How CEO tipped off Kenol insider trade duo

Mr DeSimone admits to having told stock agents Aly-Khan Satchu and Kunal Bid of the Sh26 billion KenolKobil sale to French multinational Rubis, giving the duo privileged information that they used to trade on the Nairobi Securities Exchange (NSE) listed stock days to the private transaction.

"It was in an incredibly busy period but I do remember discussing with Aly-Khan, I just remember saying I am working on this deal and I’m just trying to get at the close, as I mentioned the KenolKobil deal.

"I did not have any expectation or belief that he would use that information in the way he did to encourage his clients to buy shares, if, in fact, he did. I may not want to say he did but based on what I have seen…" Mr DeSimone told members of the CMA Ad Hoc Committee that investigated the deal.

"One clarification I would make… I was not in the company of Aly-Khan when I had this discussion with Kunal. It was completely separate and at a different time and a different place.

Penalties

Mr DeSimone was banned for one year from holding a position in any CMA regulated entity and slapped a Sh2.5 million fine.

Mr Satchu was to pay a penalty of Sh4.69 million, being the commissions he earned from the illegal trades, and serve a three-year ban, while the CMA has also recovered from Mr Bid some Sh23.4 million gains earned from the suspicious trades in addition to Sh348,316 in commissions that accrued from the insider deals.

The duo, who are chief executives of their stock trading agencies, have denied the insider trading charges and appealed the CMA penalties.

Mr DeSimone, who turned from an accused person to a prosecution witness, has accepted the verdict and is already serving his ban.

The CMA in March seized Sh458 million gains that it said the insider trading suspects stood to earn from the KenolKobil takeover after buying the stock on the cheap from unsuspecting investors.

Another Sh19 million was recovered in May.

The CMA said the seized cash related to suspicious trades that were initiated through 14 accounts that were frozen in October last year when the buyout was announced.

The recovered funds were to be be paid into the Investor Compensation Fund.

The ad hoc committee comprised 18 members including the Capital Markets chair James Ndegwa, CEO Paul Muthaura, former Chief Justice Willy Mutunga among others.

The explosive insider trading trial reveals finer details of the KenolKobil insider trading scheme, the biggest ever to have hit Kenya’s capital markets.

Mr DeSimone described how he met Aly-Khan Satchu at Capital Club to discuss opening an account for his clients who brought in up to Sh1 billion ($10 million) for the deal.

Sensitive information

He handed over price sensitive information when he casually told Satchu he was looking to close the KenolKobil deal.

Computer forensic firm, East African Data Handlers, retrieved communication from Mr Satchu’s phone showing he had prior knowledge of the deal and used the information to trade on Kenol shares ahead of market announcement.

Insider trading is deemed to have occurred where a person in possession of privileged information which is material, price sensitive and non-public information either trades in securities relying on the information, discloses the same to another person who trades based on the information or encourages someone else to trade relying on the same information for gain or to avoid a loss.

The KenolKobil chief executive, David Ohana, who was part of the initial CMA investigations, was found to have had no case to answer.

Mr DeSimone said he did not recall when and under what circumstances he revealed the transaction details to Mr Bid.

"Again it was around the time when I was extremely busy on this transaction…I was trying to run Kestrel Capital and work with other things and with Kunal at that time," he told the committee.

He, however, tried to downplay the nature of their relations with Satchu, saying they only met for coffee and lunch once or twice a year and at corporate events.

Leaked information

Mr Satchu has in his testimony denied that he got any leaked information from Mr DeSimone. He said they met once every three months or so but never discussed the market.

He said that Mr DeSimone’s admission to leaking the information was ‘confused’ and ‘it never happened’.

"You know what he did not. But am sure that he probably thinks he did but he did not," Mr Satchu says in his testimony.

"He did say that he was doing a lot of corporate finance work. But other than that he did not mention KenolKobil prior to the purchase that we made at the stock market."

Mr DeSimone confessed to the Committee how he started getting jittery while in Mombasa with his kids on a term break at which point he confided to his lawyer Paul Ogunde.

"What I was waking up in the morning and thinking is… what the worst case scenario...?" he said.

He further revealed that the KenolKobil boss Mr Ohana had raised the matter of unusual block trades at KenolKobil counters with Kestrel, at which point he warned Mr Satchu of the impeding CMA investigations.

"I said, by the way I had seen the trades you have done. They were very large trades. They were done days before a takeover offer. This is very obvious to me that he should be prepared for an investigation," Mr De Simone said.