The Capital Markets Authority (CMA) has fined Nairobi businessman Mr. Rodrick Muhoro Sh 208 Million and banned him from the industry for 10 years for deliberately the price of government bonds in 2016 and 2017 in an attempt to profit from what is known as Front running.
“The authority has imposed a financial penalty of Kshs 208 Million being twice the amount of benefit Mr Muhoro received from irregular trading and banned him from conducting bonds trading for a period of 10 years.” CMA announced in a release to newsrooms.
According to the investigations, Mr. Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front running. This happened when Mr Muhoro colluded with fixed income dealers namely David T Maena of CBA Capital and Stephen Ngunje of Africa Investment Bank through the creation of artificial arbitrage opportunities, thereby realising a capital gain of Kshs104 million by taking advantage of the price differential before the client orders were executed. The gains would later be shared between Mr. Muhoro and the two fixed income dealers which is in contravention of provisions of the Capital Markets Act.
Front running is the illegal practice of purchasing a security based on advance non-public information regarding an expected large transaction that will affect the price of a security. Front running is considered as a form of market manipulation and insider trading because a person who commits a front running activity expects security’s price movements based on the non-public information.
CMA said it will refer the matter to the Director of Public Prosecution for consideration of criminal investigations on market manipulation; the Asset Recovery Agency to trace and recover assets allegedly bought with illegal capital gains; and the Institute of Certified Public Accountants of Kenya for consideration of disciplinary action for professional misconduct.