Stockbroker used Sh100m loan to buy, sell fake bonds

 

Former Apex Securities director Brian Muchiri insists that the bonds passed strict Central Bank of Kenya (CBK) checks hence could have fooled anyone. PHOTO | FILE 

By BRIAN WASUNA, bwasuna@ke.nationmedia.com

In Summary

• CMA says Brian Muchiri tricked end users by using Apex to sell the bonds without disclosing that the brokerage firm was trading the securities on his own behalf.
• The tribunal has upheld the CMA’s decision to ban Mr Muchiri from sitting on the board of any listed firm for seven years, terming it a fair verdict.

Stockbroker Apex Securities’ former director, Brian Muchiri, took a Sh100 million loan to fund the purchase of fake bonds he sold to NIC Bank, CIC Asset Management Limited and Canon Assurance, the Capital Markets Authority (CMA) has said.

The CMA says in court documents that Mr Muchiri borrowed the Sh100 million from Bank of Africa (BoA) and bought the bonds from Manline Telecommunications Limited before using his brokerage firm to sell the securities.

CIC, NIC and Canon bought the bonds for a collective Sh81.7 million.

The claims were made in an appeal Mr Muchiri filed before the Capital Markets Tribunal, seeking to reverse the regulator’s decision to ban him from directorship or employment in any listed firm for seven years. The CMA imposed the ban in August 2013.

Mr Muchiri claims in the appeal that he purchased the three bonds innocently and that he was only granted the BoA loan due to his vast experience and merit in the investment industry.

The former Apex Securities director insists that the bonds passed strict Central Bank of Kenya (CBK) checks hence could have fooled anyone.

But the CMA says Mr Muchiri tricked end users by using Apex to sell the bonds without disclosing that the brokerage firm was trading the securities on his own behalf.

The tribunal has upheld the CMA’s decision to ban Mr Muchiri from sitting on the board of any listed firm for seven years, terming it a fair verdict.

“At all material times Mr Muchiri failed to disclose to the end purchasers his personal interest in the subject bonds contrary to Section 31 (7) of the Capital Markets Act and regulation 15 (2) of the Capital Markets licensing regulations of 2002. Mr Muchiri’s actions amounted to the prohibited practice of front-running and therefore he manifestly violated the law,” said Gad Ouma, the regulator’s lawyer.

Section 31(7) of the Capital Markets Act outlaws engagement in any fraudulent act, lying or omission of any information that would be construed as relevant by any of the parties to a securities trade.

The former Apex Securities director took the Sh100 million loan from BoA in June 2012.

Mr Muchiri claimed that he personally bought the bonds because there were no willing purchasers at the time Apex acquired them from Manline.

READ: CMA probes more brokers in bonds theft scam

The former Apex Securities boss said information about him buying the Manline bonds in his personal capacity was not relevant to the sale of the same securities to CIC, NIC and Canon Assurance.

He said that the CBK’s Anti-Fraud Investigation Department had cleared him of any wrongdoing, adding that the regulator did not afford him a fair hearing.