Goldenberg man who swindled NSSF and how the law caught up with him

When Joseph Mabiria was appointed as the National Social Security Fund’s investment manager in 2007, he noticed something strange in that house of incessant scandals. Not all shares bought for NSSF by Discount Securities at the Nairobi Securities Exchange (NSE), during the tenure of the now-jailed Francis Zuriels Moturi, had certificates.

Mabiria smelt a rat, nay, a scandal. He picked the call and spoke to now-in-jail David Githaiga, who was running Discount Securities, the stock brokerage company that his father, the late William Murungu, had started when he was part of the Nyayo-era axis of sleaze, bad manners and heist.

Both the father and son had been accused, together with Moturi, in the Sh1.2 billion NSSF fraud – but Murungu passed on as the case dragged in courts for 12 years. While focus has been on Moturi, who was fined Sh2.4 billion or serve 12 years in jail, there has been little attention on the late William Murungu and his Discount Securities.

To understand Discount Securities, and how it managed to swindle NSSF, you have to look at its genesis, the history within its history. Bill, as Murungu was fondly known by his peers within the stock market, was well connected in banking and insurance industry and had direct links with Moi’s State House. He was – and Kenyans seem to have forgotten - an insider in the origins of Goldenberg scandal when taxpayers lost more than US$600 million in just three years as wheeler-dealers and Kanu mandarins lined up to loot the Treasury during the reign of Prof George Saitoti and Musalia Mudavadi.

State House ties

Murungu was an associate of Mohammad Aslam, the city billionaire who ruled the financial lanes by working closely with business oligarchs with State House ties.

For records, it was Aslam who registered Uhuru Highway Development Company, associated with Grand Regency hotel (now Laico Regency), to develop a hotel on Plot LR 209/35/4 in 1986. Later, Murungu bought shares and became one of the directors of the company besides the anonymous Mr HEDAM – an acronym that would later turn out to stand for H.E. Daniel arap Moi. Other shareholders, besides Aslam and Murungu, were the late billionaire Chris Kirubi and a Mr G. Lindi.

By playing within this Kanu league – where the line between State coffers and personal ATM was thin – Murungu earned his appearance fee. He was also a veteran in these circles having been a senior official at the State parastatal, Kenya National Assurance Company, which had also been brought down to its knees.

Separately, Mr Murungu had opened his own insurance company and had in 1985 been appointed the chairman of Kenya Insurance Motor Pool, a consortium of insurers of heavy risk vehicles.

It was during this period, actually February 1985, that Murungu, President Moi, Aslam and Chris Kirubi got in touch with Societe des Hotels Meridien, then owned by Air France, to assist in the construction of a hotel to be known as Le Meridien, Nairobi. Pan African Bank was to do the financing and Aslam and Murungu would frequent Treasury, then under Prof George Saitoti, seeking favours, cutting deals and stepping on others’ toes. Some tried to bring him down.

Fraudulent scheme

For instance, in 1989, he was picked by police after there were allegations that the Motor Pool body had lost Sh200 million in a fraudulent scheme. While Murungu called a press conference admitting that only Sh2 million was lost through fraud, nobody was charged. In a previous report that he had released in August 1988, covering 1985-1987, he had indicated that the Motor Pool had incurred a loss of Sh97 million under his watch.

By then Murungu was also a shareholder director, through Murungu Investments, at Aslam’s Pan African Building Society, an affiliate of Pan African Bank, together with Nyeri Kanu baron and insurer the late P.G. Muriithi. Still the directors of Pan African Bank echoed those of Uhuru Highway Development and included Mr HEDAM and State House Comptroller, Abraham Kiptanui — a toxic mix for those who recall the Kanu years.

Pan African Bank, Parliament was once told, was one of the shaky banks where NSSF was putting its billions. Also, this bank was used to finance oil imports by the National Oil Corporation.

That was before Uhuru Highway Development and Pan African Bank were taken over in March 1994 by Kamlesh Pattni, the kingpin of the Goldenberg scandal, after the alleged poisoning of Aslam by unknown people. Murungu and Aslam’s family put their effort in the re-branded Corporate Insurance.

Before he died on November 18, 1991, Aslam’s Le Meridien project had taken shape but had also bankrupted Pan African Bank after Central Bank looked the other way and allowed it to run an overdraft which later grew to Sh4.5 billion, many times above the statutory requirements.

That week, before he died, Aslam had adversely been mentioned as the man who was pushing for kickbacks from an Italian company interested in building the Kisumu molasses plant and which, it is suspected, led to the assassination of Dr Robert Ouko, the minister for Foreign Affairs. He was expected to appear during the inquiry to name his partners.

Goldenberg scheme

The Goldenberg scheme was going on by this time and Pan African Bank was one of the conduits used to sanitise the theft. By keeping such company of friends and wheeler-dealers at close range, Murungu had earned his stripes in the world of sleaze.

So by 1993, the time he was venturing into the stock market to build Discount Securities, whose headquarters were in Chris Kirubi’s International House, Murungu knew how to play in the big league – and escape. Pattni used the Goldenberg cash to acquire their bank, and also registered his own Exchange Bank.

With President Moi out of power and most of the Kanu barons tamed, Murungu returned to the only surviving cash-cow in town – the National Social Security Fund. Murungu knew his way around.

Although Murungu had started Discount Securities with a family friend, Peter Kiragu Mwangi, he would in 1997 edge him out after diluting Kiragu’s shareholding without his knowledge.

He then brought in another co-director Cleophas Simu who was forced to resign in 2006 for what he said was ‘lack of information on what was going on in the company’.

Kanu-era mischief

Discount Securities, from its histories, was not your ordinary clean broker. It refused to abandon its Kanu-era mischief, hoping that with sleaze and politics operating on the same wavelength, the NARC government would not touch him.

On October 22, 2003, and with the 10-month-old Mwai Kibaki’s government struggling to rid parastatals of Kanu-era barons, Discount was appointed as the NSSF stockbroker in a letter signed by Francis Zuriels Moturi which wanted to invest its money in good stocks.

Attempts by Moturi’s successor, Joseph Mabiria, to get reconciliations from Discount Securities hit a dead end. He escalated the matter to the Managing Trustee, Rachael Lumbasyo. While NSSF had paid Discount Securities to buy Sh2.4 billion worth of shares, the cost of shares delivered was Sh1.1 billion.

Discount could not show the Trade Execution Summary, which had replaced the share certificates under the new electronic system, and neither were the shares reflected in the 82 nominee accounts purportedly opened for NSSF.

When the matter blew up in 2008, during the Kibaki-Raila coalition government that followed the post-election violence, the Minister for Labour John Munyes summoned the Capital Markets Authority (CMA).

“They told me: “We stand to lose this money because we have no share certificates.” I asked them whether there was a way to go around it. They said that without a document like that one, that money was as good as lost,” Munyes told Parliament.

CMA had that July 2008 found that Discount Securities had overdrawn some client bank accounts and was not maintaining bank reconciliations. CMA fined the company Sh85,000.

Negative balance

By September 2008, the company was going down and had a negative balance of Sh53 million and had not settled client accounts to the tune of Sh600 million. That meant that money given to the company by clients was ending up in black hole.

The Office of the Prime Minister, Raila Odinga, had also initiated investigations into the scam and recommended prosecution and removal of the NSSF Board. A take-over of Discount, in the hope that it would be salvaged did not help either.

“We have always maintained this is a commercial issue between two parties that was to be resolved through reconciliation,” David Githaiga, Murugu’s son, told the court. “It was unfortunately dragged to this court.”

But Justice Lawrence Mugambi argued that NSSF was operated by public funds.

“I do not think that monies collected under coercive power of the law as in the case of NSSF where default automatically attracts criminal prosecution can be classified as private funds even by any stretch of imagination.”

The Director of Public Prosecutions had turned some of the accomplices to be State witnesses. The court has now observed that “this is legally permissible and the DPP cannot be faulted for taking that route.”

Another interesting observation was that in proving conspiracy “it does not mean that a formal or written agreement must be presented... I find that the regularity of confirming purchases without any corresponding effort to ascertain what was being paid for or follow up on what was being paid for was not coincidental or inadvertent, but intentionally aimed at aiding and facilitating Discount to embezzle NSSF funds.”

Landmark observation

The Judge also made a landmark observation: “In instances where the company is used as a vehicle for commission of crime, the persons behind the criminal activities cannot hide behind its corporate veil. Natural persons cannot hide behind the company veil as a cover up for fraud or crime. Where the company commits a crime, the court is allowed to blow up the corporate veil and personally hold liable those responsible for their criminal activities.”

Besides NSSF, Discount Securities left thousands in limbo. Lesson number one: Once a person is involved in sleaze, they should not be anywhere around a public institution. In 2007, Francis Zuriels Moturi tried his luck in politics. He failed. Now, he is in Kamiti with his Discount and NSSF gang.

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