An investment bank owned by businessman Jimnah Mbaru and a South African bank have been ordered to pay an investor about Sh418 million arising from what the High Court termed as “a complicated wave of deceit” perpetuated by the two companies.
In a judgment delivered by Justice Eric Ogola, Dyer & Blair Investment Bank and CFC Stanbic Bank are to pay Mr John Kung’u Kiarie - a former director of the Kenya Commercial Bank (KCB) - over Sh300 million plus interest at 16 per cent per year from October 21, 2007 to date for under-declaring his returns on investment.
“It is the finding of this court that the 2nd defendant (Stanbic Bank) joined the 1st defendant (Dyer & Blair Investment Bank) in a complicated wave of deceit whose aim was to trade with the plaintiff’s money without accounting for interest,” Justice Ogola ruled.
It is a ruling with huge financial implications not only for the pair, but also regulators coming just when the Central Bank of Kenya and Capital Markets Authority have tightened the laws to rein in misconduct.
Mr Kung’u had been a longtime customer of Dyer & Blair, who occasionally invested in the stock markets.
In April 2003, he met the then Dyer & Blair general manager, Mr Mohamed Hassan - current chairman of National Bank of Kenya board of directors - and they agreed that he would invest Sh100 million in the bond markets, among other places.
It is at this point that the wave of deceit kicked in as Justice Ogola would note; “Just when the money was being received for the further re-investment, an investigation on the plaintiff’s account was commenced by the Central Bank of Kenya Fraud Investigation Unit and immediately, and allegedly in synchrony, and as if they were waiting for this, the first defendant- unilaterally and unlawfully froze the plaintiff’s account, thereby rendering the reinvestment and access thereto impossible.”
The criminal case would run from 2003 to 2007, during which time the two institutions are said to have continued illegally holding Mr Kiarie’s funds.
Evidence adduced shows that the account continued to be drawn in what the court concluded Mr Kiarie’s money was being actively traded with by the two institutions.
But it is the basis of the freezing orders that help in joining the dots to a conspiracy to defraud.
In his ruling, the judge said that from the evidence, the freezing orders were nothing but a creation of Dyer & Blair through letters written by Mr Hassan, who offered to freeze the account even when no such request was asked by the banking fraud unit.
“The first defendant (Dyer & Blair) volunteered freezing the account by telling the Central Bank of Kenya Fraud Investigation Unit that following your inquiry,… we will also freeze the account until further instructions from yourself."
“This appears to have been a clever and mischievous act by first defendant (Dyer & Blair) to found a basis of alleging that the instructions - to freeze the account- came from CBK.”
In concluding that the two financially benefited from the scheme, the judge added: “The issue then is why first defendant (Dyer & Blair) would engage in such falsehood unless it had something to gain from it?”
Noting that the person (Mr Hassan) who negotiated and signed agreement with Mr Kiarie to invest the fund was the same person who signed the letter to “freeze” the account.
On the collapse of the criminal case, Mr Kiarie filed the case against Dyer & Blair and Stanbic for Sh465 million, as his return on investment for the five-year period.
The court reduced the amount to Sh300 million plus interest. The two are jointly liable