The investigation into suspected irregular trading of the National Social Security Fund (NSSF) government bonds has derailed, raising questions on the identity of parties involved in the multi-billion-shilling dealings.
The Central Bank of Kenya (CBK) says it is yet to hear from the Capital Markets Authority (CMA) after raising the alarm last August of suspicious bond trades.
The banking regulator had asked the CMA to investigate recent bond trades under NSSF between some brokers and market players, terming the trading carried out between May and July as ‘illegal’.
A fund manager was accused of buying bonds for NSSF at prices higher than the market average and in some instances sold the government paper at lower rates and buying the same bonds at higher prices in a few days.
Sources at CMA have termed the investigation a hot potato that few want to deal with, terming it sensitive and involving powerful people.
The Finance and National Planning Committee of the National Assembly in early September summoned CBK governor Kamau Thugge and CMA chief executive Wycliffe Shamiah to shed light on alleged impropriety in the bond transactions involving two Central Securities Depository (CSD) accounts of NSSF, those of an individual and a local commercial bank.
The summons failed and the committee went quiet on the inquiry.
Molo MP Kimani Kuria, chairman of the Finance Committee, did not respond to the Business Daily calls and text messages about the matter.
“We are still waiting for them (CMA) to give us the updates on what they have found out from the investigations. We are still waiting to hear from them,” David Luusa, CBK’s Director, Financial Markets Development, told the Business Daily in a telephone interview.
“We are waiting for them to update us on how long the investigation is but so far we have not heard from them.”
Before the start of the investigation, CMA cast doubts on retrieving communication between the market players involved in the NSSF bond dealings after the information about the inquiry leaked and possibly forced the suspects to delete the communication and destroy the gadgets.
Mr Shamiah maintains the investigations are ongoing and that a team has been assembled to execute the task without giving much detail.
“I have tasked it (investigations) to a team working on it,” he said without divulging details while terming the investigation sensitive.
The Central Bank’s letter to CMA mentioned Humphrey Wachira Gichuru and a freshly licenced investment back by the name of Pargamon Investment Bank as parties of interest in the investigation.
The CMA says its data analysts are poring through market data of all trades between May and July, types of government paper, their pricing and the amount of cash involved in efforts to unravel trading in the NSSF bonds.
The buying of security at a price higher than the market average creates outsized profits for the parties.
When the bonds are sold at low prices and bought back at high prices it generates trading income for someone else and huge profits for the seller.
“The purpose of this letter is to request the CMA to review the conduct of the above-mentioned parties and share the actions taken with the Central Bank of Kenya,” said Mr Luusa in the August 19 letter to the CMA.
Little is known about Mr Gichuru, but a previous court suit captured him as an agent of a firm involved in real estate Lexis International Limited.
Official records indicate that Pergamon Investment Bank Ltd was registered on February 26, 2021, with Mr Gichuru listed as a top shareholder with a 30 percent stake.
Amon Muturi Kiarie, a founder and chair of the investment bank has a 25 percent stake, Dion Stephen Kiarie (22.5 percent) and Roda Wanjiku Gitau (22.5 percent).
CMA earlier reckoned that the leaking of the August 19 letter affected the inquiry and denied investigators the chance to swiftly seize mobile phones, computers and laptops from the suspects.
Investigators at the CMA told the Business Daily in confidence admit delays in confiscating communication gadgets to retrieve e-mails, texts and WhatsApp messages shared ahead and during the suspected irregular trading in the NSSF bonds.
The capital markets regulator also delayed seeking a court warrant for search and seizure, known as the Anton Pillar order in legal lingo, in the homes and offices of the suspects.
The use of mobile forensic evidence marked a turning point in the prosecution of white-collar crimes in the country. Usually, such technology is deployed in terrorism and drug trafficking cases.
The use of technology, especially wiretaps, has been employed to aid regulators in the US and Europe to successfully prosecute insider trading cases and show the inner workings of the dark web of finance professionals profiting from irregular trade.
