The Capital Markets Authority (CMA) is investigating two bond
dealers and a businessman for illegal dealing in Treasury bonds that has
earned them a Sh260 million profit.
CMA says in court
documents that the dealers, David Maena of CBA Capital and Stephen
Ngunje of African Investment Bank (AIB Capital), supplied businessman
Rodrick Muhoro Ngugi with privileged (non-public) information on bond
trades, which he used to front run the market and make dual trades in
order to profit at the expense of other investors.
The
markets regulator further says 80 per cent of the gains made from the
2016 and 2017 trades would then be remitted to the dealers.
The
deals were financed through a bond trading credit facility Mr Ngugi had
with the Bank of Africa, which the bank later suspended.
CMA says in an affidavit filed in response to a suit Mr Ngugi
has file against the regulator and Bank of Africa seeking to stop the
ongoing investigations into the dirty deals that the regulator
discovered through a whistle blower and its surveillance systems.
“The
petitioner (Ngugi) was informed that the CMA had noted a trend whereby
upon execution of a dual transaction, approximately 80 per cent of the
potentially irregular proceeds obtained from the transactions would
subsequently be transferred to the approved dealers working for licenced
brokers, who had executed the transaction yielding the irregular gain,”
CMA says in its affidavit.
“Approximately Sh260
million had been derived from the dual trading and majority of the funds
to the tune of Sh111 million were transferred to two dealers, namely
David T. Maena of CBA Capital and Stephen Ngunje of Africa Investment
Bank,” the court papers say.
The irregular trades,
known as front running, arise when a crooked dealer or trader uses
knowledge of customers’ orders to buy and sell to trade in their own
accounts ahead of the market.
It happens when rogue
dealers insert themselves or another party in a deal, to buy bonds from
an investor who is selling at a lower price. Such a trader then goes on
to sell the same bonds to another person at a higher price and pockets
the gain, often within a day (dual trading).
Mr
Ngugi has objected to the investigation arguing that he has yet to be
fully appraised of the exact nature of the irregular transactions
causing the CMA query.
The businessman also accuses the
regulator of directing the Bank of Africa to supply it with his private
and confidential financial information without his consent. He adds
that as a result of the investigation, he has been denied a loan by Bank
of Africa, harming his other businesses.
The CMA says
in reply that investigations into the matter are yet to be concluded,
and that once this is done a decision will be taken whether to charge Mr
Ngugi and the dealers with market abuse.
This latest
investigation echoes the 2012 bonds scandal where the head of advisory
firm Tsavo Securities Fred Mweni was slapped with a 15-year ban from
acting for any listed company following his involvement in the trade of
fraudulent Treasury bonds worth Sh105 million.
No comments :
Post a Comment