The Capital Markets Authority (CMA) has been ordered to refund Sh11.7 million to Kunal Bid who made a substantial profit from buying KenolKobil shares in 2018 ahead of its buyout by French multinational Rubis at a price of Sh23 per share.
The regulator in July 2019 took an enforcement action against Mr Bid, ordering him to pay Sh23.7 million that represented the profit he booked from the trades using material and non-public information.
The CMA also ordered two of Mr Bid’s firms to surrender Sh333,747 and Sh14,569.5 that they received from stockbrokers Kestrel Capital and AIB Capital respectively as commissions on the illegal trades.
The Capital Markets Tribunal, to which Mr Bid appealed, has ordered that Mr Bid be refunded half of the gains he surrendered to the regulator.
It said while Mr Bid was guilty of insider trading, the actions taken by CMA were excessive since the trader was not a primary insider of KenolKobil which now trades as Rubis.
“The enforcement action dated 5th July 2019 is hereby varied to limit the disgorged amount to 50 percent of the gains in question,” the tribunal said in a decision issued on December 11, 2024. “Consequently, 50 percent of the disgorged amounts shall be refunded to the appellant and to the related persons within 45 days from the date of this judgment.”
Mr Bid and former Kestrel Capital East Africa chief executive Andre DeSimone talked on phone on October 15, 2018 in a chat where the latter revealed that he was involved in an “important KenolKobil deal”.
Soon after the phone call, Mr Bid initiated the purchase of 2,895,100 shares of KenolKobil on behalf of four related persons. The orders were placed through Kestrel whose equities traders were in communication with Mr Bid.
On October 23, 2018, Rubis bought a 24.9 percent stake in KenolKobil from a major shareholder called Wells Petroleum. A day later, Rubis issued a notice of its intention to buy the rest of the shares of KenolKobil at Sh23 per share and Mr Bid congratulated Mr DeSimone on the news.
Mr DeSimone later resigned from Kestrel in April 2019 as the CMA was wrapping up its investigations into the insider trading scandal. The regulator later fined him Sh2.5 million for leaking material information.
The oil marketer’s shares had traded at below Sh14 in the days before Mr Bid placed his buy orders. The tribunal said that the CMA was wrong to impose a maximum penalty on Mr Bid who was a secondary participant in the scheme.
“Accordingly, we find that the [CMA] ad hoc committee ought not to have imposed a maximum penalty against the applicant, being a secondary instructor insider, as it would against a primary insider,” the tribunal said.
“To remedy this situation, a fraction of the disgorged amount ought to be refunded to the applicant. In that regard we direct that the disgorged amount be reduced by half so that the other half be refunded to the Appellant but without interest.”
Mr Bid was part of a group of investors who participated in the insider trading scheme, earning large profits which they later forfeited to the CMA’s Investor Compensation Fund.
Other investors surrendered a total of Sh477 million that they had gained from the illicit transactions after the CMA confronted them with its findings.
Financial commentator Aly-Khan Satchu was another notable participant in the scheme.
Insider trading is illegal since it gives the participants an unfair advantage over other investors. Insiders, including directors, managers and consultants are expected not to disclose material information about a company to other parties who may trade on it.
Such information includes proposed mergers and acquisitions, sale of assets, new products and regulatory troubles.
