- Andre DeSimone, former CEO and executive director of Kestrel Capital, was fined KSh2.5m ($24,250) and suspended from holding any key office in a public company for one year.
- Renown stockbroker and financial analyst Aly-Khan Satchu ceded KSh4.7m he had received as commissions, and was suspended from the capital markets for three years.
- Another stockbroker, Kunal Bid, gave up KSh23.4m in commissions earned from transactions he made through two agents.
The investigation, which was triggered by large stock purchases in the lead up to the takeover announcement, focused on electronic evidence obtained from DeSimone and Satchu’s communications. Their devices were seized in a raid on 15 January, as the regulator investigated the purchase of 66.8m shares.
The enforcement actions, announced by the Capital Markets Authority (CMA) on 8 July, are part of a larger crackdown on financial misconduct in Kenya’s capital markets. The three men were accused of using insider information to recommend the purchase of KenolKobil shares in the weeks before Rubis Energie, a French downstream oil firm, made its takeover announcement for the Kenyan company.
- To anchor the takeover bid, Rubis Energie first bought out Wells Petroleum Holdings, associated with Daniel arap Moi-era power broker and former minister Nicholas Biwott, for KSh15.30 a share with an agreement to pay the difference once the takeover was complete.
- An ad hoc committee formed by the regulator determined that DeSimone had provided insider information to Aly-Khan Satchu and Kunal Bid, which they then advised various clients to buy 59m shares in the week before the takeover announcement was made on 24 October 2018.
- The CMA said it had recovered KSh458m in March, and KSh23.5m more when it added Kunal Bid to the investigation in May.
The trades were made through Kestrel Capital, which also had to give up KSh9.9m in the enforcement actions. “Kestrel voluntarily entered the settlement neither admitting nor denying liability thereby closing the insider trading investigations in respect to Kestrel as an entity,” the CMA said in a statement.
- The fallout from the insider trading case, in which the investment bank’s founder and chairman Charles Field-Marsham was also briefly under investigation, led to Andre DeSimone’s resignation in early April.
- DeSimone, who was involved in the pre-takeover process, was accused of being the primary source of the insider information Satchu and Bid used.
Kenol Kobil CEO David Ohana, who led the regional downstream oil company’s turnaround to profitability, was also investigated but later cleared after voluntarily cooperating with the regulator. Ohana also resigned in April in the midst of the insider trading investigation.
- In 2013, Swiss company Puma Energy had also tried to takeover the company but pulled out of the deal.
Lines of defence
Aly-Khan Satchu, whose primary defence was that he recommended the stock purchases “based on independent market research”, according to an investigation report, is appealing the enforcement actions on questions of the legality of the process.
- Through his lawyers, Ahmednasir Abdikadir & Company, Aly-Khan Satchu told The Africa Report that “actions recommended by the committee [were] unfair … illegal and contra-statute and unconstitutional.” They argue that the committee had no jurisdiction over the matter, as insider trading is a criminal offence and “only the Director of Public Prosecution under Article 157 … can prosecute … and it is only a court of competent jurisdiction that can find [him] culpable for any alleged offense.”
The CMA has been cracking down on financial misconduct:
- In February, it fined David Tumaini Maena KSh166.9m for professional misconduct between 2016 and 2017, being twice the amount he received in illegal gains. Maena was also banned from capital markets for 10 years the CMA and deregistered by the Institute of Certified Financial Analysts, which added another KSh1.1m fine.
- In May, the regulator fined a bond trader named Rodrick Muhoro KSh208m for irregular trading of government securities in 2016 and 2017. He was accused of front running by creating artificial arbitrage opportunities.
The bottom line: While these two cases had significantly higher penalties than the Kenol Kobil case, the extensive investigation into electronic communications and high-profile nature of the case were unprecedented. Meanwhile, the oil company was delisted from the stock exchange in May, after nearly 60 years on the bourse.
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