Bail out MKM: judge

MASERU — A senior High Court judge says efforts by the Central Bank of Lesotho (CBL) to liquidate MKM through the courts must be stayed and the government should be encouraged to bail out the company’s depositors.
The judge granted an exclusive interview to the Lesotho Times last Friday but refused to have his name published because ethics forbid him from giving interviews to the media. 

The judge, who is one of the six judges who have dealt with the case since it started in November 2007, said he had always felt that “MKM was a political case and not a legal one”. 

This is the first time that a High Court judge has given a newspaper an interview on a court case. 

He said he was talking to the media because he believed the “liquidation of MKM is not in the best interest of depositors because they will not be able to get full value of what they invested”. 

Nearly 400 000 Basotho have their monies locked up in MKM after the central bank abruptly shut down the company accusing it of running a money multiplication scheme and operating a financial business without a licence. 

An audit commissioned by the central bank to look into MKM’s financial status found the company to be M300 million in the red. 

MKM was insolvent, the report said. 

Of the M400 million invested by depositors the auditors only found M100 million in MKM’s coffers. 

The mere fact that nearly one fifth of this country is affected, the judge argued, means that the MKM saga must be treated as “a special case which requires a political remedy”. 

“This is a classical case that requires a political solution involving the executive (government) and legislature (parliament) and not the judicial process of liquidation,” he said. 

He said the government must intervene and pay out the troubled depositors on behalf of MKM. 

“A major bail-out authorised by the parliament of Lesotho can ensure that Basotho people receive their invested monies in full,” he said. 

He said after that “the government of Lesotho can then hotly pursue MKM for the recovery of monies spent in the bail-out and take other civil or criminal processes”. 

“For purposes of transparency the payout must be done under the supervision of the central bank. MKM must sign an agreement undertaking to repay the loan to government,” he said. 

The government can also pursue the directors to recover the money, he added. 

He warned that liquidation could unleash chaos in the country. 

“There is a danger that people might become extremely angry if they don’t get their monies in full and one can never predict what they will do,” he said. 

“In suggesting this I am aware of the fact that liquidation is a proper and lawful thing to do but I insist that it is not the most appropriate thing to do in the MKM case because of its magnitude.” 

The judge said he believed money for a bail-out can be found but what is urgently needed is the political will to deal with the crisis. 

“When you read the auditor-general’s report every year you notice that millions have disappeared from government coffers but nothing has been done,” he said. 

“People can’t tell me that money cannot be found for such a noble cause like paying out poor people who are suffering now.”

He said in bailing out MKM the government will not be the first to take such “measures to save depositors”.

The American government “gallantly” bailed out delinquent banks when the financial crisis hit, he argued. 

“President Barrack Obama then pursued the loans from the bank.” 

It must however be noted that despite the judge’s argument the American bail-out was for legitimate financial institutions and not pyramid schemes. 

All the financial institutions that received the money were legally registered and had undertaken to repay the loans. 

The American government justified the bail-out by saying the troubled banks were too many and too big to be allowed to fail. 

The Lesotho courts have ruled that MKM was a pyramid scheme and that it was operating banking and insurance businesses unlawfully. 

The judge also alleged that there was something odd about the CBL’s attitude towards cabinet’s recent directive to allow MKM to pay out depositors. 

The central bank recently wrote to the government insisting that allowing MKM to pay out the depositors was not the right thing to do. 

Liquidation would be the best option, the bank said. 

The judge however said he was shocked that the central bank had taken this stance. 

“It’s curious that a central bank is disobeying government,” he said. 

“Why should that happen?” 

The judge also criticised the central bank for rushing to close MKM. 

“To rashly freeze a pyramid scheme – while being lawful and sometimes justified – can boomerang, bringing about untold suffering to the duped investors,” he continued. 

“Other methods can and must always be taken before a final clampdown. 

“The central bank must have ordered MKM to stop receiving any more deposits and the supervised an immediate payout of existing depositors. 

“The decision to just shut down the delinquent MKM thus freezing people’s monies in the circumstances was harsh and ill-advised.” 

The judge said his decision to speak to the media was prompted by the fact that most, if not all, judges are reluctant to deal with the case because it is considered too sensitive. 

He said this was because “Lesotho is one big family. No judge wants to be accused of causing people to lose their hard-earned money as would happen in liquidation.” 

“MKM is a case that can be classified as a national disaster and required a political solution in the form of a bail out authorized by the executive and legislature of Lesotho.” 

In just four months three judges have recused themselves from the MKM case. 

Justice Tseliso Monaphathi quit the case in April saying one of the MKM directors had lent him the company’s car when his official Mercedes-Benz broke down. 

He also said he had known the director for more than 20 years and at one time MKM had given his son a job when he was on vacation. 

Justice Lisebo Chaka-Mokhooane, who took over the case from Justice Monaphathi, quit the case in June after alleging that someone had tried to influence her. 

She said she had received a nocturnal visit from an emissary of MKM boss Simon Thebe-ea-Khale. 

Justice David Lyons, an Australian judge seconded to Lesotho by the Commonwealth, who was seen as a neutral judge in the long-running MKM case, also recused himself late last month. 

He is understood to have said he feared a backlash if he ruled that MKM should be liquidated. 

There are now calls from a group of depositors for the chief justice to appoint a foreign judge whom they say will not be subjected to local pressures. 

The depositors recently wrote to the chief justice saying a retired South African judge from Bloemfontein would be preferable. 

But the judge said he was worried about this suggestion. 

“We can’t always be importing judges when we have problem. This turns Lesotho into a sub- state,” he said.

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