Collapsed stockbroker Shah Munge & Partners Ltd has failed to overturn a decision that found it culpable for the loss of more than Sh251 million belonging to the National Social Security Fund (NSSF) in the 2002 Euro Bank scandal.
A bench of three judges of the Court of Appeal said it was fallacious for the stockbroker to claim that it had no contract with the NSSF.
“In our view, and given the above exchange of correspondence, a contract was established between the appellant and the [NSSF] Board of Trustees,” Justices Hannah Okwengu, Kathurima M’Inoti and Fatuma Sichale ruled.
Shah Munge had argued that it never offered any stock-brokerage services to the NSSF and that it was not a party to the request to move the money from Central Bank of Kenya (CBK) to National Bank of Kenya (NBK), but that it was done by the managing trustee of the board, Ben Mtueta (since deceased).
“The Board of Trustees’ money was deposited in the appellant’s (Shah Munge) account at Euro Bank when the Board of Trustees had no account in Euro Bank. This was a scheme of stealing the money and the Capital Markets Authority’s action of suspending the appellant’s operations for 30 days on account of professional misconduct cannot be faulted,” said the judges.
The judges noted that the money was quickly paid to NBK and shortly thereafter paid to Shah Munge’s account held at Euro Bank.
“The attempt by Euro Bank Ltd to hoodwink the Board of Trustees that it had placed the money in a fixed deposit account and attempting to issue a receipt to this effect were all actions made to cover up the fraud,” the judges added.
The court found that it was not true that the NSSF lost the money when Euro Bank went under, but that it was siphoned long before the bank collapsed.
The court noted that the money was barely in the account for a day as the NSSF asked that it be transferred to its other account held by NBK and the instructions were acted upon.
“Again, there is no contestation that at the time the funds hit the appellant’s office account at Euro Bank Ltd, the same was overdrawn by Sh49,209,434.91,the then outstanding overdraft in the appellant’s office account at Euro Bank Ltd,” the judges said, adding the part of the money was immediately used to offset Shah Munge’s debt at Euro Bank.
Thereafter, there were massive withdrawals from the broker’s office account at Euro Bank Ltd.
On the submission that the brokerage firm did not have a contract with the Board of NSSF, the judges said,
The court held that that the scheme was hatched by NSSF managing trustees together with the broker in collusion with directors of Euro Bank to misappropriate the money belonging to the pension fund.
In 2003, the NSSF won a compensation award for Sh258 million (which later rose to over Sh600 million with interest) and a further Sh500 million in special damages to be borne by the collapsed firm.
The firm belonged to former Kenya Revenue Authority (KRA) director-general John Munge. He had been a director of both Shah Munge & Partners, which went into liquidation in late 2002, and Euro Bank, which collapsed not long after. He was forced to quit as Kenya’s chief taxman following the bank’s failure.
Mr Mtueta, who died in 2012, allegedly ordered the transfer of the NSSF’s money from the CBK to Euro Bank in 2001 through Shah Munge’s account. The broker was accused of using the money to shore up its own operations.
