In September 2013, the Capital Markets Authority (CMA) took action against rogue stockbrokers at the Nairobi Securities Exchange (NSE) who had fraudulently created and traded government securities worth up to Sh. 105 million.
Brian Muchiri, an Associate Director and Head of Fixed Income Trading at Apex Africa Limited, was disqualified from appointment as an employee or director of any listed company or licensed or approved person, including a securities exchange in the capital markets in Kenya for a period of seven years.
Muchiri was also required to surrender the capital gains worth Sh. 3.74 million earned from the purchase and sale of fraudulent bonds. In the same vein, Apex Africa Limited was also required to surrender commissions earned from the transactions amounting to Sh58,000 to the CMA Investor Compensation Fund.
Muchiri, though, was not alone. Mr. Fredick Mweni, a then managing director of Tsavo Securities, was disqualified from appointment as an employee or a director of any listed company or licensed or approved person, including a securities exchange in the capital markets in Kenya for a period of 15 years. Earlier in December 2012, Mweni had been barred from appointment and service as a director of any listed company or licensed or approved person in the capital markets in Kenya, with effect from December 21, 2012.
Mweni and Muchiri were joined by Bokole Masha, a director of Tsavo Securities, was also disqualified from appointment as an employee or director of any listed company or licensed or approved person, including a securities exchange in the capital markets in Kenya for a period of 10 years.
Nearly three years down the line, it has been revealed that Mr. Muchiri took a Sh. 100 million loan from Bank of Africa (BOA) in June 2012 to fund the purchase of fake bonds from Manline Telecommunications Limited which he sold to NIC Bank, Canon Assurance ad CIC Asset Management using Apex Securities Limited. According to a different report appearing in Kenya’s Business Daily, the bonds Mr Muchiri bought from Manline were among several fake bonds traded in an elaborate scheme hatched by CBK employees in which CBK may have lost up to Sh. 2.6 billion.
According to court documents presented by Capital Markets Authority, CIC, NIC and Canon bought the bonds for a collective Sh81.7 million. Section 31(7) of the Capital Markets Act outlaws engagement in any fraudulent act, lying or omission of any information that would be construed as relevant by any of the parties to a securities trade.
In March 2013, Mweni had agreed to pay Sh39.5 million to CBK in compensation for the three ‘stolen’ bonds that put his brother Bokole in the dock. Mr. Mweni was barred from trading by CMA for selling three fraudulent bonds worth Sh18.5 million, Sh9.5 million and Sh11.5 million. Commercial banks reported transactions worth Sh1.44 billion related to the fake bonds, but Mr. Mweni has since claimed that the Central Bank of Kenya may have lost up to Sh2.6 billion.
Since 2013, Mweni has been in court trying to stop CBK from auctioning his properties in Syokimau and South C to recover Sh.52.9 million lost in the scam.