It all started on the afternoon of October 22, 2018, when Krestel Capital boss, Andre DeSimone, briefed his people on a large transaction that was about to occur. The briefing could have been an innocent act in preparing his team for the big business that was about to unfold. But it also marked the genesis of the drama that unfolded in the KenolKobil insider trading claims. Rubis was about to buy out 367 million shares from Wells Petroleum Ltd, a company associated with the family of the late Nicholas Biwott, which is estimated at Sh8.415 billion. The French firm bought the 367 million shares or 23.8 per cent in October last year at Sh15.30 per share, with a promise to top up Sh2.8 billion under the deal. The block trade, which was meant to be kept under wraps, regrettably would immediately resonate throughout the market, with selected few getting to know the impending takeover of KenolKobil shares, which traded Sh15, but with a promise to be bought by Rubis at Sh23 by new owners. The new premium price on offer was a gift to all shareholders, which the buyers were willing to part away with in exchange for owning the business. Most shareholders did not know that this windfall was coming their way and insiders with this information acted swiftly as informed by the big purchases of the said shares in the run-up to the impending sale of KenolKobil. They hoped to buy the shares at a bargain price of Sh15 and sell the same to Rubis at a premium Sh23 per share, hence rigging out the ordinary unsuspecting shareholders out of the deal. The forensic report in our possession showed that DeSimone chose Sally Kotut and Amanda Onyango to deal on behalf of Rubis, while Christine Kuria and Charles Miriti to act for Wells in the mega-deal that marked the start of KenolKobil sell hullabaloo. Ms Kotut, perhaps considering the morality of trading for Biwott family-owned firm, chose her young friend Gwen Kinisu to cut her into the money, otherwise what are friends for? ‘From watching western movies we get the impression that calls cannot be tapped by the minute so when we are doing shady things we do it in seconds.’ At 12.58pm, on October 23, Ms Kotut called Gwen for exactly one minute, and four minutes later she called her again for 25 seconds. While what was discussed remains unknown, investigators have found out that these calls were the makings of modern day insider trading that has rocked Rubis purchase of KenoKobil. “Investigations established that Sally Kotut encouraged Gwen to trade on October 23, based on the insider information she had received from Andre DeSimone on October 22 during the afternoon briefing of the block trade transaction,” details the investigation report seen by Financial Standard. Gwen, according to the findings tabled at the CMA board, had told her friend to buy 160,000 shares even though she did not pay the money upfront, but promised to raise it later. Agitated and anxious, she even at point doubted her friend’s ability to execute the trade, perhaps fearing a moment of conscious would change her mind. So Gwen, according to the report, called Martin Anyika who also works at Kestrel to confirm that indeed the purchase had been made. Ms Kotut only solicited Gwen in the affair, according to investigators, they were friends and conversed regularly as telephone data showed. This is just a tip of the iceberg of the extent to which greed spread its root in the country’s broken financial system that was exposed by the KenolKobil insider trading. Ms Kotut was not alone. Investigations show that individuals managed to rope in reputable trading firms such as Apex Capital, AIB Capital and SBG securities in the deals as friends invited each other to the party. Christine Kuria walked out of the meeting and called her friend Samuel Wachira of Apex Capital tipping him over the impending sale. They were former colleagues at Krestel Capital, according to investigators and she walked out of the afternoon meeting only to call Wachira at 4.34 pm with the itching news. The next day, Wachira thought it was clever to use his wife’s account to trade by buying Sh500,000 worth of shares. He was, however, cautious at first until when Kuria’s predictions started to manifest as confirmed by the sale of Wells stake to Rubis. It was at this point that he opened his wallet. He first bought shares worth Sh600,000 and mobilised cash quickly to make his biggest ticket of Sh1 million. Little did he know that he was the small fry in a big game that would attract the scrutiny of CMA down to his irregular transactions. And as the contagion and greed spread through the market, it was just a matter of time before colleagues shared details of the get rich scheme. Wachira dropped the hint to his friend at the office who happened to be Sheemah Rameshchandra Shah who traded Sh3.5 million worth of shares in her name and another colleague, Rajesh Goswami. As a trader, she at first was also wary of the new information and only placed a conservative trade worth Sh500,000 which would come to haunt her. When Wells sold, she realised the game was on and she quickly, in just two minutes after Wells closed deal bought shares worth Sh600,000. And 28 minutes later, according to email instructions, she used Goswami to trade and later at 2:00 pm she made two trades buying shares worth Sh2.2 million. When confronted by investigators, she claimed that she had noticed the huge Wells share trade, which prompted her interest, but that was where the earlier trade of Sh500,000 came calling like a bad curse. “It was established that both Sheemah and Wachira traded prior to the block trade and thus their explanation that their trades were informed by the block trades were invalid,” investigators said. But did Chris Miriti and Amanda Onyango walked out of the afternoon meeting with their morals intact? The next day Chris called Mehul Patel to buy shares of KenolKobil and in a series of trade, Mehul had amassed Sh25.8 million worth of shares in the oil marketer. “On three instances, Mehul purchased 1.6 million KenolKobil shares in two slots with Amanda Onyango and Chris Miriti being the brokers for the transactions,” reckoned the sleuths in their report. Mehul did not even have to buy the shares in cash and instead used a credit facility, knowing well that the windfall would probably pay off the loan. But that was not his first time buying stocks on credit. He had a standing facility of Sh50 million with Kestrel in 2016 and concentrated his borrowed investment in KCB, Equity, NIC and Safaricom shares. He ran out of goodwill when he pushed the envelope, exceeding the credit limit and in 2017, he was in default. But to the investigators, he had a motive to cash in and pay off a Sh18 million defaulted debt. “Mehul exceeded his credit limit and the amount of debt in his account exceeded his portfolio market value. Kestrel cut his credit line and discussed debt restructuring proposals because, at the time, it appeared Kestrel had no better option but to write off the debt,” the investigators said. The KenolKobil case helped open a can of worms of boardroom deals and how individuals privy to the information have abused their trust. It comes at a crucial time when banks are making announcements of big-ticket mergers, including NIC and CBA merger deal, KCB and NBK, and Equity Bank’s announcement of buying four regional banks. Nicholas Biwott’s son-in-law Charles Field-Marsham and KenolKobil boss David Ohana were let off the hook after they successfully defended themselves against accusations. Mr Ohana, in court papers, said he cooperated with CMA and has not sought to dispute orders issued to seize his phone and laptop, which are under investigation by the regulator. Records by investigations later showed that they were cleared since there was no tight evidence tying them to the malpractice. The regulator has also returned recovered money from an unnamed trader which it seized during the probe. “CMA Board has released funds amounting to Sh3.8 million belonging to the last trader, following a determination that he had not traded using insider information,” explained CMA. CMA says five traders opted to return the money which helped the regulator collect an extra Sh19 million in addition to the recoveries of Sh458 million recovered in March 2019. “CMA has completed the outstanding aspects of the insider trading investigations into the KenolKobil counter and has secured the surrender of an additional Sh19 million of potentially illegal gains through No-Contest Settlement Agreements from an additional five traders whose accounts were frozen,” the regulator said. The regulator says they have instead initiated enforcement proceedings against one more person, Kunal Bid, a Kestrel Capital stock brokerage agent for possible insider trading in connection with four trades leading to potential illegal capital gains of Sh23.5 million. The regulator is now left with former Krestel boss DeSimone, stock market trader Aly-Khan Satchu and Bid in the insider trading scandal meant to prove regulators ability to enforce discipline in the market. To cure successive litigation against CMA sanctions for being judge, jury, and executioner, the regulator has also looped in independent parties in the punishment panel. The authority has constituted an ad-hoc board committee comprising of four CMA board members and four independent persons to hearing and determination of the allegations contained in the outstanding Notices to Show Cause on the suspicious trade in KenolKobil shares. The four independent members are retired Chief Justice Willy Mutunga; Dr Jim McFie, a respected academic and business leader; President of the CFA Society of East Africa Patricia Kiwanuka; and former Country and Senior Regional Partner PWC Anne Eriksson. oguguyu@standardmedia.co.ke
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