Home ECONOMY CMA, Cytonn in Legal Tussle Over KSh 717.3 Million Unit Trust Fund

CMA, Cytonn in Legal Tussle Over KSh 717.3 Million Unit Trust Fund

by biasharadigest

The Capital Markets Authority is locked up in a legal battle with Cytonn Investments. This is after the regulator ordered the firm to stop recruiting any new investors to join its Unit Trust Scheme.

 In a sworn affidavit before the Commercial and Admiralty Division at the High Court in Nairobi, Abubakar Hassan Abubakar, CMA Acting Director of Operations said that the regulatory body acted within in statutory powers to protect investors, particularly new clients. It also needed to protect the general public from potential risk due to a non-performing trustee.

Disagreements between CMA and Cytonn first arose when Co-operative Bank, who was the trustee of the KSh 717,336,949.00 Unit Trust Fund, resigned. In a letter dated 1st August 2019, Co-operative Bank issued a Notice of Resignation. The bank requested to relinquish their duties as Trustees by October 31st 2019. The Fund manager was thus given two months to appoint a new trustee for the scheme.

On 8th October 2019, Cytonn wrote to the resigning trustee Co-operative Bank indicating that it was engaging various parties to offer the services of a trustee.

But after the two months, Cytonn had failed to appoint a new trustee, prompting Co-operative Bank to appoint one. The bank then sent out requests for quotation from various parties. By the end of the two-week statutory period, ending December 3rd, 2019, Co-operative Bank received no response.

CMA intervened and wrote to Cytonn to find a new trustee by 31st December, 2019, failure to which it would suspend onboarding new clients/unitholders to the scheme.

“The fund, as at 31st December, 2019 held assets
under management to the tune of KSh 717,336, 949.00 which remains at potential
risk in the absence of a performing trustee and any further deposits by new
unit holders under such condition will only work to amplify the potential risk
exposure to the detriment of investors and the general public,” said Mr
Abubakar in the affidavit.

Cytonn CEO Mr Edwin H. Dande has filed a Constitutional Petition against the CMA’s decision to freeze the Unit Trust.

“Fund Managers should not be solely restricted to get trustees from just five banks, some of whom are also players in the Money Market Fund industry. The only five banks authorized as Trustees are KCB Bank, Cooperative Bank, Stanbic, National Bank and HF Bank,” said Mr. Dande in a statement sent to media houses.

“CMA regulations restrict the eligibility of a Trustee as a bank and indeed only five banks are authorised as Trustees. Yet banks themselves are competitors in the money markets through Fixed Deposit products issued by the banks themselves and/or Money Market Funds managed by Fund Managers affiliated to the bank,” adds the statement from Cytonn Chief Executive.

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