8, 2016.

CMA carried out an investigation to determine whether there were any violations of the capital markets regulatory system that could have contributed to the downfall of CBKL.

After the investigation, the authority identified multiple problems, such as the creation of inaccurate and deceptive financial reports, omission of significant information, and instances of conflict of interest.

Meanwhile, EY’s case pertains to the company's role as the reporting accountants during the Uchumi Rights Issue in 2014 and the subsequent allocation of the funds.

CMA has also directed EY to ensure all employees involved in the audit of financial statements of issuers, companies listed on the Nairobi Securities Exchange (NSE), and entities licensed by the authority complete remedial training for the next three years.

It has also been suggested that theInstitute of Chartered Public Accountants of Kenyaimposes disciplinary measures on EY, along with two persons–Michael Kimoni and Joseph Cheborbor, who served as EY engagement audit partners from 2010 to 2014.

This is because they failed to provide sufficient and accurate disclosure of important facts in Uchumi's 2014 annual report and financial statements as required by the relevant regulatory standards.

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