Cytonn investments has been accused of obtaining money from investors without the necessary approvals from the Capital Markets Regulator after claiming the money is being raised privately so as to avoid scrutiny.
Mr Kenneth Kasinga has sued the investment firm saying he was lured to invest Sh3 million believing he was being made a partner in the private cash call involving less than 100 people only to discover Cytonn had raised money from 3,000 investors.
The investor said that the company disguised the Cytonn High Yield Fund as a private placement to avoid scrutiny yet it did not satisfy the conditions set out by the Capital Markets Authority to qualify as such.
“Cytonn misrepresented to me that the product offered was a private offer while knowing that it was a public offer, that the membership of investors was not more than 100 when it knew that it had 3,000 investors and that I would be its partner when it had no intention of doing so,” he said.
In a letter annexed in the proceedings Cytonn defended itself saying they were compliant with the law which only required a company to invoke one of the nine conditions set out in section 21 of the Capital Markets Listings and Disclosure Regulations to qualify as a private placement.
The conditions include that a private offer should be restricted to less than 100 people, members of a club with common interests, restricted circle of people with sufficient knowledge and understanding of the risk or offered in connection with a bona fide invitation.
It also applies to where securities are offered to employees of the company, the amount raised is more than Sh100,000 and where the securities are offered in connection with a take-over scheme approved by the Authority.
“Please note that sub-regulation (a) to (i) under regulation 21 provide that a private offer may fulfil one or more of the said sub-regulations and not all of the sub regulations, which position has been confirmed in writing by the authority,” Cytonn chief executive and managing partner Edwin Dande said.
Mr Kasinga was one of the Cytonn clients asked to postpone maturities of his funds invested in the company for a year and earn half the interest after the company experienced liquidity issues blamed on coronavirus pandemic.
Cytonn investment invoked Force Majure- Act of God clause, in their contracts saying coronavirus pandemic had led to defaulted payment of Sh1.5 billion on two real estate projects the Ridge and the Alma, which meant they could not service their loans and repay investors.
Correspondence shows that Cytonn sought to default on its maturing debts of Cytonn project Notes and 19 per cent interest payments and principal on one Cytonn High Yield Fund and had asked investors to pick one of three options.
The clients would either extend maturities by 12 months, those with over Sh10 million would have the option of taking up units in the company’s real estate or they would enter into a two year standstill during which no payments will be made.