Trader fined Sh166m for fraud

A former CBA Capital bond trader has been fined Sh166.9 million, twice the amount he obtained from rigging fixed income trades in a case of insider trading.

The Capital Markets Authority (CMA) has also banned the trader, David Maena, from holding office as a key officer of a listed company, issuer or licensee of any institution approved by the regulator for a period of 10 years.

He could also face criminal charges after his file was forwarded to the Director of Public Prosecutions.

His wealth is also being tracked by the Assets Recovery Agency and he could face disciplinary action for professional misconduct by the Institute of Certified Investment and Financial Analysts.

Between 2016 and 2017, Mr Maena apparently supplied businessman Rodrick Muhoro with insider information on bond trades, which he used to front-run the market and make dual trades in order to benefit at the expense of other investors.

“Through the investigations, CMA 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,” said the regulator in a statement yesterday. This was done through the creation of artificial arbitrage opportunities based on privileged knowledge of customer orders.

The dirty deals were discovered through a whistleblower and surveillance systems that helped track the gains shared between fixed income dealers and the bond facility owners. Maena was apparently given an opportunity to rebut the accusations but failed to dispute the claims before CMA. The regulator has been cracking down on misconduct in the capital markets to punish greed, institute discipline among market players and restore confidence in corporate governance.

The market regulator has promised to pay whistleblowers part of the fines slapped on rogue market players.

The CMA Act has been amended to address malpractices, including corporate governance, embezzlement of investor funds, front-running and provision of misleading information.