The Capital Markets Authority (CMA) is yet to bank the financial penalties it slapped on stock agents Aly-Khan Satchu and Kunal Bid following the 2018 KenolKobil insider trading probe, with the appeals the two filed still to make their way through the legal system.
Mr Satchu sued the regulator at the High Court after it fined him Sh4.69 million two-and-a-half years ago, being the commission he earned from the disputed trades. It also slapped him with a three-year ban from holding office in listed or CMA licensed firms.
The High Court ruled in Mr Satchu’s favour and set aside the CMA penalties, finding that the presence of four CMA members on a committee that penalised him was in violation of the principle of natural justice and fair administrative action under the law.
The regulator had picked four CMA board members and four independent persons to hear and determine the allegations of the suspicious trades in the KenolKobil shares ahead of a takeover by French firm Rubis Energy.
But the CMA then appealed the ruling at the Court of Appeal, with Mr Satchu also lodging a counter appeal to the same court.
“Mr Satchu’s appeal has not been heard. We filed a notice of appeal and we are yet to file a record of appeal,” said the CMA.
In Mr Bid’s case, the CMA sought to recover some Sh23.4 million in gains earned from 2.89 million KenolKobil shares traded in accounts under his management, and an additional Sh348,316 in commissions that accrued from the suspicious trades.
He lodged an appeal against the CMA decision at the Capital Markets Tribunal, which is yet to sit to hear the matter.
The CMA says that the tribunal has vacancies that are yet to be filled, and therefore is unable to hear matters brought before it for adjudication.
A High Court ruling in 2018 stipulated that the tribunal members ought to be appointed by the Judicial Service Commission (JSC) as it has the status of a subordinate court.
Previously, these appointments were done by the National Treasury Cabinet Secretary, who is a member of the executive arm of government.
“The tribunal has not been quorate and therefore it can’t hear the matter,” said the CMA.
The regulator said however that the others penalised under the insider trading probe have already paid up their fines.
They included Andre DeSimone, the former chief executive officer of Kestrel Capital who was fined Sh2.5 million and barred from holding office for one year as a key officer and director in a listed or CMA regulated firm.
Kestrel Capital had voluntarily surrendered Sh9.86 million that it earned in commissions on the transactions executed by Mr Bid and Mr Satchu, who were both its stockbroking agents acting on behalf of their customers.
The CMA had earlier in March 2019 recovered Sh458 million from owners of accounts involved in the trades, which were already frozen, while another Sh19 million was recovered in May.
Former KenolKobil chief executive David Ohana, who was initially among those initially under investigation, agreed to co-operate with the CMA in the probe.
The investigation and conviction was among the most complex undertaken by the CMA, which used forensic imaging of computers and mobile phones of the suspects to piece together the evidence against them.
The regulator had found that Mr Satchu and Mr Bid transacted about 59 million KenolKobil shares on behalf of clients in in October 2018 during the week leading to the Rubis offer, on the back of the information received from Mr DeSimone.
Insider trading is deemed to happen when an investor profits by buying shares ahead of the market based on privileged knowledge of events that would drive the price up, or dumping shares to avoid losses due to prior knowledge of negative information.
At an average price of Sh14.20 in that week, the shares were worth Sh855 million. The traders stood to pocket a potential gain of more than Sh470 million, taking into account the Sh8 premium that Rubis was paying on its buying price of Sh23 a piece.
The CMA had, hours after Rubis announced the impending takeover, frozen some accounts on grounds that it had identified “potentially irregular trading” on the KenolKobil counter.
The deal has since then gone through successfully, and the company delisted from the stock exchange.