Zachary Ochuodho @zachuodho
Capital Markets Authority (CMA) has fined a Nairobi businessman Sh208 million for conspiring with brokers to defraud investors in bond transactions handled in 2016 and 2017.
It said Rodrick Muhoro, a bond trader, has also been banned from conducting bonds trading for a period of 10 years following the conclusion of investigations in respect to claims of irregular trading of securities between January 2016 and June 2017.
Muhoro was being investigated over claims that he was involved in irregular trading of Government Securities in an attempt to profit from what is known as Front running.
CMA said the Sh208 million fine is twice the amount of benefit the trader received from irregular trading.
It said Muhoro colluded with fixed income dealers through creation of artificial arbitrage opportunities, thereby realising a capital gain of Sh104 million by taking advantage of the price differential before the client orders were executed.
Investigators from CMA said the gains were later shared between Muhoro and dealers at brokerage firms in contravention of provisions of the Capital Markets Act.
Front-running is trading conducted with the intent of being ahead of other market participants. If brokers put their own financial interests ahead of their customers, they are deemed to be committing fraud.
Following the conclusion of investigations, CMA said it will refer the matter to the Director of Public Prosecutions for consideration of criminal investigations on market manipulation.
It will also push on the Muhoro case to the Asset Recovery Agency to trace and recover assets allegedly bought with illegal capital gains and to the Institute of Certified Public Accountants of Kenya for consideration of disciplinary action for professional misconduct.