How daredevil investors lost millions in currency schemes

The Central Bank of Kenya and Capital Markets Authority have warned Kenyans against investing their money with unlicensed financial schemes. [Courtesy]

In a country where almost everyone is looking for the next biggest deal, Kenneth Gitonga and Jane Wamwari thought they had found it in online forex trading.

They were wrong.

They have now lost their initial capital of $160,874.80 (Sh17.4 million at current exchange rates) – and the 20 per cent interest they had been promised on this cash. 

And to make matters worse, they are now at risk of losing the property they have left.

In a notice of motion dated June 8 this year, the two told High Court Judge David Majanja that they were broke, having sunk a chunk of their savings in the highly speculative trade of buying and selling foreign currencies on the internet.

It was a decision that has now thrown them into destitution, with their personal assets being auctioned after they failed to meet their bills.

Frozen accounts

Gitonga and Wamwari are just two of an increasing number of daredevil Kenyans who have burnt their fingers in the volatile venture and are now seeking the help of the courts to recover their wealth.

For this motion, the two wanted Judge Majanja to compel the defendants – iChain Hub Ltd, Caroline Matheka and Trisha Muthoni – to offer security equivalent to the money that they were demanding until the case is determined.

Alternatively, they said, the courts could order the freezing of the defendants’ bank accounts until the case is determined.

It all started back in 2018 when Gitonga and Wamwari bought into a real estate investment with a company trading as Landmax Realtors.

Matheka and Murangi were Landmax’s directors. They went on to open another company, iChain Hub Ltd, whose main business was online forex trading.

Gitonga and Wamwari pumped cash into the venture, expecting period payments in interest, and their entire capital at maturity.

Two years later, however, the investors are now demanding Sh70,111,480 in both principal and unpaid interest. They told the court efforts to get the defendants to pay them back the cash have been unsuccessful.

Instead, the defendants have given them false promises and had, at some point, issued them with bouncing cheques.

“They state that failure to pay them has caused embarrassment, including attachment of their personal possessions by their creditors, and anguish resulting from failure to pay their bills and other liabilities as they fall due,” said Majanja in a ruling on the motion on the case, which is still ongoing.

The case has brought out the impact of unlicensed online forex trading schemes that continue to operate despite repeated warnings against their business from State regulators.

Gitonga and Wamwari failed to convince Majanja to compel the defendants to furnish security worth just over Sh70 million within 14 days.

They had argued that the accused had used their (the complainants’) money to acquire personal assets, and in a bid to defeat their claims, created other companies.

The defence

“The plaintiffs have not shown or proven that the defendants are in the process of disposing of properties or money with the intention of defeating the plaintiffs’ claims,” ruled Majanja.

On their part, the defendants, through an affidavit by Mathoka, who is the CEO of iChain, insist that they lost the money when the Central Bank of Kenya (CBK), without prior warning, published a notice on August 16, 2019, advising the public against dealing with unlicensed foreign exchange dealers.

This, said Matheka, affected their business as it was considered unlicensed and thus could not transact with banks or carry on with business.

“She (Matheka) explained that since the defendants could no longer carry on business, they made efforts to settle liabilities with the plaintiffs and other investors, leaving the defendants with very little cash in their accounts,” said the judge.

CBK, as well as other financial regulators, issued a similar notice on August 25, this year.

The regulators warned the public against what they termed a re-emergence of fraudulent and unlicensed financial schemes seeking to take advantage of Kenyans during these challenging times when the country is grappling with Covid-19 pandemic.

“These rogue entities include online pyramid schemes, unlicensed credit and savings schemes, and unlicensed online forex brokers and traders,” read part of the public notice.

There are two online forex dealers licensed by the Capital Markets Authority (CMA): EGM Securities Ltd and SCFM Ltd.

In yet another case whose ruling was delivered on February 21, five individuals sued Waumini Investments Holdings Ltd, Waumini Investments Ltd and their principal director Edgar Boniface Otieno after a foreign exchange trading deal went wrong.

Philip Manje, the first plaintiff, was demanding Sh4,240,000 from the defendants, having advanced them Sh8,950,000.

The third plaintiff, John Mothee, said he had advanced the three defendants Sh4,935,000 but had only been repaid Sh1,289,484, leaving a balance of Sh3,645,516.

The other complainants, though listed in the case, opted not to participate in the proceedings.

Waumini Investments Holdings Ltd and Waumini Investments Ltd admitted receiving the money.

But they insisted there was a caveat captured when the plaintiffs signed on the dotted line: “This is a high-risk investment with high potential returns. Even though the target returns are 10 per cent per month, no guarantees are given by the agent and losses are possible even of the principal amount invested.”

The plaintiffs further told the court that the defendants claim to have offered them services that are regulated by the Capital Markets Act, noting that they were acting as agents of Ryan Holdings.

Wiped out

The judge, however, wondered why Waumini at some point in its correspondence with one of the plaintiffs, made a proposal to repay when it was its case that the plaintiffs’ investments had been wiped out by forex losses involving the Japanese yen.

High Court Judge Francis Tuiyott ruled against the defendants, ordering them to pay the first and third plaintiffs Sh2,624,140 and Sh3,805,638, respectively.

Meanwhile, CMA has refused an out-of-court settlement with an online currency trading company accused of operating illegally and defrauding Kenyans of millions of shillings.

Interweb Global Fortune Ltd had tried to reach an agreement with the capital markets regulator in a bid to avoid prosecution.

CMA shut down the company after repeated complaints.

CMA, in court documents, said it rejected Interweb Global’s bid to withdraw the criminal charge and settle the licence hitch out of court.