By Musa Radoli
Capital Markets Authority (CMA) has linked former Nairobi Governor Evans Kidero to a Sh3 billion racket at troubled sugar firm, Mumias.
The markets watchdog has zeroed in on suspect discounts to selected customers during his tenure at listed cane miller as chief executive.
The revelations follow forensic investigations by J Miles & Company whose auditors reviewed the financial and governance operations of the company for 10 years, between 2006 and 2016.
Citing embezzlement and misappropriation of cash and conflict of interest during Kidero’s tenure, an inquiry by CMA named Peter Hongo, former head of sales at the firm and Paul Murgor, former commercial director as other persons of interest in the audit.
Point of sale
CMA says the probe revealed that between 2009 and 2012, the sugar company gave discounts amounting to Sh3.1 billion to select customers of the firm.
According to investigations, the discounts are said to have been made at the point of sale, or subsequently through credit notes with Ms YH Wholesalers among those who were granted a Sh1.6 billion discount in that period.
CMA says that such discounts were extended contrary to the Mumias Sugar Company price administration policy — above the board approved rate of 10 per cent — amounting to Sh634 million.
To get the information, the authority obtained warrants from the magistrate’s court to investigate bank accounts belonging to 10 former employees of the cane miller. The court orders were served on the respective banks for purposes of obtaining bank statements.
“The investigation established that the former CEO and senior managers, devised a scheme to fraudulently embezzle the company’s funds through under-billing specific customers who then made ‘kick-back’ deposits in specific bank accounts for distribution amongst themselves as well as their associates,” says CMA.
In one such bank account suspected to have been used in the scheme, deposits amounting to Sh151 million were made to an account belonging to Peter Hongo, former head of sales between 2010 and 2014.
“The deposits into the bank account were received from the select customers of Mumias Sugar who were granted special rates of discount. The funds deposited in the bank account were noted to have been subsequently disbursed to the select group of senior members of the company’s management and their associates.”
However, as the capital markets watchdog was targeting more bank accounts of senior employees to ascertain whether they may have been used in the scheme, the owners moved to court and were granted orders to halt investigations of their accounts.
It is at this point that Kidero, Murgor, Hongo and Pamela Lutta obtained conservatory orders stopping investigations of their bank accounts until their petitions questioning the legality of the warrants was heard and determined.
“The conservatory orders issued against the authority have hampered investigations by stopping investigations in 56 out of 85 bank accounts under inquiry,” said CMA.
But the authority says it was following up with various banks in order to receive bank statements of 29 accounts that are not subject to any court order.
After filling a petition on October 18, 2017, seeking conservatory orders restraining CMA from proceeding with the notice to show cause dated July 26, 2017, Kidero obtained interim orders until the date of the main hearing which was slated for January 29, 2018.
On that day, the matter came up for hearing before Justice Chacha Mwita. The case did not proceed as the parties had not complied with the court’s directions with regard to filing and responding to certain pleadings. The matter came up for mention on April 9, 2018 to confirm compliance with directions for filing. Not all parties had filed their documents. The matter was then postponed to July 31, 2018 when it will be mentioned in order to take directions on the hearing.
During that audit, however, damning conflicts of interest concerns also emerged whereby the former chief executive is said to have maintained close business and personal relationships with several contractors hired by the sugar firm in transactions involving massive cash outlays without disclosing the relationship to the board.
CMA points out Schindler Ltd was awarded a tender to install lifts in the firm’s new administration block at the contract sum of Sh9,288,854.00. This is despite the former CEO’s brother Symmon Kidero being a director at Schindler Ltd.
CMA also points out that a Wilfred Madung was irregularly awarded the tender for the sugar company’s water bottling project through Equitech Ltd which was handed the job without meeting pre qualification requirements.
The contract price for this project had been set at $3.4 million (Sh340 million).