Stock market trader Aly-Khan Satchu and former Kestrel Capital chief executive Andre DeSimone will pay cash fines and serve varying bans from holding key positions in any Capital Markets Authority (CMA) licensee for their roles in the KenolKobil #ticker:KENO shares insider trading scandal.
Mr Satchu, the chief executive of investment advisory firm Rich Management, will pay a fine of Sh4.69 million, being the commissions he earned from the illegal trades, and serve a three-year ban after the regulator found him guilty of initiating irregular trading of the Nairobi Securities Exchange (NSE) listed KenolKobil’s shares ahead of last year’s takeover announcement by French company Rubis.
Mr DeSimone was slapped with a cash penalty of Sh2.5 million and a one-year ban for disclosing price-sensitive, non-public information to Mr Satchu and fellow stocks agent Kunal Bid, as Rubis bought an initial 24.99 percent stake in KenolKobil in preparation for the October takeover bid.
Both Mr Satchu and Mr Bid were stockbroking agents of Kestrel, acting on behalf of their customers.
“The committee has disqualified Mr Aly-Khan Satchu from holding office as a key officer of a public listed company and/or issuer, licensee, or in any other capacity in an approved institution of CMA (including a stockbroking agent) for a period of three years from the date of the enforcement notification,” said the CMA in a notice Monday.
The investigation and conviction is unprecedented both in scale and complexity in NSE’s history, as the regulator used forensic imaging of computers and mobile phones of the suspects to piece together the evidence against them.
“The committee, in reaching their determination, considered the written and oral submissions made by the notice-to-show-cause recipients. The evidence presented by the CMA found that the recipients were culpable for insider trading.”
The regulator found that Mr Satchu and Mr Bid transacted about 59 million KenolKobil shares on behalf of clients in the week leading to the offer on the back of the information received from Mr DeSimone.
At an average price of Sh14.20 in that week, the shares were worth Sh855 million. The traders stood to pocket a potential gain of more than Sh470 million, taking into account the Sh8 premium that Rubis was paying on its buying price of Sh23 a piece.
Mr Satchu on Monday told the Business Daily that he intends to appeal the ruling.
“I am taking advice from my legal counsel and yes, I am appealing,” he said in an email response.
The Mombasa-born trader has been one of the more visible commentators on the Kenyan market since 2006 after spending a decade-and-a-half in global financial markets.
Mr DeSimone did not respond to an inquiry on his next course of action following the CMA ruling.
The regulator picked four CMA board members and four independent persons to hear and determine the allegations of the suspicious trades in the KenolKobil shares.
They included former Chief Justice Willy Mutunga, university don Jim McFie, President of the CFA Society of East Africa Patricia Kiwanuka and former PwC Partner Anne Eriksson.
In March, the regulator recovered Sh458 million from owners of accounts involved in the trades, which were already frozen, while another Sh19 million was recovered in May.
The CMA has also recovered from Mr Bid some Sh23.4 million gains earned from 2.89 million KenolKobil shares traded in accounts under his management. This is in addition to Sh348,316 in commissions that accrued from the suspicious trades.
The regulator said Kestrel Capital voluntarily surrendered Sh9.86 million that it earned in commissions on the transactions executed by Mr Bid and Mr Satchu.
Part of the evidence used by the CMA to nail the parties was gathered in January when the regulator raided the offices of Mr Satchu, Mr DeSimone and former KenolKobil chief executive David Ohana, confiscating their computers and mobile phones.
The CMA had initially included Mr Ohana in the probe, but he was excused after agreeing to co-operate with the regulator.
The CMA, however, only disclosed evidence from the confiscated devices implicating Mr Satchu, given that he was the only one who went to court to challenge the investigations.
Private WhatsApp message conversations retrieved indicated that he had offered an unnamed client prior information of the KenolKobil sale, positioning himself to split the gains with the buyer once the deal went through.
The use of mobile forensic evidence, which involves gathering electronic data for legal use, marks a turning point in the prosecution of insider trading deals that have been eroding investor confidence in the market.