How CMA cornered Aly-Khan Satchu in Kenol scam

Stock dealer Aly-Khan Satchu put up a fierce defence against charges of insider trading in the Sh26 billion KenolKobil takeover by French company Rubis, records of the disciplinary hearing have revealed.

Mr Satchu, who hired abrasive Senior Counsel Ahmednasir Abdullahi, at first attempted to block the hearing by the Capital Markets Authority (CMA)-appointed ad hoc committee.

Mr Ahmednasir dismissed the committee as a kangaroo court, mickey mouse, a mongrel and a rogue assembly assuming powers it did not have to charge his client with insider trading.

Criminal offence

He claimed the show-cause letter sent to Mr Satchu was based on a repealed section of the Capital Markets Act and that the only relevant sections covered licence revocations and not insider trading, which he claimed is a criminal offence that should be handled by the Director of Public Prosecutions.

He also took issue with the terms of the committee and its composition, arguing that it should either be composed by CMA board members or an entirely independent team, accusing CMA of being the judge, jury and executioner.

The committee comprised retired Chief Justice Willy Mutunga, academic Jim McFie, Patricia Kiwanuka, president of the CFA Society of East Africa; and Anne Eriksson, former country and senior regional partner PricewaterhouseCoopers.

“You cannot have your jua kali rules of evidence…and tell us that no matter the gravity of what Aly-Khan Satchu is facing you will suspend the constitutional right to a fair hearing,”

Sh458m gains

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.

Mr Satchu was found guilty of insider trading and slapped with a penalty of Sh4.69 million, being the commissions he earned from the illegal trades, and ordered to serve a three-year ban.

He has filed an appeal at the High Court.

The regulator also recovered from another stocks agent, Mr Kunal Bid, some Sh23.4 million gains earned from the suspicious trades in addition to Sh348,316 in commissions that accrued from the insider deals.

Blow-by-blow account

CMA board chair James Ndegwa offered a blow-by-blow response, dismissing Ahmednasir and directing Mr Satchu to either submit to the process or leave.

Mr Satchu switched tact and sought to defend his trades, claiming that he had interviewed the KenolKobil CEO David Ohana in 2017 and that he bought the oil firm’s shares because in October the market had collapsed and the share was mispriced, hence it had an upside.

He was, however, hard-pressed to explain whether it was a common habit to share trading profits with clients since he had asked his customers to put in money after which they would share capital gains on a 50/50 basis, which he described as a ‘’marketing gimmick.’’

“I was trying to make it clear to the person I was advocating the purchase to that I was so convinced about it that I would want to share the profits,” said Mr Satchu.

He added that eventually he would only have taken his commissions and would not share the profits.

Irregularity
Asked why he asked his clients to doctor letters so that they would look like they had instructed him to buy the shares, he admitted to having committed an irregularity.

“I went back to my clients and to tell them this is a request that is coming that we have to backdate. That was an error. I should have just done it for whatever the date was,” he said.

Mr Satchu suffered a blow when a bid to have court orders authorising a search at his premises and seizure of phone and laptops was thrown out, making the critical evidence admissible.

The most solid evidence against Mr Satchu, however, was the admission by Andre De Simone, former chief executive of stockbrokerage firm Kestrel Capital, of having tipped off Mr Satchu and Mr Bid of the impending transaction, 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.” Mr DeSimone told the CMA committee.