How NSSF chief masterminded theft of billions

A few months after President Mwai Kibaki was sworn into office, his administration set out to deliver promises made on the campaign trail.

Among the first pledges was to reform the National Social Security Fund (NSSF), which had become a source of pain and depression for retired workers and their families.

The NSSF was broke and struggling to pay pensioners money they had saved over decades toiling at work.

First off, the NSSF was converted into a pension scheme, abandoning its previous designation as a provident fund.

In 2004, the NSSF Board resolved that it would increase revenue streams by buying shares in listed companies.

The move was timely. The Narc government had almost immediately created a conducive environment for economic growth spurred by a vibrant manufacturing sector and improvements in service industries.

Share prices had started to rise, and investors could expect hefty dividends which informed NSSF’s move to buy shares in listed companies.

The reforms meant well, but sparked off massive theft that culminated in the biggest fine ever handed by an anti-corruption court in Kenya.

On Monday, Chief Magistrate Lawrence Mugambi fined former NSSF manager Francis Zuriels Moturi, and three officials of Discount Securities Limited – David Ndirangu Githaiga, Wilfred Mungoro Weru and Isaac Nyakundi Nyamongo – a combined Sh9.6 billion for theft of funds from the pension scheme.

Just like that, Moturi became the man of the show.

Reaping maximum profit

The pension fund’s investment committee, made up of various department heads, would meet every Tuesday.

In the meetings, Mr Moturi would tell the committee how much money was available after regular expenses and suggest how to invest the surplus.

If the investment committee was happy with Moturi’s suggestions, a green light would be given.

When the NSSF decided to venture into shares at the Nairobi Securities Exchange, the disgraced manager would advise the committee on which companies had good chances of reaping maximum profit, which would in turn mean more dividends for the pension fund.

The NSSF investment committee resolved to have a number of stockbrokers transacting on the pension fund’s behalf.

Before the ink could dry on the paperwork approving investment in the bourse, Moturi forged an unholy alliance with Discount Securities Limited, a stock brokerage firm that the NSSF bureaucrat brought onboard.

The panel also had CFC (now Stanbic), Suntra Investment Bank, Standard Stock Limited, Apex Africa Investment Bank and Dyer & Blair.

In hindsight, DSL’s presence on the panel of brokerage firms should have raised eyebrows from the start.

The nondescript firm’s profile was nowhere near that of other panel members, who had a lot of experience, pedigree and public confidence. But somehow, DSL made the cut.

The procedure was fairly mundane. Stock brokers would write to NSSF stating that a certain number of shares had been purchased. 

The share purchase contract, NSE number and the transfer certificate would be attached as evidence of the transactions.

Share purchases

Moturi’s office was to receive the letters and attachments from stock brokers, do due diligence to confirm that indeed shares had been bought as claimed.

The investment manager was then to inform the managing trustee that the transaction was legitimate and attach a request for payment to the stock broker.

The managing trustee would then approve the payment and forward the documents back to Moturi, who would then liaise with the finance manager and the managing trustee to complete internal bureaucracies and release payment to the brokerage firm.

Once payment had been made, the bureaucrats would then sit back and wait for millions to hit NSSF bank accounts in the form of dividends.

Between 2004 and 2007, the NSSF knew it had purchased shares in three banks – KCB, Barclays and Standard Chartered. The pension fund’s records also showed that it had shares in Nation Media Group, Bamburi Cement, Portland Cement, KenGen and East African Breweries Limited.

The NSSF knew it had done 47 transactions in relation to the share purchases. 

The records showed that 13 of the transactions were in relation to Barclays Bank shares, while 11 transactions related to purchasing Standard Chartered Bank shares. Another 11 transactions were for KCB Bank shares.

Six transactions were for Nation Media Group shares, four for Bamburi Cement and one each for East African Breweries Limited and Kengen.

Banks were doing well, cement firms were reaping from construction in the private and public sectors, the alcoholic beverage industry was also doing very well and the media industry was thriving as the information age took shape.

“Discount Securities Limited was put as one of the brokerage firms but I do not know how,” Naftali Okong’o Mogere, the NSSF managing trustee between 2002 and 2005 told the anti-corruption court when he testified against Moturi and DSL officials.

Covered up scheme

Mr Mogere said he did not know how the stock brokers were appointed.

When Rachael Khavaya Lumbasyo took over from Mr Mogere in 2005, the NSSF still thought it was buying shares in listed firms.

All investments DSL said it made sounded very wise, only that there was almost no share purchase made by the stock brokerage firm.

Moturi retired from the NSSF in 2007, at a point the NSSF records indicated that he had facilitated the purchase of shares worth Sh1.6 billion through DSL alone.

Mr Joseph Giteya Mabiria took over as investment manager. Shortly after assuming office an assistant investment officer, Mr Obed Mbuvi (title) approached him and raised alarm over shares purchased through DSL.

Most of the shares purchased through DSL did not have corresponding share certificates as per CDSC records. The discrepancy was only noticed because of a system change at the CDSC.

Mr Mbuvi investigated further and found that the NSSF had not received bonus shares, which companies sometimes give instead of dividends, from the companies allegedly invested in through DSL.

Court papers indicate that Moturi and DSL could have covered up their scheme by claiming that bonus shares had been issued. 

The bonus shares claim would have helped them avoid difficult questions on why millions expected in dividends had not hit the NSSF’s bank accounts for four consecutive years.

Mr Mabiria later called and spoke to several officials of DSL, and met a Mr Nyamongo who agreed to holding a reconciliation meeting to ensure all shares were intact.

Lost Sh1.4 billion

Mr Mabiria asked his juniors to collect share certificates, but nothing was forthcoming from DSL.

On July 18, 2008, the NSSF and DSL held a meeting where it was resolved that the latter would transfer all shares bought in the 2006-2007 financial year to NSSF’s account at the Central Depository and Settlement Corporation (CDSC).

DSL was also to forward relevant details for all shares bought since 2004 to the CDSC registrar for production of certificates.

On October 17, 2008, the Nation carried an exclusive investigative story detailing how the NSSF could have lost Sh1.4 billion through a bogus share purchase scheme.

The Nation story caused public uproar, and the Kenya Anti-Corruption Commission, now the EACC, started investigating the share purchases.

Mr John Lolkoloi was tasked with probing the scam, and the investigation led him to DSL officials – David Ndirangu Githaiga (director), Wilfred Mungoro Weru (director) and Isaac Nyakundi Nyamongo – alongside Moturi.

The investigations revealed that DSL had bought shares worth Sh400.4 million. This meant that Sh1.201 billion paid by the NSSF had vanished. Interestingly, two former DSL shareholders had exited the firm following shady dealings.

Mr Peter Mwangi said he co-founded DSL with William Murungu in 1993. The two were family friends.

In 1997, Mr Murungu sold some of Mr Mwangi’s shares without any consultation. At that point, Mr Mwangi knew he could not trust his family friend.

Mr Cleophas Simu said he once had a 13 per cent shareholding but resigned as a director because Mr Murungu kept him in the dark over company affairs. He did not even know DSL’s clients. Moturi and his DSL partners in crime have 13 days to appeal.

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