How former KenolKobil boss broke rules to line his pocket with oil market dividends

Employees of Kenol Kobil petrol station adjusting fuel prices.

When little known Jacob Israel Segman came on board Kenol and Kobil, the little-known player was linked to Zeevi Gad, Nicholas Biwott’s partner in the business.

He was described as soft-spoken as he rose through the management ranks to head the oil distributor from 2000 where his brash nature and secret dealings started to take shape.

Segman left Kenol Kobil in 2013 following feuds with parastatals including, Kenya Pipeline Company (KPC) and Kenya Petroleum Refineries Ltd (KPRL) and independent oil marketers who were eating into the big players’ market share following the 90s liberalisation.

However, five years on, he was still embroiled in a high octane battle for Sh490 million over a lucrative deal he secured while he was boss, on options for units amounting to four per cent of the company’s shares in respect of the financial years 2010 to 2014 that was issued on May 1, 2011.

“In December, we paid the former chief executive $4.8 million as part of his ESOP [employee share ownership plan] claim. This amount is exclusive of tax,” KenolKobil’s Chairman, James Mathenge said last year adding that there was no legal way out of the deal.

But even as he settles to enjoy his cookie, the Capital Markets Authority has come to snap it from his mouth as deals he made during his tenure become unravelled.

CMA wants Mr Segman to pay Sh5 million for creating a nominee account that owned additional stake in the oil marketer and pocketed perks in secret.

“The authority imposes a financial penalty of Sh5 million in respect of contraventions on failure to make material disclosures of your ownership interest in KenolKobil, causing publication of incorrect, untrue and misleading information in issue of information memorandum on the issuance of commercial papers,” CMA boss Paul Muthaura said.

The case follows Kenya’s first share swap which joined Kenol and Kobil operations under one roof.

Kenol formed in 1959 by Sir Reggie Alexander, was taken over by Gad in 1982 after it fell into distress. It then bought out US firm Mobil which was leaving the market in 1984 but remained separate entities.

The two companies formally merged in 2008, under Segman’s stewardship through a share swap deal with the entity now known as KenolKobil. But it is his role in the deal that has come to haunt him 10 years later.

Apparently, just before the swap, Segman opened an account on July 25, 2007, in Switzerland, Zurich, at Credit Suisse Bank under Energy Resources Capital to receive dividends and return on investments in KenolKobil.

Secrecy levels

ERC would own 5.9 per cent stake in KenolKobil after the shares swap but he needed to dissociate himself with the company since he held his own shares in person and CMA regulations require disclosures by any director who owns more than 3 per cent stake in a firm.

Mr Segman being Chairman and CEO needed to be above board especially knowing that in the next year, and subsequent years of business he will have to distance himself from the company especially when raising debt which he did in 2008, 2010, 2011 and 2012.

“No Kenol director held more than 3 per cent of the issued share capital of Kenya Oil Company (Kenol) and that between the end of the financial year and the publication of the respective memorandum there has been no material change in the director interest in Kenol,” Segman had written when issuing the commercial papers.

To hide the ownership of the account the CEO registered the account to Rami Haviv in the British Virgin Island Financial Services Commission. He created another layer of insulation saying that Mr Haviv was a nominee in trust for Mrs Afriat Keren and Mrs Efrati Simcha.

He could now breathe easy, knowing the secrecy levels of Swiss bank accounts and companies and make hay while the sun shines.

He did not count on some John Doe in a Panama Law firm Mossack Fonseca would spill the beans on corporate veil that he had painstakingly built like an iron curtain.

“Energy Resources Capital is the owner of a portfolio of stock-traded securities of a Kenya public company, and these securities are deposited in a reputable Swiss bank. As you know, your firm is the local agent. I am personally the director of this company and my ultimate beneficial owner is my client, Mr Segman.

“I do not think that the company is engaged in trust business, the only trustee here is me. I am acting according to the instructions of Mr Segman. These are the pure facts and you are better skilled than me to see if this situation is relevant to the new law,” read an email from lawyer Rami Haviv to the compliance department of MossFon.

Emails between Mr Haviv and Mossack Fonseca show that Mr Segman went to great lengths to remain unnamed in any transactions involving the company when in 2007 he refused to have his name revealed during a due diligence cycle.

“It looks like I am going to stay as your direct client regarding Energy Resources Capital because Mr Segman wants to stay “behind the curtain” for personal security reasons in Kenya,” Mr Haviv wrote.

The Kenyan market regulators pursuing this infamy also found a Swiss government whose President Alain Berset had committed to help authorities fight corporate gangsters sealing his commitment in the country’s visit this year.

So the Swiss Financial Markets Supervisory Authority (FINMA) easily gave information on who the true beneficiaries of the Credit Suisse account were.

“Final beneficiaries of the Credit Suisse account 0835-20858-82 through which KenolKobil dividends were paid were Mr Jacob Israel Segman and Ms Dina Segman,” the CMA enforcement letter reads.

Apparently, in June 2007, Dina, Mr Segman’s wife, had been given powers of attorney by the lawyer. This enabled her to carry out any company business. Then came the denials when CMA wanted to enforce penalties against the former oil marketer boss.

He claimed that the account was actually a recipient of proceeds promised to him by the top shareholders for facilitating the 2008 swap.

“There was no credible evidence provided by yourself that such an agreement or contract between yourself and the shareholders of KenolKobil or even an agreement for payment by ERC,” CMA boss said.

Corporate governance

CMA said that only ERC was paying him and that during the swap, Mr Segman had indicated that the swap was being led by the board and CBA Capital as professional valuers contradicting his ‘special role’.

In fact, admitting to this ‘special role’ was akin to indicating that he had ulterior interest in the deal and may have helped influence the swap which is against the corporate governance practice by listed entities of 2002.

The regulator added that the deal was a pure share swap and no money was involved. “The agreements between Wells Holding and ERC, the sellers and Kenya Oil Company (Kenol) the buyer was explicit that no cash is payable and the purchase consideration was the allotment of Kenol shares after the share swap,” CMA said.

CMA also noted that the payment to the Swiss accounts was made in 2011 long after the deal was closed and therefore could not be directly linked. Mr Segman has up to September 6 to pay the money.  

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