Ex-Uchumi directors fraud case is revived (Kenya)

By Galgallo Fayo | Business Daily, Kenya February 7, 2018

The Capital Markets Authority (CMA) has resurrected the fraud case it filed against former Uchumi Supermarkets  directors last year, but which collapsed on account of defective charges.

It has now written Notice To Show Cause Letters to James Murigu, Bartholomew Ragalo and Joyce Ogundo – signalling the trio is still not off the hook.

CMA, in the letters dated January 31, seeks to cure the defects that the court identified in the suit when it quashed charges against the former directors.

Justice George Odunga in January ruled that the three petitioners were charged with an illegality that did not exist in the Capital Markets Authority (CMA) Act.

They had been charged with fraud associated with the Sh895 million rights issue that Uchumi rolled out in 2014, but was later found to have been flawed.

The CMA had accused Uchumi directors of ‘facilitating or omitting to prevent the provisions of misleading or deceptive statements in the information memorandum.”

“Pursuant to the judgment dated January 16, 2018…the High Court dismissed all the grounds of appeal you had raised against the Notice to Show Cause (NTSC) issued by the authority save for questioning the phraseology of the statutory breaches detailed in the NTSC detailing the allegations against you, the authority hereby issues you with a fresh NTSC as below,” says the letter signed by CMA chief executive Paul Muthaura.

The former Uchumi Supermarkets directors moved to court after the CMA hit them with penalties for their alleged roles in conning investors through a flawed rights issue in 2014.

Mr Murigu was fined Sh660,000, being the money he received as a director of Uchumi, while Mr Ragalo was ordered to pay back the Sh855,000 he earned as board member.

The three were further banned from holding office in any publicly listed company.

Justice Odunga, while declining to delve into details of the CMA decision, said charging the directors based on a non-existent offence had negated the entire process.

Other former directors and managers of the troubled retail chain, including disgraced chief executive Jonathan Ciano, also faced varied CMA sanctions for their alleged roles in the fraudulent scheme.

Mr Ciano was to pay a Sh5 million cash fine. A forensic audit by KPMG established that Mr Ciano and his wife were among Uchumi’s largest vegetable suppliers, meaning he operated in an environment of conflict of interest.

But Justice Odunga said the right charge would be to cite the law that “prohibits a person from making, furnishing or publishing information or returns the content which are known to be untrue”, which he said doesn’t exist in the Act.

In the fresh Show Cause of letter, the CMA has preferred the charges of failing to comply with provisions of Regulations 6(2) of the Capital Markets (Securities) which requires the issuer to obtain approval of the authority before publication of a prospectus.

They are further accused of failing to exercise appropriate oversight of the expenditure of the proceeds amounting to Sh895 million, contrary to provisions of the guidelines on corporate governance.

They are further accused of making false financial disclosures that falsely enhanced the financial position of the retailer and misinformed the investors when making investment decision during the right issue.

They are also accused of failing to monitor and manage potential conflict of interest, having allowed Jane Ciano, the wife of former CEO Ciano to trade with the company and her firm was allegedly given preference.

The letter directs the three to response to the charges in writing in 14 days and ‘not later than February 15, 2018”. The charges are set to start another round of legal battle.

The authority told the court last month told the court that it’s in the process of reviewing the court order in the three cases with a view to making decision regarding a similar case filed by Mr Ciano that has been pending in court.

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