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Nyaga: Treasury gets cold feet as investigation begins

By | February 13th 2009

By James Anyanzwa

Two of the investment banks adversely mentioned in the report on the collapse of Nyaga Stockbrokers yesterday defended their dealings with the firm, even as the Government began investigations into the affair.

Treasury backtracked on a promise to issue a statement as the explosive matter took a new dimension.

Yesterday, Standard Investment Bank (SIB) Managing Director, James Wangunyu branded the report "malicious".

While admitting to SIB having had financial dealings with the Nyaga Stockbrokers, prior to its dramatic downfall on March 5 last year.

Wangunyu, who is also the Nairobi Stock Exchange (NSE) Chairman, said SIB was involved in overnight lending to Nyaga Stockbrokers to the tune of Sh200 million, but said the loans were in very small instalments.

He said by the time of Nyaga’s collapse, only Sh10 million was outstanding. "It is a very misconstrued story. We were purely assisting the brokers to come out of the liquidity problem," said Wangunyu.

"It was purely overnight lending, which the broker actually paid us."

On its part, Dyer & Blair said that while carrying out its usual financial transactions with stockbrokers and investment banks, it loaned Sh25 million to Nyaga, for which it received post-dated cheques of the same amount. It said the debt was still pending. "It is common knowledge that under the industry trading rules, it is normal for transactions to go on between different licensed stockbrokers. It would be unwise to respond to the PricewaterhouseCoopers report, which I have not seen or read, and which has not been officially released by the relevant authorities," said Dyer and Blair Chairman, Mr Jimnah Mbaru, the firm’s chairman and immediate former chairman of the NSE.

Fresh concerns over the report on the collapse of Nyaga Stockbrokers deepened yesterday, after Treasury changed gears and opted not to release a statement on the matter.

Conflict of interest

Instead, Treasury said it would await the outcome of investigations before issuing a statement. It did not specify who was doing the investigations, but sources told The Standard the report had been forwarded to the Criminal Investigation Department, Kenya Anti-Corruption Commission (KACC) and the Attorney General.

However, given that the AG is a member of the Capital Markets Authority (CMA) board, this raises a serious conflict of interest on his part.

"We understand your concerns, but Treasury has been advised not to issue any statement, because it will have legal implications," said Edward Olem, the ministry’s spokesman, adding that "the matter has now taken a legal angle, and any statement issued now can jeopardise the proceedings."

Independent sources, however, told The Standard that the matter was being handled at the Attorney General’s (AG’s) chambers, given its magnitude and repercussion to the country’s struggling economy.

Economic Secretary, Dr Geoffrey Mwau was due to issue an official Government statement over the shocking revelations of the forensic audit by PricewaterhouseCoopers (PwC) yesterday.

The report, which also adversely mentions former custodians of the CMA, Central Depository and Settlement Corporation (CDSC) and Nairobi Stock Exchange (NSE) in the Sh1.3 billion swindle, is yet to be officially released to the public, despite having been handed over to the CMA in November last year.

The damning audit details how investment banks allegedly worked with managers of the fallen stockbroker, to defraud investors of their hard-earned cash, and is raising heated debates within the investment circles over the future of the local capital markets.

Mbaru said the negative reports are merely designed to tarnish the image of his firm.

He said the Sh100 million bailout package granted to Nyaga while he was chairman of the NSE, was a decision taken in consensus by the NSE board.

The audit report, however, says that Dyer & Blair and SIB allegedly received a total of Sh382.5 million from the troubled Nyaga Stockbrokers just a few months before it collapsed.

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