Regulator heightens probe on KenolKobil insider trading

The Capital Markets Authority (CMA) has intensified investigations into the KenolKobil insider trading case with show-cause letters to three people on their roles in the transactions.

Financial advisor Aly-Khan Satchu and two executives of securities trading company Kestrel Capital -- Chairman Charles Field-Marsham and Executive Director Andre Desimone -- are under probe for allegedly using privileged information to make gains of up to Sh458 million.

The case stems from the bid by French firm Rubis Energie to take over local oil marketer KenolKobil by buying all the shares listed on the Nairobi Securities Exchange.

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The bourse regulator is seeking to know if Mr Field-Marsham, by virtue of being a major shareholder in KenolKobil, may have leaked information of the potential buyout price. They also want to find out if Satchu, on his part, mobilised his trading network to buy the shares on the exchange and later sell to Rubis at a premium.

Engagement

At the time, KenolKobil shares were trading at Sh14.30, with the share set to be sold to Rubis at Sh23, a significant 60 per cent premium.

“We refer to the above matter and previous engagement between yourself and the Capital Markets Authority with respect to the insider trading investigations of the KenolKobil Plc counter during the period prior to the announcement by Rubis Energie SAS of the intention to take over KenolKobil on October 24, 2018,” says the show cause letter.

Field-Marsham was set to get about Sh14.2 billion for selling his KenolKobil shares to Rubis, as a director of three firms that held stakes in the marketer.

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The companies were Tasmin Limited with 62 million shares, which would earn Sh1.426 billion, Petro Holdings with 190 million shares which would fetch Sh4.370 billion and Wells Petroleum with 367 million, which would bring in Sh8.415 billion after the sale to Rubis.

The French firm bought the 367 million shares from Wells Petroleum, 23.8 per cent of KenolKobil, in October last year at Sh15.30 with a promise to top up Sh2.8 billion under the deal.

“At all material times, between February 2018 and October 2018 you were the chairman of Kestrel Capital (East Africa) Ltd and a representative of the ultimate beneficiaries of Wells Petroleum Holdings Ltd, Petro Holdings Ltd and Tasmin Ltd (companies holding majority of shares in Kenol Kobil PLC),” the Capital Markets Authority boss Paul Muthaura said in the letter to Field-Marsham.

By virtue of chairing Kestrel Capital, which traded most of the KenolKobil shares, Field-Marsham was bound to benefit from the sale proceeds through commissions.

But CMA says other investors in the market were cheated out of a windfall when their shares were bought on the cheap, and resold after the deal was announced, gifting the executors almost Sh458 million on stock tips.

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On Tuesday, CMA released a statement indicating that it had a strong case against Field-Marsham, Satchu and Desimone.

“Upon review of the investigation findings and recommendations, the CMA Board has resolved to initiate enforcement proceedings against the Kestrel Capital executive director Andre DeSimone, Kestrel Capital chairman and founder Charles Field-Marsham, and their stockbroking agent Aly Khan Satchu, through issuing Notices to Show Cause,” said the statement.

Field-Marsham arrived in Nairobi in the early 1990s and founded Kestrel Capital, among other investments.

He and Mr Satchu once served as board members at Canadian technology incubator, Next Canada.

In 2007, Field-Marsham contracted Satchu to be a stockbroking agent of the firm.

SEE ALSO :Trader fined Sh166m for fraud

Take position

An email dated October 13, 2018 that Satchu allegedly wrote to one Waheed Sheikh convincing him to take a position on the KenolKobil shares before the intended takeover is part of the evidence that CMA is relying on to press its case against the three executives.

“I am a personal friend of Charles Field-Marsham and have 100 per cent visibility on everything,” says an email allegedly by Satchu to an investor and which is said to have been obtained by investigators.

Knowing that insider rigging is usually hard to prove, CMA says it went straight for Satchu’s mobile phone and laptop to pin his trades to leaked information.

Satchu has challenged CMA’s warrants, including whether it made full disclosures to the court that granted the search. He also claims the regulator may have overreached into his rights to privacy.

Before filing to seize the communication gadgets, CMA sleuths said they had already established that the three targets of the probe were in the know about the Rubis take-over.

An affidavit sworn by Head of Enforcement at CMA, Colin Maweu, pointed out that majority of the accounts frozen due to irregular trading were traded by Satchu through Kestrel Capital, where DeSimone is an executive director.

CMA also pulled suspect deals from the Sh6.5 billion Kestrel Capital trades in the oil marketer’s shares with some of Satchu’s executed trades to customers.

Capital Markets AuthorityCMAKenolKobil