CMA bans Njonjo, Muthoka, Kireini, Kemoli from listed firms

Posted on August 3, 2012



Nairobi August 3, 2012…The Capital Markets Authority (CMA) has taken enforcement action against the following executive and non- executive directors who were found to have flouted the capital markets legal and regulatory requirements in the matter of CMC Holdings Limited (CMCH). The Board of the CMA has disqualified from appointment as a director of any listed company or licensed or approved person, including a securities exchange in the capital markets in Kenya under Section 25A (1)(c)(i) of the Act the following current and former directors of CMCH:

Executive Directors:
1. Mr. Martin Forster
2. Mr. Sobakchand Shah

Non- Executive Directors:
3. Mr. Charles Njonjo
4. Mr. Peter Muthoka
5. Mr. Jeremiah Kiereini
6. Mr. Richard Kemoli
7. Mr. Andrew Hamilton

Speaking at the CMA offices, the Board Chairman, Mr. Kungu Gatabaki stated that Mr. Joseph Kivai had also been disqualified but with respect to his directorship at CMC Holdings Limited only. The Board Chairman, Mr Gatabaki asserted that ‘’the action was taken pursuant to findings of the investigations by Webber Wentzel and the CMA team’’. The actions were delayed due to myriad of court cases with regard to CMCH that were filed in court and in particular, the suits by Mr. Peter Muthoka (former Chairman of CMCH Board) which questioned the powers of the Authority to appoint an interim board and also a contempt application by Andy Forwarders Limited against CMA not to interfere with the composition of the Board of CMCH Holdings.

All persons adversely mentioned in the investigation reports had also been given an opportunity to be heard pursuant to section 26 of the Capital Markets Act. The opportunity to be heard was accorded by an Ad Hoc Committee of the CMA Board comprised of three independent members and two members of the board of Capital Markets Authority, all of whom are professionals of high standing, chaired by Honourable Justice (Rtd) Aaron Ringera. The Committee was appointed under Section 14 (1) of the Capital Markets Act. All the directors (current and past) who were invited to appear, presented themselves before the Ad hoc committee except Peter Muthoka, Richard Kemoli, Joseph Kivai and Jeremiah Kiereini

The Board Chairman, Mr. Gatabaki observed that the Authority was concerned that most of the persons that had appeared before the Ad hoc committee of the Board had pleaded ignorance of the requirements of their roles as directors of a listed company, and in this regard stated that ignorance, as is always the case, is no defense. This was also a pointer to the low levels of awareness and embracing of corporate governance by directors of the listed companies.

The Board Chairman, Mr Gatabaki further stated that the Board of the Authority intends to take the following long-term reform measures for implementation in the capital markets in Kenya:

i. Require all directors of listed companies to produce evidence of attendance to recommended corporate governance workshops as a prerequisite qualification to nomination as director of a listed entity. Further, all directors of listed companies must undertake training in corporate governance every three years and compliance of this fact be reported in the annual report.
ii. Prescribe the age limit of seventy five (75) years as the maximum allowed age for a person to serve as a director of a listed company.
iii. Require listed companies to comply with the gender appointment requirements under the Constitution and in the Capital Markets Legal Framework. It is advisable for listed companies to embrace diversity in nomination of directors in their boards

The Board Chairman, Mr. Gatabaki indicated that the Authority had further taken the following enforcement actions and measures as part as part of its mandate to uphold market integrity and confidence:

I. Recommended the recovery from two (2) persons of an amount equivalent to two times the amount of the benefit accruing to them from the offshore arrangements pursuant to Section 25A(1)(c)(ii) of the Capital Markets Act;
II. Required compliance with the requirements of the Capital Markets (Takeover and Mergers) Regulations, 2002;
III. Recommended further investigation into the circumstances surrounding the contracting of Pewin Limited by CMCH as a commission agent for Government;
IV. Raised a complaint with the Institute of Public Certified Accountants of Kenya ICPAK) in relation to the conduct of Deloitte as the external auditors who ought to have pointed out the deficiencies highlighted especially with respect to the preparation of financial statements contrary to the IFRS. The investigations are still on-going;
V. Requested other government law enforcement agencies to pursue any alleged criminal conducts; and,
VI. Requested for additional information from Jersey Authorities on alleged bank accounts involved in the offshore arrangements to establish the actual amount siphoned out of CMCH using the IOSCO MMOU and the Mutual Legal Assistance Act and the process is on-going.

In communicating the above, the Board Chairman Mr. Gatabaki stated that ‘the Authority had reiterated its advise to CMC Holdings to seek restitution for the amount of the benefit accruing to it from the irregular offshore arrangements that had been established, pursuant to Section 25A (2) and (3) of the Act’. The Board Chairman, Mr. Gatabaki added that the CMA Board endorsed the statement by the chairman of the Adhoc committee, Honorable Rtd Justice Ringera that ‘’the CMCH case is an exhibit of an appalling failure of corporate governance. It is a classic case of the tail wagging the dog. The former Group Managing Director, Mr. Martin Forster, had a larger than life profile in the company. His word was law. He called the shots. He was more powerful than the company’s Board of Directors. That was not because the law or the articles of association gave him such power or because of his powering intellect but because the directors of CMCH who were beneficiaries of the healthy trade failed to question his management decisions. They never so much sought to verify. The Board with an exception of at most three directors slept on their Job and abdicated their fiduciary duties to the company and shareholders to the Group Managing Director. The result as evidenced from accumulated provision from bad debts in the sum of Kshs. 1,374,462,000/- as at September 30, 2011 was a foreseeable quick march to financial status my lips tremble to mention.” The Board Chairman, Mr. Gatabaki added that for the capital markets industry to thrive and be in a position to deliver its mandate under the Vision 2030, all players and specifically listed companies needed to embrace the highest levels of corporate governance.

The Board Chairman, Mr. Gatabaki further stated that the Board of CMA had taken the stern enforcement action for the purposes of creating a transparent and orderly market and to enhance market confidence as well as to send a message to all of the higher standards of governance and transparency expected of them in the capital markets industry. The Board Chairman, Mr. Gatabaki emphasized the importance of good corporate governance in the Kenyan capital market as an emerging market, as the country seek to position our market as an attractive destination for capital. The Board Chairman, Mr. Gatabaki concluded by quoting the Former Commissioner of the US Securities and Exchange Commission Mr. Arthur Levitt who stated: ‘If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country regardless of how steadfast a particular company’s practices may be suffer the consequences.”

The Authority will review the compliance status of CMCH before considering lifting the suspension of trading in its shares at the Nairobi Securities Exchange.



The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.

The regulatory functions of the Authority as provided by the Act and the regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest.

Actions previously taken by CMA to safeguard CMC Holding’s shareholders, investing public and the company itself:

a) On 8 September 2011, the Authority received notification from CMC Holdings Limited (hereinafter referred to as CMCH) that Mr. Joel Kibe had been appointed the Chairman of the Board of Directors to replace Mr. Peter Muthoka as the chairman in a bid to be in compliance with CMA corporate governance guidelines. Thereafter allegations of non-compliance with corporate governance, conflict of interest and fraud were leveled against certain directors of CMCH causing panic in the capital markets
b) On September 16, 2011, the Authority suspended the shares of CMC Holdings Limited from trading at the Nairobi Securities Exchange for a period of seven (7) days pursuant to section 11(3) (cc) (iv) of the Capital Markets Act as part of its mandate to protect shareholders, ensure that investor confidence in the capital markets is sustained and to give the directors of the company an opportunity to resolve the outstanding issues and facilitate investigations by CMA on allegations of CMCH conduct of its affairs. On September 27, 2011; the Authority extended the suspension of trading of CMCH shares at the NSE for 90 trading days to facilitate investigations by CMA of allegations relating to CMCH conduct of affairs within the mandate of CMA and to sustain investor confidence in the capital markets.
c) On September 29, 2011, CMA summoned CMCH directors to a roundtable meeting to resolve CMC issues, protect the best interest of all market participants, investors and stakeholders and to assist the company to retain its status as a leading player in the Kenyan economy.
d) On October 4, 2011, the Authority issued a statement reporting that positive progress had been made from the roundtable discussions between the Authority and CMCH directors. The Authority and CMCH directors were stepping up efforts to facilitate the speedy resolution of outstanding issues. The efforts underscored the importance of the Authority’s mandate to protect the investing public and maintain the integrity of the capital markets.
e) On October 5, 2011, CMCH issued a profit warning for their projected profits for the year ended 30 September 2011. In a press statement, the company, projected that the profits would be lower by 25% than those for the same period the previous year.
f) On January 25, 2012 CMA extended the suspension of CMCH shares from trading for an additional 21 trading days. During the suspension period, The Authority provided the Board of Directors of CMCH an opportunity to resolve their board disagreements and facilitated the company by suspending its shares from trading on the NSE.
g) On January 31, 2012 CMCH released the company’s financial results for the year ended September 2011. The firm had a drop in profit as had been anticipated in the issue of a profit warning.
h) On February 6, 2012, the CMA held a meeting with the full board of CMCH to convey the preliminary findings of its forensic investigation report prepared by Messrs. Webber Wentzel. A statement was issued to the press on the same. The board of CMC was availed copies of the executive summary of the report for facilitation. From this meeting, the board of the Authority informed that it would be engaging further with the key shareholders of CMCH to implement the appointment of an interim caretaker board in order to ensure effective public oversight in the interim period.
i) On March 5, the suspension was further extended to May 31, 2012
j) On March 9, 2012, the Authority sent out a public statement on the preliminary findings of the investigation reports.
k) March 15, 2012 CMA appointed an Ad hoc committee of the board to review the investigation reports and give an opportunity to be heard to persons adversely mentioned in the reports pursuant to Section 26 of the Capital Markets Act.
l) On March 23, 2012 CMA released the final report on the forensic investigation undertaken by Messrs. Webber Wentzel (South Africa) into the affairs of CMCH that was undertaken pursuant to section 11(m and h) of the Capital Markets Act, to the motor dealer to facilitate access of the report by the shareholders of the company and the investing public at its registered office.
m) On March 30, 2012, CMA invited all the persons adversely mentioned in the forensic investigation reports to appear before the Ad hoc Committee. The persons were heard between April 2, 2012 and May 4, 2012.
n) On 24 May 2012 the court ruled that CMA was within its mandate to appoint an interim board for protection of investors. The Judge further stated that CMA as a regulator would have failed in its mandate if it had not taken the steps that it did.
o) On June 4, 2012 the suspension from trading of the shares of CMCH was extended for a further eighty five (85) days to facilitate resolution of outstanding matters.
For further information, please contact:

Rose Lumumba
Director, Corporation Secretary and Communications
Capital Markets Authority
Tel: 2264204

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