A Kenyan has shared how investment questions and concerns that were never answered by Cytonn Investments saved him from losing his money. The Kenyan who is known as James Sang shared that he was keen to invest in the company until he started spotting red flags in an investment proposal.
He had come across an advertisement in the form of an investment proposal that had been placed by Cytonn in the newspaper one morning in Nairobi, in January 2017. In the advertisement, Cytonn was offering very high returns of between 18 percent and 25 percent at a time when real estate returns in Kenya were hovering around 10 percent.
These returns were being offered through two Special Purpose Vehicles that had been dubbed as the Cytonn High Yield Solutions (CHYS) and the Cytonn Project Notes (CPN). However, Mr. Sang noticed that there were certain terms in the proposal that he was not clear with.
“I didn’t know what ‘Structured’ or ‘Alternative’ investments meant. I noted these terms down and decided to seek clarification from Edwin Dande, the chief executive officer of Cytonn,” said Mr. Sang, who is also a US citizen.
Sang pointed out that his concerns were mainly due to the risks that he felt an investor would be exposed to. He also felt that there was lack of diversification, and questioned if the company was using short-term investor funds to finance long-term real estate projects.
He then went on to post questions about the investment proposal on Dande’s Facebook page. He asked as follows:
“Does this mean that you use short-term monthly funds from investors to finance your long-term real estate investments, expecting good returns from these real estate investments to repay the high returns? If that is the case, this is where my concerns arise, because I am unsure how diversified your real estate investments are.”
“I am aware of your two main projects – The Amara Ridge in Karen (100 percent subscribed) and the Alma (55 percent?). (This is a fairly positive sign.) But how many more projects are included in the portfolio? Is it only these two? My point is that “alternative investments” are only beneficial as long as the overall demand for the real estate portfolio remains strong and well diversified. However, if the market collapses, as it did in the US in 2007, don’t you think it could be disastrous for both you and the investors?”
Sang never got a response from Dande and since his concerns had not been addressed, he chose not to invest. This decision saved him from losing a substantial amount of money that he had considered investing.
“My concerns were later vindicated. By 2020, investors complained to the Capital Markets Authority (CMA) about unpaid funds totaling Sh123 million. In June 2021, CMA declared CHYS and CPN as unregulated vehicles and therefore were under criminal investigation,” he said.
“On January 6, 2023, the High Court ordered the liquidation of the two vehicles, which had so far collected Sh11 billion from over 3,000 investors. Cytonn appealed the decision 23 times, but on Friday last week, the Court of Appeal upheld the ruling, ordering auctions and receivership of properties tied to the SPVs.”
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