The planners of a high-profile case of insider trading at the Nairobi Securities Exchange (NSE) were so meticulous in their get-rich-quick scheme that they bought KenolKobil shares in bits just before an announcement was made that the oil marketer was being acquired by French firm Rubis in order to avoid detection.
A yet-to-be-released investigation report by the Capital Markets Authority (CMA) says the traders then mopped up all the shares they could get their hands on immediately the announcement was made, hoping to make a killing and escape justice at the same time.
Everything could have gone according to plan had the CMA not noticed suspicious large movement of shares within the week preceding the announcement of KenolKobil’s acquisition on October 23 last year.
In just a week, KenolKobil moved 433.8 million shares valued at Sh6.1 billion in the six days of trading to October 23, a day before the Rubis deal was made public.
This was compared to 472,500 stocks in the week preceding the start of the share-buying frenzy that started on October 16.
Had the plan worked, those involved would have made an easy half a billion shillings within a week just by moving money based on insider information.
This was to be achieved by purchasing shares from unsuspecting shareholders for Sh15 and then selling the same to Rubis at Sh23.
They not only lost the deal but CMA also recovered more than half a billion shillings from seven of them.
Those who have been found guilty of buying shares through insider knowledge include Alice Muturi, Sheemah Rameschandra, Gwen Kinisu, Mehul Patel, Kunal Bid and Chandrakant Shah who is the chairman of Vita Foam Mattresses.
Others are Chris Miriti, Christine Kuria, Sally Kotut and Amanda Onyango, all employees of stock brokerage firm Kestrel who solicited for stock buyers in the days leading to KenolKobil’s buyout.
Businessman Darshan Chandaria of Chandaria Industries has been let off the hook for buying shares worth Sh4.9 million during the share buyout frenzy period.
Investigators could not establish any conduct on his side pointing towards insider trading. He has however not been left to go scot-free.
“During the initial interview, Mr Darshan had proposed to settle in order to mitigate the reputational risk that would have arisen had news of him being under enforcement proceedings gone public,” says the investigation report.
Additionally, CMA has recommended the barring of Mr Ali Khan Satchu and Kestrel’s former CEO Andre Desimone from holding any management positions in listed companies or trading at the NSE for one to five years.
The two, who have been identified as being at the centre of the scam, are to pay a fine of Sh2.5 million, which observers have termed as a slap on the wrist compared to a maximum jail term of 20 years in developed financial markets such as the US and UK.
KenolKobil was, until the buyout by Rubis, majorly owned by Wells Petroleum, a firm owned by former Kanu-era minister Nicholas Biwott.
Before he died, Mr Biwott had been trying to sell the oil marketing giant since 2012 without success.
Kestrel Capital, which was selected to effect the buyout, is run by Mr Biwott’s son-in-law Charles Field Marsham.
Mr Desimone resigned from Kestrel in April while Mr Marsham has been cleared of any wrongdoing.
Mr Satchu, the report says, used confidential information he had been given by Mr Desimone on the impending buyout to advise his clients to buy out KenolKobil shares.
Mr Desimone’s intention was that Mr Satchu would have used the information in order to acquire shares for himself, but the Rich Management Ltd CEO betrayed him, according to investigations.
“It was during this time that Mr Satchu enquired from Mr Desimone about the procedure, mechanics and flow of funds from a foreign bank account to settle in Kenya,” says the investigation report.
“Mr Satchu wanted to know if the funding could come directly to Kestrel and if Kestrel would consider opening an offshore account for one of his clients,” says the report.
Unknown to Mr Desimone, Mr Satchu wanted this information in order to pass it to his clients, who were on standby, adds the report.
And on October 16, with the timing right, as Mr Desimone was out of the country with his family on a school break holiday and with just a week to the announcement of Rubis acquisition of KenolKobil, the share acquisition frenzy was kicked off.
Mr Kunal Bid, for instance, bought shares worth Sh43.1 million in the six days hoping to gain Sh23.4 million.
Mr Mehul Patel and Mr Praksha Patel bought shares worth Sh25.9 million hoping to get Sh13 million.
And even on being notified of the suspicious transactions by Stanbic Bank, Mr Desimone “advised them that they were above board and instead of informing CMA, he decided to protect himself and Mr Satchu”.