High Court ruling gives Capital Markets Authority teeth to nab rogue firms

Justice John Mativo at the high court  PHOTO BY GEORGE NJUNGE

The High Court has rejected an application by global audit firm Ernst and Young to stop the Capital Markets Authority (CMA) from investigating its role in the Uchumi saga.

The ruling, in effect allowing CMA to be the investigator, judge, jury and executioner, may in future lock out rogue litigious players seeking to stop the regulator from investigating them.

Several firms have been stalling disciplinary proceedings with injunctions, frustrating CMA’s efforts to police the capital markets.

Yesterday, High Court Judge Justice John Mativo ruled that Ernst and Young could not stop CMA from investigating it for cooking the troubled retailer’s books.

The audit and consulting firm had gone to court to stop the regulator from summoning it for knowingly allowing publication of false figures in Uchumi’s information memorandum that raised Sh1.6 billion in 2014.

CMA sought to find out why EY as Uchumi’s auditor allowed the troubled retailer’s management to value Kasarani Mall in subsequent years without valuation reports.


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The regulator also put the audit firm to question over a Sh350 million sale and leaseback deal Uchumi struck with RentCo East Africa that was booked three months before it actually took place.

In his ruling, Justice Mativo cited a Canadian case where judges ruled that securities commissions by their nature carry out different functions.

Unlike courts, he said, some of the regulator’s overlapping actions would be considered biased, although its protective role must be considered as a special character.

“If a certain degree of overlapping of functions is authorised by statute, then to the extent that it is authorised, it will not generally be subjected to any reasonable apprehension of bias test unless the reasonable possibility of the bias has been sufficiently demonstrated,” ruled Justice Mativo.

 CMA Chief Executive Paul Muthaura (pictured) said the ruling is a confirmation the authority conducted itself well within the law and the edicts of natural justice.

“The judgment also affirms that Ernst and Young needs to honour their summons and appear before the board and this provides important clarifications on the roles and responsibilities of a regulator and we warmly accept the judgment,” the CMA boss said.

The ruling is likely to be instrumental in unlocking cases where the regulator seeks to punish rogue players and restore investors’ confidence in the money markets.


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The judge denied the audit firm protection, saying it had rushed to court even though the market regulator had followed procedures that could have provided an avenue for a fair hearing.

“The petitioner was given up to September 14, 2016 to respond but instead of responding on September 15, 2016, he filed this petition,” Justice Mativo said.


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