Three former directors of Real People Kenya Ltd (RPKL), a micro-lender, are facing enforcement actions from the Capital Markets Authority (CMA) after losing an appeal before the Capital Markets Tribunal. The sanctions relate to the unlawful diversion of Sh2.63 billion raised through a bond issuance nearly a decade ago.

Neil Grobbelaar, Arumugam Padachie, and Bruce Schenk — all former board members — were found culpable for their roles in the misapplication of the bond proceeds, failure of oversight, and material disclosure failures. The funds were intended to support lending to small and micro-enterprises in Kenya but were instead diverted to South Africa.

In its ruling delivered on July 11, the Tribunal upheld the sanctions previously imposed by the CMA’s Ad Hoc Committee on March 31, 2021, and dismissed the appeal in its entirety, stating:

“Each appellant was sufficiently involved and responsible for the disclosure failures and misapplication of proceeds established in this case.”

Heavy Penalties Imposed

Robert Arthur, former RPKL chairman, and Mr. Grobbelaar, who was also CEO of the South African parent firm Real People Investment Holdings Ltd (RPIHL), were each fined Sh5 million. Additionally, they have been barred from serving as directors of any CMA-licensed firm until bondholders are fully repaid — an estimated Sh1.3 billion plus outstanding interest.

Mr. Padachie and Mr. Schenk were each fined Sh2.5 million and banned from holding senior roles in CMA-regulated firms until the bondholders recover their full investment.

Bond Proceeds Illegally Transferred Abroad

The Tribunal confirmed that RPKL received the Sh2.63 billion bond proceeds on August 22, 2015. However, between August 28, 2015, and December 8, 2016, approximately Sh2.13 billion — 82 percent of the funds — were transferred out of Kenya. The breakdown of the transfers is as follows:

• Sh2.02 billion to Real People (Pty) Ltd in South Africa via Standard Chartered Bank

• Sh80 million to Real People Financial Services Ltd, Uganda

• Sh26 million to Real People Tanzania Ltd

The massive fund outflows raised red flags, especially after RPKL’s loan book failed to grow as projected, indicating a potential misrepresentation to investors.

Broader Implications and Ongoing Investigations

The latest ruling comes just over a year after the Tribunal dismissed an attempt by five other former directors — Norman Ambunya, Daniel Ohonde, Nthenya Mule, Charl Kocks, and Yvonne Godo — to block a disciplinary hearing by the CMA over their involvement in the scandal. Ms. Godo has since exited the RPKL board.

At the time of the bond issuance, RPKL was fully owned by Real People Investment Holdings Ltd (RPIHL), based in South Africa. The CMA had approved a Sh5 billion bond program for RPKL in June 2015, from which the first tranche raised Sh2.63 billion.

Following the discovery of the irregularities, the CMA launched a comprehensive inquiry into the conduct of nine former executives and board members — four Kenyans and five South Africans — over their roles in the scandal.

The Tribunal, in its latest decision, also ruled that each party involved in the appeal would bear their own legal costs.