The Capital Markets Authority (CMA) has fined Mr David Maena, formerly of CBA Capital, a total of Sh166.9 million ($1.669 million) for engaging in insider trading in Treasury bonds between 2016 and 2017.
In a statement on Tuesday, CMA said that Mr Maena has been found guilty of dealing with privileged (non-public) information on bond trades, which he used to front run the market and make dual trades in order to profit at the expense of other investors.
“The Board of the Capital Markets Authority (CMA) has taken enforcement action against David Tumaini Maena, following the conclusion of investigations with respect to allegations of irregular trading of Government securities in 2016 and 2017,” the CMA said.
The financial penalty is twice the amount that Mr Maena pocketed from the irregular trading in the fixed income securities.
According to CMA, Mr Maena, “a key player in the scheme” used his position as a dealer in government securities to obtain illegal gains amounting to Sh83,475,000 by trading ahead of his clients’ accounts in bond transactions that he facilitated as a broker in 2016 and 2017.
“Mr Maena was given a chance to rebut the investigation findings but failed to do so,” said CMA.
The regulator said that following investigations, it had since established the presence of a scheme where fixed income dealers at investment banks, asset management firms and brokerage firms colluded with individual bond facility holders in bank custodial accounts to trade bonds ahead of orders placed by non-suspecting investing clients (also known as front-running a client) for gain.
It, however, did not name the other involved agencies nor indicate whether they would also be fined.
CMA said the illegal trades were done through the creation of artificial arbitrage opportunities based on privileged knowledge of customer orders.
“The investigation further established that the gains arising from these trades would be shared between fixed income dealers and the bond facility owners in contravention of the capital markets legal and regulatory framework,” CMA said.
In addition to the fine, the CMA said Mr Maena has been disqualified from holding office “as a key officer of a public listed company and or issuer, licensee or any approved institution of the Capital Markets Authority” for a period of 10 years.
The market regulator has also referred Mr Maena to the Director of Public Prosecution (DPP), Mr Noordin Haji, to consider criminal investigations on the market manipulation as well as to the Asset Recovery Agency (ARA) to trace assets allegedly bought with the illegal capital gains.
Mr Maena has since quit CBA Capital.