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Kenya: Directors Query Surge in Claims for Fallen Broker
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Business Daily (Nairobi)
28 April 2008
Posted to the web 28 April 2008
Michael Omondi
The Nairobi Stock Exchange is turning the spotlight on its chief executive over the handling of payments to creditors following the collapse of Francis Thuo and Partners, a stockbrokerage firm, last year.
The payments were made possible after the broker's seat at the NSE was sold to Renaissance Capital for Sh251 million. It is now emerging that the NSE Board is dissatisfied with the way the claims were handled and has ordered a forensic audit to look into the state of affairs.
The board has recommended that two reputable management firms be invited to tender for the forensic audit. It is not clear how far the recruitment has gone.
NSE chief executive Mr Chris Mwebesa said he had no comment on the forensic audit which will almost certainly touch on him as Francis Thuo's statutory manager. Mr Mwebesa was working under the guidance of a rescue committee that was chaired by NSE vice chair Francis Wangunyu.
Other industry members of the rescue committee were Mr Bob Karina of Faida Securities and Messrs Bob Kihumba and Amish Gupta of Standard Investment Bank.
The regulators were represented in the committee by Central Depository and Settlement Corporation CEO Rose Mambo; CMA compliance officials Christine Mwiti who has since moved to Renaissance Capital and Stella Kilonzo (now acting Chief executive Stella Kilonzo; and Mr Mwebesa. Others were Edward Odundo and Peter Waiyaki, then CDSC chief executive.
It is understood that the key query the board wants answered is how creditor claims ballooned to about Sh180 million compared to the initial claims of Sh100 million.
The claim position for Francis Thuo was revised several times with initial indications being that the company owed investors Sh100 million. This later rose to Sh120 million and then Sh150 million.
A final report on Francis Thuo and Partners presented to the CMA by the NSE internal audit showed that the claims had reached Sh183 million. This included claims by investors of Sh169 million, other creditors (Sh3.2 million), statutory management expenses (Sh3 million). Other costs included NSE staff services (Sh2.4 million) and provision for claims under verification (six million shillings).
However, the NSE is seeking to have CMA re-imburse Sh5.4 million for the statutory management expenses and NSE staff services.
The escalation of claims means lower expectations for both the NSE and the CMA which were haggling over how to distribute a balance of Sh100 million expected to be left on the table after the claims were made.
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The CMA is also understood to have asked for an internal review on the escalation of the claims and a report is expected to be ready by the end of the week. Management of claims is one of the key challenges facing Mr Mwebesa and his joint statutory manager Wycliffe Shabiah at Nyaga Stockbrokers which was placed under administration by CMA on March 5.
Already, investors who have paid balances on their accounts before being allowed to transfer the accounts to other preferred brokers say the payments are not being credited to their accounts with the company.
Failure to credit the respective client accounts has the effect of distorting the cash position in the company and complicates the task ahead for PriceWaterhouseCoopers which is conducting a forensic audit into the operations of Nyaga.
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