Cytonn Investments Ltd has obtained conservatory orders against the Capital Markets Authority (CMA) following a petition filed in the High Court seeking an interpretation of the law on private offers in the money market.
This follows a tussle between Cytonn and the Capital Markets Authority (CMA) over Cytonn’s two unregulated offers in the capital market, the Cytonn High Yield Solution (CHYS) and Cytonn Private Notes (CPN).
The High Court on June 30 issued interim orders baring CMA and the Directorate of Criminal Investigations (DCI) from probing or suing Cytonn Investments over the two products.
“A conservatory order be and is hereby issued, prohibiting the 2nd Respondent (DCI), its employees, servants and or agents from summoning, investigating, questioning, intimidating, harassing and or in any way whatsoever, contacting the Applicants/Petitioners or in any other employee or Agent of Cytonn Group of companies in relation to the activities of Cytonn High Yield Solutions and Cytonn Real Estate Project Notes LLP pending the inter panes hearing of this Application,” the High Court ordered.
CMA had already announced that it was investigating the two products after investors who sunk their funds in the two offerings were forced to extend a moratorium on payments from the funds or alternatively take up a debt to real estate conversion across Cytonn’s 10 real estate projects.
“An order of temporary injunction be and is hereby issued restraining the Respondents in any manner whatsoever from considering and/or preferring any charges and arraignment of the Applicants/Petitioners or any other employee or Agent of Cytonn Group of Companies in relation to the activities of Cytonn High Yield Solutions and Cytonn Real Estate Project Notes LLP pending the inter parses hearing of this Application.”
The court has ordered that the proceedings of the petition be heard in camera to protect the integrity of the interested parties from public spite and ridicule.
In the suit, Cytonn has accused the regulator of acting in bad faith on a product that CMA was part of naming.
“For over seven years now, the 1st respondent (CMA) has been engaging the 1st interested party (Cytonn Investment) on the workings and regulation of, first, the second interested party (CYHS) and recently the 3rd interested party (CPN). The DCI has since proceeded to issue arbitrary and endless summons to the applicants and other employees of Cytonn Group of Companies for inquiry into issues that until recently have been on the pipeline of resolution between the parties,” Cytonn said.
In a statement last month, CMA called on investors who are affected by investing in CHYS and CPN to report to the Capital Markets Fraud Investigation Unit (CMFIU), which is the Police Unit attached to the Capital Markets Authority.
“CMFIU is currently investigating the issue for criminal violations for investors in the Cytonn High Yield Solutions (CHYS),’’ said CMA CEO Wycliffe Shamiah.
Cytonn also accused CMA of prosecuting the issue in public, greatly injuring the public image of the company.
“Private products are allowed by law: Your statement seems to paint unregulated products in a bad light – as if they are unlawful and risky. We wish to reiterate that unregulated products are allowed by law. Kindly take note of the Capital Markets (Securities) (Public Offers, Listings, and Disclosures) Regulations, specifically regulation 21, which detail the threshold that unregulated investment products ought to meet,” said Cytonn CEO Edwin Dande in statement dated June 17, 2021.
“The Authority is advancing a false narrative that unregulated products are riskier. Private offers operated by companies such as Britam, Cytonn, Nabo Capital, MyCredit, Car&General, KK Security, ASL Credit, Watu Credit, etc have performed better than some of your regulated offers such Imperial bank bond, Chase bank bond, Amana Money Market fund, Uchumi, Mumias, CMC, etc, where investors have walked away empty-handed. Both public and private offers are essential to our capital markets, let’s stop demonizing private offers, which are already allowed in law.”
Cytonn argued that the constant public statements by CMA against Cytonn put at great risk Ksh20 billion of investments by 30,000 Kenyans managed across various portfolios.
“While we do not understand the intention, we request that the numerous, incessant and unnecessary harassment of the Cytonn brand ought to end. You continue to disseminate nearly quarterly briefings, which make it hard to operate, erodes investor confidence and jeopardizes investor funds,” added Dande.