The Capital Markets Authority (CMA) has fined Nairobi businessman Mr Rodrick Muhoro Sh 208 Million and banned him from the Nairobi Stock Exchange (NSE) for 10 years for front running.
Front running, also known as tailgating, is the prohibited practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large (“block”) pending transaction that will influence the price of the underlying security.
In a statement, CMA says that Muhoro used 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.
“CMA has imposed a financial penalty of Sh208 million being twice the amount of benefit Mr Muhoro received from irregular trading and banned him from conducting bonds trading for a period of 10 years. Mr Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front running,” read the statement in part.
The case will now be referred to the Director of Public Prosecution for consideration of criminal investigations on market manipulation; the Asset Recovery Agency to trace and recover assets allegedly bought with illegal capital gains; and the Institute of Certified Public Accountants of Kenya for consideration of disciplinary action for professional misconduct.
Muhoro becomes the second bond dealer to be fined and banned from the market, after former CBA Capital executive David Maena who was fined Ksh166.9 million for engaging in the same insider trading scheme in Treasury bonds between 2016 and 2017.