- The law restricts private offers to a select group of investors who are assumed to be capable of understanding the nature of the investment they are purchasing and the risk they are taking.
- A private offer is one that meets the conditions of regulation 21 of the aforesaid Capital Markets Regulations. Most important is that the investors are approached privately.
- This opens up an avenue for person with unscrupulous intentions to lure innocent investors into a trap posing as a Private Offer investment opportunity.
In the recent past Cytonn was in the limelight for the wrong reasons when some investors alleged default in payment of their investments on maturity. Cytonn is not an isolated case and over the past few years there have been several reports of investors losing alarming amounts of money in investment schemes.
While many of these schemes experience genuine market hiccups, most of them are fraudulent investments set up with the sole intention of defrauding.
They are usually set up and paraded as investment opportunities characterised by above average returns to lure investors and in the end many Kenyans fall victim to these traps.
There is an obvious public outcry and this leads to the question: where is the law protecting common mwananchi from these fraudulent schemes?
It is important to note that in Kenya there are regulated and non-regulated investments. The regulated markets are controlled by the Capital Markets Authority. One of the principle objectives of the CMA is to protect investor interest.
The Authority, through its regulatory framework, is able to regulate public issuing of shares and equities and Collective Investment schemes.
It does this by issuing licences to the market players who meet the set conditions and approve products.
The law prohibits any person from dealing with an investment market product without a licence from the Authority.
On the other hand, Unregulated Market Products are not under the supervision or control of any regulatory body. The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations of 2002, the main law governing the issuing of securities to the public is not applicable to Private Offers.
Private offers target a select group of investors that meet the criteria provided under the law.
They are essentially a closed shop and operate as private contracts with the investors governed by the terms of that contract.
The law restricts private offers to a select group of investors who are assumed to be capable of understanding the nature of the investment they are purchasing and the risk they are taking.
A private offer is one that meets the conditions of regulation 21 of the aforesaid Capital Markets Regulations. Most important is that the investors are approached privately.
Thus, Private Offers are prohibited from being publicly advertised or being offered to the wider unknowing public.
This opens up an avenue for person with unscrupulous intentions to lure innocent investors into a trap posing as a Private Offer investment opportunity.
The misuse of the unregulated market through private offers needs to be checked. The Capital Markets Authority has received its fair share of blame even prompting a parliamentary inquiry on the matter. This is despite the fact that the Authority has less control on these entities.
The government needs to come up with a way to ensure private offers are not used to defraud investors.
Jane Makena Kirimi, Managing Partner, JMK Partners Advocates