The leaked central bank letter on the irregular trading of National Social Security Fund (NSSF) government bonds could derail investigations into the matter amid fears that suspects have moved to destroy some important evidence.
Investigators ​​​​​​at the Capital Markets Authority (CMA) admitted to confiscating communication gadgets such as mobile phones, computers and laptops from the suspect to retrieve e-mails, texts and WhatsApp messages sent before the irregular trade in NSSF bonds.
The Central Bank of Kenya (CBK) has on August 19 asked the CMA to investigate the trading of new bonds in the NSSF between some brokers and market players, terming trade carried out between May and July ‘illegal.’
Fund managers are accused of buying bonds for NSSF at prices higher than the market average and in some cases selling government paper at lower rates and buying the same bonds at higher prices within days.
The CMA has been skeptical about the possibility of capturing communications between market players involved in NSSF bond transactions after probe information was leaked and possibly forcing suspects to delete communications and destroy the gadgets, said two sources in the CMA’s legal and investigation unit. who asked not to be named given the sensitivity of the investigation.
“The purpose of this letter is to ask the CMA to review the actions of the parties mentioned above and to share the actions taken with the Central Bank of Kenya,” said David Luusa, Director of CBK, Department of Financial Markets in an August 19 letter to the CMA.
The capital market regulator also delayed seeking court warrants for searches and seizures, known as Anton Pillar orders in legal lingo, at the homes and offices of the suspects.
The central bank’s letter to the CMA mentioned Humphrey Wachira Gichuru and a newly licensed investment bank named Pargamon Investment Bank as interested parties in the investigation.
“Let there be discussions on WhatsApp, between dealers, over the phone. With such discussions in the media, they (suspects) will destroy the evidence,” said a top executive at the CMA.
“Now the problem is that we have to see what the traders are talking about if you have to prove that there is collusion. When the securities are sold and bought in the market, we have to see the trade information before and after; how the money goes.”
He cited, as an example, the pursuit of insider trading secrets at Kenol Kobil before the company’s Sh35 billion takeover and delisting from the Nairobi bourse.
At that time, the CMA obtained the orders of Anton Pillar before confiscating laptops, phones and computers of David Ohana, former CEO of KenolKobil, Andre De Simone (former executive of Kestrel Capital) and Aly-Khan Satchu in a joint raid on their offices.
“In the case of the NSSF, there is a 50; 50 chance of getting evidence of communication because the probe is clearly visible,” said George Njoroge, CEO of East African Data Handling—which retrieves information from e-mails, computer hard drives and WhatsApp. in the prosecution of the Kenol Kobil case.
“Forensic investigations of this type must be discreet until the suspects are unaware, otherwise they will delete the data and replace the device,” he said.
The use of mobile forensic evidence marks a turning point in the prosecution of white-collar crimes in the country. Usually, the technology is used in cases of terrorism and drug trafficking.
The use of technology, particularly wire taps, has been used to help regulators in the US and Europe prosecute insider trading cases and reveal the inner workings of financial professionals who profit from irregular trading.
The CMA said data analysts are studying market data of all trades between May and July, the type of government paper, price and amount of money involved in an effort to open trading in NSSF bonds.
Buying a security at a price higher than the market average makes a huge profit for the parties.
When a bond is sold at a low price and bought back at a high price, it generates trading income for others and huge profits for the seller.
CBK Governor Kamau Thugge and CMA CEO Wycliffe Shamiah have been summoned to Parliament over suspicious NSSF bond trading.
The Finance and National Planning Committee of the National Assembly wants the CBK and the CMA, the two state regulatory agencies in the sector, to declare false allegations in bond transactions involving two accounts of the Central Securities Depository (CSD) of the NSSF, which are individuals. and local commercial banks.
MP Molo Kimani Kuria, chairman of the Finance Committee said the claim that NSSF bought bonds at a higher price and sold them at a lower price is weighty and warned that those involved will be held accountable if proven.
“We have started by inviting regulatory institutions to come and tell us what they know about questionable transactions,” he said.
