Kenya’s capital markets regulator has disqualified and fined the former chairman and two senior managers of Chase Bank for their role in a multibillion-shilling bond issue, with misconduct that contributed to the bank’s eventual collapse.
The enforcement action, announced on Wednesday, marks a significant conclusion to a near-decade-long investigation into one of Kenya’s most prominent bank failures.
The Chase Bank collapse in 2016 sent shockwaves through the Kenyan financial sector, eroding investor confidence and leaving depositors in limbo.
Now, the former leaders at the heart of the scandal have been held accountable for what regulators describe as “false and misleading” financial statements and a clear “conflict of interest.”
The Capital Markets Authority (CMA) has imposed financial penalties and director bans on the former chairman, Zafrullah Khan, and two former general managers, Makarios Agumbi and James Mwaura.
The case centres on Chase Bank Kenya Limited’s (CBKL) issuance of a Ksh 4.8 billion Medium-Term Note in 2015. The bond, listed on the Nairobi Securities Exchange, was raised from investors based on an Information Memorandum, a document meant to provide a true and complete picture of the bank’s financial health.
According to the CMA’s findings, the 2014 financial statements published within that memorandum were “false and misleading.” The regulator’s Ad Hoc Committee found that Mr. Khan, as board chairperson, “failed to exercise effective oversight over the management of CBKL,” leading to the publication of these inaccurate accounts.
Furthermore, Mr. Khan was found to have been “conflicted” for chairing and approving his own substantial bonus without declaring his personal interest. Crucially, this material information was not disclosed to investors in a supplementary memorandum.
The two senior managers, Makarios Agumbi and James Mwaura, were found culpable for facilitating the preparation of the deceptive financial statements.
The penalties reflect the severity of the breaches and the level of responsibility held by each individual.
Zafrullah Khan, the former Chairman, received the harshest punishment. He was fined Ksh 5 million and disqualified from holding any directorship or key role in Kenya’s capital markets for ten years. The CMA stated he “failed to cause disclosure of material information of his bonus payment.”
Makarios Agumbi, the former General Manager of Finance, was fined Ksh 3.5 million and banned for five years. The committee established that he not only facilitated the misleading statements but also “unprocedurally paid the bonus in a lump sum to Mr. Khan, contrary to the Resolution by the Board of Directors.”
James Mwaura, the former General Manager for Corporate Assets, was fined Ksh 2.5 million and disqualified for two years. His role involved the “misclassification and misrepresentation” of the bank’s accounts, specifically the “non-disclosure of related party loans and advances.” He also facilitated the irregular lump-sum bonus payment to the chairman.
All three have been directed to undergo corporate governance training before they can be considered for future roles in the sector.
The path to this enforcement action has been protracted. The Chase Bank collapse was triggered on 7 April 2016, when the Central Bank of Kenya placed the institution under receivership, leading to the immediate suspension of its bond from trading.
The CMA launched an inquiry to uncover any regulatory breaches that may have led to the failure. The authority subsequently issued “Notices to Show Cause” to twelve board members and senior managers.
However, Mr. Khan, Mr. Agumbi, and Mr. Mwaura sought to block the proceedings by filing a case at the Capital Markets Tribunal. It was only in February 2024 that the Tribunal ordered them to appear before the CMA’s committee, which has now concluded its hearings.
The CMA Kenya has emphasised that this action is a core part of its investor protection mandate. In a statement, the regulator said it is committed to “promoting market integrity and investor confidence” by ensuring compliance with the legal framework.
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