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During his tenure as managing director of Tsavo Securities,
Mweni controlled a major portion of Kenya’s market in bonds. He recently
claimed to have originated at least 25 per cent of the Sh567 billion in bond
transactions done last year. In an affidavit filed then withdrawn from court
last year, Mweni claimed Government lost at least Sh2.6b in stolen Treasury
bonds. Now he and four others have been drawn into the net cast around
fraudulent trades executed during a computer system migration.
Two of the suspects, including Mweni’s brother Bokole Masha
and a Central Bank of Kenya manager, are currently on trial for allegedly
stealing Sh105 million worth of Treasury bonds. Also charged is another CBK
employee, who is excluded from the new list of six suspects being probed over
the fake government bonds.
Six months ago, Mweni, who was in court seeking to block his
arrest and lift a ban against him and his firm, agreed to pay Sh39.5 million to
CBK in compensation for the three ‘stolen’ bonds that put his brother in the
dock. His attempts to stop authorities pursuing him further, however, failed following
his refusal — citing client confidentiality — to assist investigations into
other allegedly fraudulent deals.
Recommended
prosecution
The Capital Markets Authority has recommended prosecution
and “administrative sanctions” against Mweni, Masha, their company Tsavo
Securities, a CBK employee, a director of Apex Africa and two directors of
Manline Telecommunications.
Apex Africa describes itself as one of the NSE’s top five
stockbrokerage firms, while Manline had been faced with similar allegations to
those facing Mweni. Some of the suspects have received between 10 and 15-year
bans from working in any capital markets firm or sitting on the boards of
listed firms. They are identified as Fredrick Tsofa Mweni and Bokole Masha
(Tsavo), Moses Muregi (CBK), Brian Muchiri (Apex Africa) and Duncan Weru and
James Wambugu (Manline). The documents from Capital Markets Authority seen by
The Standard on Saturday do not indicate the value of the falsified government
securities or the length of time during which the scam went on. In a letter
dated August 20, 2013, to CBK governor Njuguna Ndung’u, CMA reports on the
“findings in respect to the fraudulent creation of bond (sic) at the Central
Bank of Kenya (CBK) and subsequent sale at the Nairobi Securities Exchange (NSE)”.
The letter reads in part: “(CMA) has carried out
administrative investigations into allegations relating to the fraudulent
creation of fixed income securities at the (CBK’s) depository system and their
subsequent sale through the Nairobi Securities Exchange… in light of the
findings, the Authority has taken administrative action against the persons and
entities found to have contravened the regulatory framework.”
The letter then goes on to list actions taken against the
six individuals and two stockbrokers, Tsavo Securities and Apex Africa. This
includes Muregi, who was the assistant manager in charge of monetary operations
and debt management at the CBK. CMA also wants Criminal Investigations to look
into the matter.
“We have recommended to the Director of Criminal
Investigations that further criminal investigations be undertaken to inform
prosecution in instances where criminal conduct is established to have arisen.
The Authority has also briefed The National Treasury on the findings,” reads
the letter from acting chief executive Paul Muthaura.Reached for comment by
this writer, Muthaura refused to discuss the matter. “That is a highly confidential document,” he
said. “I do not want to comment on it.” We were unable to immediately establish
whether CID has begun investigations.
As reported exclusively by The Standard on Saturday
recently, police are also looking into the theft of an unknown amount of cash
at the CBK in notes earmarked for destruction. CMA’s investigators add that the
bond scam was made possible with the help of a line of credit from the Bank of
Africa against “seemingly insufficient security”. “The Authority has noted that
the provision of a Sh100 million overdraft facility by the Bank of Africa (BOA)
to Brian Muchiri on a seemingly insufficient security of Sh20 million (which)
raises questions as to the role played by BOA in facilitating his conduct. We
recommend that CBK… establish whether BOA’s actions were proper within the
confines of the CBK Prudential Guidelines and existing regulations.”CMA has
disqualified Mweni, Muregi, Weru and Wambugu from being directors of any listed
company or working for “a licensed or approved person” for a period of 15
years. This covers stockbrokers, dealers, investment banks, investment
advisers, venture capital firms, credit rating agencies, collective investments
and the like. Masha got a ten-year ban while Muchiri is locked out for seven
years. Profits from some of the bond
deals that got them in trouble will be surrendered and paid to the CMA Investor
Compensation Fund account
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