Capital Markets

CMA sets up anti-graft unit to rein in rogue brokers

Rogue stockbrokers have been put on notice after the market regulator established an investigation unit to rein in rising cases of fraud in the industry.

On Wednesday, CMA launched the Capital Markets Fraud Investigation Unit (CMFIU) which will look into cases related to impersonation, diversion of investor funds, and employee pilferage at stock brokerage houses.

“We have observed a trend which points to a surge in fraud-related cases in the recent past,” said Mrs Stella Kilonzo (pictured), the CMA chief executive.
“The establishment of CMFIU is part of our efforts to enhance our market supervision capacity as we respond to the challenges posed by fraud.’’

Cyber crime
Senior officers from the Criminal Investigation Department, specialising in economic and cyber crime, will be seconded to the unit. This is aimed at bringing in expertise with a view to building evidence for prosecuting offenders.

In the last one year, the CMA has instituted two high profile cases involving insider trading and alleged misuse of investor’s funds.

Former KCB managing director Terry Davidson has been arraigned in court on charges of insider trading in Uchumi Supermarket shares. CMA has also instituted charges against Mr Patrick Gakiavih, the managing director of collapsed firm Nyaga Stockbrokers for alleged theft of Sh523 million from the company.

However, many other cases are said to have gone unpunished due to lack of sufficient evidence and capacity to carry out investigation.

“We have been paying through our nose to just investigate some of these cases,” said Mr John Kirimi, an executive director at Sterling Investment Bank. “This has deterred some of the brokers from pursuing investigations.”

In a recent case, Old Mutual Life Assurance sued Reliable Securities for allegedly selling its East Africa Breweries Limited (EABL) shares worth Sh17.9 million to an impostor.

Early this year, stockbrokers issued an alert on the rising cases of fraud, especially emanating from their own employees.