On March 29, the board of Kestrel Capital called a crisis meeting after its chairman Charles Field Marsham and CEO Andre DeSimone were sucked into the tempest of insider trading of 56 million KenolKobil shares.
The deals were estimated to be worth a staggering Sh853 million.
The board wanted the truth, at least under the circumstances given the firm was receiving bad press and its reputation was at stake. The CEO had to admit he was the source of ‘actionable intelligence’ leaked to Aly Khan Satchu, the CEO Rich Management, and the board subsequently forced him out.
“DeSimone admitted that he disclosed price sensitive non-public information on KenolKobil take over information to Mr Aly Khan Satchu, who subsequently dealt in the securities that were price-affected,” investigators said.
During the investigations, DeSimone had absolved Mr Marsham of any wrongdoing, saying the latter did not interact with Mr Satchu and that he was the source of the information.
The Capital Markets Authority (CMA) requested for the minutes to this meeting on April 9. DeSimone’s goose was cooked.
According to investigators, DeSimone’s responses and emails seized by the regulator indicates that he also reached out to lawyer Paul Ogunde, where he admitted to providing information to Aly Khan in October 2018.
Mr Satchu took action and immediately inquired about transferring money from an overseas account and opening trading accounts. He opened trading accounts at Kestrel. DeSimone’s admitted that he encouraged Satchu to buy KenolKobil shares while he was aware that Rubis was preparing an imminent takeover.
According to documents seen by Financial Standard, DeSimone claims he told Satchu to treat the information confidentially and not to use it to advise his clients. “Mr Satchu betrayed his trust by approaching clients who bought KenolKobil shares based on actionable intelligence on the takeover bid disclosed by Mr Andre DeSimone,” the investigators said in part.
On October 16, as DeSimone was out of Nairobi with his family, which earned him an alibi, Mr Satchu started the trading.
Two days later, KenolKobil CEO David Ohana called him and made inquiries about the large trades that had been done by Kestrel that were sure to catch the eye of the regulator.
He called Aly Khan and told him, the dogs were on his trail and it would be best to seek legal advice before the chickens came home to roost.
“When he resumed work, concerned at the speed and size of the subject trades after the takeover announcement, he inquired from Mr Aly Khan Satchu about the trades, and it is on this basis that he advised him to seek legal counsel since such transactions will elicit interest from the authority,” the investigators said.
After it became apparent that the trades were being investigated, DeSimone tried to help his friend cover his tracks.
He started prepping Mr Satchu for the expected backlash when they wrote an article trying to send the hounds off their scent.
They downplayed the need for an investigation and even edited Mr Satchu’s submission to the authority. “The actions to help Mr Aly Khan Satchu look at his statement to the authority or review an article whose main role was to show that the trades were based on market information and not actionable intelligence. Mr Andre DeSimone disclosure can only prove that they were covering their tracks after recognising that the authority will be interested in the transactions and they may be held liable,” investigators said.
Investigators further pulled previous emails that showed that the two had a history.
Investigators also found in seized emails, a March 2018 communication on confidential acquisition of Britam shares on the bourse introduced by Satchu.
The confidential information found and instruction notes from Mr Satchu including attempts to conceal client’s account and beneficiaries showed complicity. In fact, at the time, they opened a CBA Bank nominee account to hide their hand in the matter, according to probe findings.
Andre DeSimone told Mr Satchu to deal directly with Kestrel staff without reference to him to ensure the account was seen as coming from the normal course of business.
He said he would feign ignorance if asked about the trades. “The email demonstrates that Mr Andre DeSimone had a tendency to lie and feign ignorance, therefore, raising questions of credibility,” the sleuths’ report read in part.
The game theory dubbed prisoners dilemma best demonstrates this. It states that when two prisoners who are arrested for a small crime, say pickpocketing, the police believe that one or both may have committed a bigger crime like cyber fraud but cannot prove it.
So the two, prisoner A and B are placed in different rooms and separately given a choice.
If A tells on B, he gets off even for his one-year sentence for pick pocketing and B gets three years for cyber fraud. If he shuts up, he gets his one year. Likewise, B is given the same offer.
If they both shut up and cooperate, they both get their one-year each, but if one or both defect, they get three years each.
The game theory looks at each individual and motivations. For instance, A will consider that telling on B will earn their freedom and even if they decide to shut up, there is a chance that B motivated by freedom will rat them out.
Mr Satchu stuck firmly to his story even as DeSimone let in the investigators into one of Kenya’s most remarkable insider trading scheme.
He denied that he got any information from either DeSimone or Marsham and that he forecast the situation one year before in March 2018 after KenolKobil results.
“Looking at the volume chart over the last few months and considering the kitchen sink element of these results tells me we have a change of ownership on the horizon,” he had written on rich.co.ke at the time, a claim that we were able to establish.
He claimed he had followed KenolKobil for almost a decade, including the failed sale to Puma Energy in 2011. He observed that he had had an interview with KenolKobil boss David Ohana who had confirmed suitors were knocking on his door every day and that the oil firm had fine-tuned their balance sheet and cleaned it up, which were preparatory steps to dispose of a company.
But Mr DeSimone’s email to his lawyer indicated that Mr Satchu got a stock tip in October last year.
His alibi also failed to hold - having frantically opened accounts from October 16, pointing to the fact that he had disclosed his proposals to his clients, including profit uplift based on proposed price takeover and the period when the announcement was likely to be made.
For him to bring in a client willing to invest Sh1 billion, he had to show that he was not just guessing. He also told a Mr Waheed that Marsham was his friend and he had 100 per cent visibility on the deal, which demonstrated that he was not merely relying on analysis.
Mr Satchu’s WhatsApp messages also exposed his casual take on the game when he told Christine Kuria, a Kestrel capital equities trader, to get him as much tradable shares as possible.
“She was to ‘shake the trees’ and was told the account had Sh400 million to play with,” the investigators said. He also put pressure to make sure the purchases were done on that day.
The two are now facing fines of up to Sh2.5 million each and being barred from the market or holding office in a publicly listed firm for one to five years for Aly Khan and five to 10 years for DeSimone.