Investors lose Sh100m in fresh pyramid scheme-like scandal
CIC says poor performance forced the management to pull the Mavuno product from the market in June 2010 and substitute it with Invest Plan – a 12-year investment vehicle that pays returns every three years. Photo/FILE
Hundreds of investors have lost more than Sh100 million in a pyramid scheme-like plan run by fraudulent agents working from within a Nairobi-based insurer’s offices.
Victims of the scheme are mostly CIC Life Insurance policy holders who had been introduced to the firm’s Mavuno product – a unit-linked investment plan that promised them weekly or monthly returns in the range of seven to 10 per cent.
The investors, who earned the promised returns for a year, however, got a rude shock in January after the agent went missing, sparking a series of events that have since seen CIC disown the product and criminal investigations begin.
“We don’t believe any money was paid to CIC,” said David Rono, the managing director of CIC Life Assurance, even as he admitted that the insurer had a unit-linked product called Mavuno in which policy holders could invest at their own risk.
“There is evidence that most of these investors paid Sh2,000 each for registration into the scheme, but there is no further proof that they deposited any money thereafter,” he said.
CIC says poor performance forced the management to pull the Mavuno product from the market in June 2010 and substitute it with Invest Plan – a 12-year investment vehicle that pays returns every three years.
Investors who put millions of shillings into the Mavuno scheme have since identified the CIC agent who took their money, but the insurer says the employee has since gone into hiding after the scam was reported to the police.
CIC has suspended three other employees, including the supervisors of the agent on the run, as it deals with one of the biggest corporate finance scams since the 2007-2008 pyramid scheme frauds in which thousands of people lost millions of shillings.
Cornelius Mutemi, a victim of the fraudulent scheme, said he had subscribed to CIC’s life insurance policy two years ago and was introduced to the Mavuno scheme after contributing to the policy for six months.
“He asked me whether I wanted to receive the returns in cash or by cheques and I opted for cheque clearing,” he said.
Mr Mutemi subsequently got a job in Doha, Qatar, in December 2010 where he moved to and introduced a number of his friends and relatives to the scheme.
“There was no reason to doubt this scheme as everything was done at CIC premises where employees work in transparent glass-walled offices, making every transaction public,” he said.
Mavuno’s fat returns rapidly popularised the product, propelling its chief agent – now on the run – to becoming one of CIC’s star performers.
The suspect, whose name cannot be published for legal reasons, remains listed among the Insurance Regulatory Authority’s (IRA) licensed agents, but CIC says it has now written to IRA and the Association of Kenya Insurers (AKI) indicating that he is no longer with the company.
IRA, the insurance industry regulator, acknowledged receiving investor complaints over the CIC scheme and is investigating the matter through its recently launched insurance fraud investigation unit.
“We have been informed about it and are looking at it as fraud by staff,” said Noella Mutanda, the head of communications at IRA. It was not possible to determine actual numbers of persons affected nor the amounts lost, but initial estimates have put the figure at more than Sh100 million.
But Mr Rono said that six people had lodged complaints with his company and that 17 others have recorded statements with IRA.
The small number of victims who have reported the fraudulent scheme is linked to the fact that most live outside the country.
One female investor, who asked not to be named, showed the Business Daily documents indicating that she had invested Sh10 million in the scheme.
Four others held documents showing they had put Sh5.8 million, Sh3.9 million, Sh2.2 million and Sh1.2 million into the scheme respectively.
Mr Mutemi said Mavuno’s fat returns of about Sh400,000 per month as at June last year had convinced him to leave his Qatari job and come back to Kenya.
The victims argued that longevity of the scheme and the backing by a registered insurer had convinced them that Mavuno was not a pyramid scheme.
All have monthly account statements printed on CIC letterheads.
“The statements are signed by a F. Ng’ang’a, but CIC says there is no such person in the company,” said Mr Rono.
The victims of the fraudulent scheme said deposits were made every Monday while returns were paid out on Tuesdays. Investors had to notify the agent on Monday of intentions to withdraw or do so on Tuesday by 10a.m.
The fraud comes a few months after CIC declared its intentions to list on the Nairobi Securities Exchange, a decision that has received shareholders’ consent.
On Friday. the firm published a notice in newspapers informing its clients that no agent, unit manager, agency manager or employee of CIC life Assurance is authorised to collect premiums or deposits in cash from clients.
“Hence CIC Life Assurance does not accept liability for any cash transaction entered into with any person connected or purported to be connected with the company in whatsoever capacity. When the payment is made indirectly to our offices, kindly insist on receiving the official computerised receipts from the cash office,” the notice said. The notice turns focus on the role of insurance agents, whose actions as per the agency rule are liable to the principal.
“We realise the face of insurance to the common man is the agent whose actions often affect the principal,” said Ms Mutanda.
Kenya’s insurers have been working on a long-term plan to repair their image after years of association with fraud and many see the latest action as a major setback to the initiative.
It also focuses attention on the relationship between the principal and agents in the banking industry which has recently adopted the agency model.
