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Ex-Chase Bank directors face Sh3.5m fine after appeal fails
The Capital Markets Authority launched an investigation into the affairs of Chase Bank after the lender was declared insolvent and placed under receivership.
The Capital Markets Authority (CMA) has been given the green light to impose a Sh3.5 million fine on former Chase Bank directors for their role in the collapse of the mid-tier lender in 2016.
This comes after the Capital Markets Tribunal dismissed a bid by Muthoni Kuria and Richard Carter to block the penalties through an appeal, which was drafted on the basis that the directors were not given a fair hearing and determination before the regulator's ad hoc committee.
“This Tribunal, by unanimous decision, (Hon. G Wang’ong'u having recused himself), determines that the entire appeal is without merit and we make the following orders; a) The appeal is hereby dismissed in its entirety; and b) The costs of the appeal shall be paid by the Appellants,” reads the ruling dated July 26, 2024.
The market regulator launched an investigation into the affairs of Chase Bank after the lender was declared insolvent and placed under receivership by the Central Bank of Kenya (CBK) on April 7, 2016, and trading in its Sh4.8 billion Medium Term Note (MTN) on the Nairobi Securities Exchange (NSE) was suspended on April 8, 2016.
Following the investigation, the CMA identified issues relating to the preparation of false and misleading financial statements and failure to disclose material information in the Information Memorandum (IM) issued to investors during the bond issue, and placed blame for the subsequent collapse of the lender on, among others, Ms Kuria and Mr Carter in their various capacities as then directors of Chase Bank.
As a result, the CMA issued Notices to Show Cause (NTSC) to the directors requiring them to address their alleged failures in relation to the bank's insolvency.
The CMA's ad hoc committee set up to hear and determine the matter imposed a fine of Sh2.5 million on Ms Kuria and a fine of Sh1 million on Mr Carter on August 2, 2022, and the directors, dissatisfied with the committee's decision, filed an appeal for determination on August 29, 2022.
The CMA alleges that the directors, as part of the management at the time, were among those responsible for the fall of Chase Bank.
“In arriving at this conclusion, the Respondent (CMA) invokes the higher responsibility and duty expected of listed companies to protect investors,” the ruling said.
The regulator argues that the overstated bank and cash balances, among other inaccuracies in the Information Memorandum (IM), formed part of the financial information that was inaccurate and misleading and should be considered in light of the directors' oversight responsibility for the content of the IM.
According to the CMA, Ms Kuria, as a director and member of the Audit & Risk Committee (BARC), and Mr Carter, as a member of the Credit Committee of the Board at the material time, failed in their oversight responsibilities.
