The Capital Markets Authority (CMA) is investigating bond trades carried out by a Kenyan businessman between January 2016 and June 2017.
According to whistleblowers, the businessman, Mr Rodrick Muhoro Mwangi, is alleged to have been working with “approved dealers and licensed brokers to commit market abuse by front-running” Treasury Bonds investors resulting in gains to the conspirators and losses to the investors.
In its replying affidavit, the regulator states: “Front-running is dual trading and a type of insider trading […] which involves the use of privileged knowledge of customers’ orders to buy and sell, in the hands of licensed brokers and its dealers, to trade their own account ahead of customers gain.”
The dual trading resulted in gains of about Sh260 million with Sh110 million of the amount being transferred to two dealers namely David T Maena of CBA Capital and Stephen Ngunje of Africa Investment Bank.
Mr Muhoro told the CMA during a meeting that during the aforementioned period, he was providing dealers of licensed brokers with loans “which facilitated the dual trading and he will henceforth stop giving loans.” Additionally, he said Mr Ngunje and Mr Maena are his partners in a construction business.
The regulator told Mr Muhoro that the scope of investigations would be extended to 2010 and that he would be summoned for an interview in due course after finding his response unsatisfactory.
Furthermore, Mr Muhoro is said to have been using an account with Bank of Africa Limited to hold the gains arising from dual trading according to the regulator’s investigations.
No Allegations Yet Made
In a petition, Mr Muhoro has accused the CMA of failing to make clear what the allegations against him are, to which the CMA has said it will do through a notice once the investigations are complete.
The petitioner also says the regulator has violated his rights to fair trial and has ceaselessly harassed him. In addition, the petitioner says the regulator’s investigations are criminal and that they are hurting him and his businesses.
In response to the petition, CMA’s head of investigation and enforcement Mr Abubakar Hassan Abubakar disregards the claims made and asks for the dismissal of the petition “with costs to the 1st respondent (CMA) and in the interests of justice.”
The current investigation is similar to a 2012 Treasury Bonds scandal where Fred Mweni, head of Tsavo Securities, was banned from working for any listed company for 15 years after being involved in a fraudulent trade worth Sh105 million.
