CMA Ordered to Pay Sh7.5 Million After Damaging Report Costs Investment Executive Prime Job

High Court rules regulator violated due process by sharing unverified allegations with prospective employer

The Capital Markets Authority (CMA) has been dealt a costly blow after the High Court ordered it to pay former Sanlam Investments CEO Kennedy Riungu Sh7.5 million in damages for prejudicing his career prospects through reckless administrative conduct.

Justice Lawrence Mugambi delivered a scathing judgment against the financial regulator, finding that it violated Mr Riungu’s constitutional right to fair administrative action by secretly sharing damaging and unverified information about him with his prospective employer, Genghis Capital Investment Limited, in 2018.

The case exposes troubling gaps in CMA’s procedural safeguards and raises serious questions about how Kenya’s financial watchdog handles sensitive employment assessments that can make or break careers in the investment industry.

The damaging report

At the heart of the controversy was CMA’s decision to inform Genghis Capital in January 2019 that Mr Riungu was under investigation, effectively torpedoing his chances of securing a fund manager position with the investment firm.

The regulator took this action despite having no concrete evidence of wrongdoing and without giving Mr Riungu an opportunity to respond to the allegations.

Justice Mugambi found that when CMA wrote to Genghis Capital, it had only just met with Sanlam executives who were themselves still conducting forensic investigations and had yet to file a formal complaint.

“Even when the CMA wrote to Sanlam on October 4, 2018, Sanlam responded by stating that it was still carrying out forensic investigations,” the judge noted.

The timing reveals a regulator acting on incomplete information while wielding the power to destroy careers.

Mr Riungu had applied for a mandatory ‘fit and proper’ assessment through his new employer in line with regulatory requirements, but instead of conducting an objective evaluation, CMA chose to share preliminary and unsubstantiated concerns.

The court found that CMA’s actions contravened Section 24A(3) of the Capital Markets Authority Act, which requires the regulator to give individuals an opportunity to be heard before determining their fitness for employment in the financial sector.

This fundamental principle of natural justice was entirely bypassed.

“The CMA acted with lack of concern for potential consequences in regard to the risk or impact of its decision at a very early stage in the process and put the petitioner in a very prejudicial position,” Justice Mugambi ruled.

The judge was particularly critical of CMA’s claim that it had no control over how Genghis would use the information.

“The CMA was simply reckless and malicious and never bothered to consider potential harmful effect of its actions when no proper complaint had been properly laid before it at the time,” he stated.

Career destruction

The consequences for Mr Riungu were immediate and devastating.

Having left his position at Sanlam Investment Limited in December 2017 to join Genghis Capital, he found himself in professional limbo when CMA’s confidential letter forced him to vacate his acting CEO position to avoid regulatory non-compliance.

The court heard that it took CMA eight months from receiving Sanlam’s complaint to invite Mr Riungu to defend himself, yet the regulator was swift to notify his prospective employer about the investigations.

This disparity in treatment raised serious questions about CMA’s priorities and competence.

Mr Riungu’s ordeal didn’t end there. When he applied for another ‘fit and proper’ assessment with Mayfair Asset Managers Limited in March 2022, he faced the same dilatory treatment from CMA.

It wasn’t until July 2020 that the regulator finally issued him with a show cause notice regarding allegations of misrepresenting investments made by Sanlam Investment Ltd.

Mr Riungu initially sought Sh45.9 million in compensation for lost income from missed employment opportunities.

While the court awarded a more modest Sh7.5 million, the judgment represents a significant victory for due process rights in Kenya’s financial sector.

The case highlights the enormous power wielded by regulatory bodies and the devastating impact their decisions can have on individual careers.

In an industry where reputation is everything, CMA’s reckless sharing of unverified information essentially blacklisted a senior executive from the investment management sector.

This judgment should serve as a wake-up call for CMA and other regulatory bodies about the need for robust procedural safeguards when handling employment assessments.

The ‘fit and proper’ process is designed to maintain standards in the financial sector, but it must be conducted fairly and transparently.

The case also raises broader questions about accountability in Kenya’s regulatory framework.

How many other careers have been damaged by similar regulatory overreach?

What measures are in place to prevent such violations of due process?

Justice Mugambi’s ruling sends a clear message that regulatory bodies cannot hide behind their statutory powers when they fail to follow basic principles of natural justice.

The Sh7.5 million award, while significant, pales in comparison to the career damage inflicted on Mr Riungu and serves as a reminder that regulatory power must be exercised responsibly.

For Kenya’s financial sector to maintain credibility and attract top talent, regulatory bodies must demonstrate that they can be trusted to act fairly and transparently.

The CMA’s handling of the Riungu case falls far short of these standards and demands immediate reform of its procedures.