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National Treasury puts insider traders on notice
By Anyanzwa James
Updated Sunday, June 16th 2013 at 00:00 GMT +3
Insider trading refers to buying, selling and dealing in shares and securities of a listed company by insiders.
They inclue directors, officers of management team, employees of the company or any other connected persons such as auditors, consultants, lawyers and analysts who possess material inside information that is not available to the investing public.
The malpractice is prohibited because it favours few insiders with advantageous information while denying the same to the public.
The Capital Markets Act expressly prohibits insider trading and establishes this practice as a criminal offence.
Despite prohibition, there have been few prosecutions. None of these have been successful, partly due to challenges faced in the prosecution process.
The Capital Markets Act prohibits insider trading. It stipulates statutory defenses and sets out the sanctions for insider trading.
It also gives licensing, regulation and supervision of all capital markets participants to the CMA.
The Act also disseminates rules and regulations and is empowered to carry out enforcement and sanctions.
This was highlighted during the country’s first trials for insider trading in which Bernard Mwangi Kibaru and Terry Davidson were unsuccessfully prosecuted. These formed the basis of concern over the adequacy of existing insider trading legislation in Kenya.
The two cases of insider trading against Davidson Kibaru were dismissed in 2010 and both cleared of the charges of insider trading.
Chief magistrate Gilbert Mutembei ruled that Mr Kibaru, who had denied charges of instructing Drummond Investment Bank to sell 111,400 Uchumi shares on April 26, 2006 contrary to the CMA Act, was not guilty on the main and alternative charges of irregular trading.
He ruled that the prosecution failed to prove the accused exploited information not generally available to the public that Uchumi was performing poorly when he sold his shares.