Rogue bonds trader is fined Sh208m

A rogue treasury bonds trader who pocketed Sh104 million from irregular transactions is now facing jail and seizure of his assets by the State after the regulator found him guilty of engaging in market manipulation between 2016 and 2017.

The Capital Markets Authority (CMA) Wednesday announced that it had fined Mr Rodrick Muhoro Sh204 million, being double the benefit accrued from the irregular trades.

The regulator also referred his case to the Assets Recovery Agency (ARA), with a recommendation to confiscate the assets he may have acquired from the illegal proceeds. The authority further handed Mr Muhoro’s file to the Director of Public Prosecution (DPP), Noordin Haji, to consider opening criminal investigations related to the irregular trades.

The regulator Wednesday said Mr Muhoro had been found guilty of dealing in 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. In addition to the fine, the CMA said Mr Muhoro has been disqualified from trading in bonds for a period of 10 years.

The market watchdog said Mr Muhoro colluded with fixed income dealers at un-named brokerage firms through creation of artificial arbitrage opportunities, thereby realising a capital gain of Sh104 million.

“Mr Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front-running,” said the regulator.

In February this year, the CMA fined a former CBA Capital executive, David Maena, a total of Sh166.9 million for engaging in similar insider trading scheme in Treasury bonds between 2016 and 2017.

By Wednesday, it was not immediately clear whether the Asset Recovery Agency had started the process of recovering the money from Mr Maena. According to the regulator, Mr Maena was “a key player in the scheme” who used his position as a dealer in government securities to obtain illegal gains by trading ahead of his clients’ accounts in bond transactions that he facilitated as a broker in 2016 and 2017.

In a statement, the regulator said Mr Muhoro, in the well-calculated ploy, would take advantage of the price differential before the client orders were executed.

“The gains would later be shared between Mr Muhoro and fixed income dealers at brokerage firms in contravention of provisions of the Capital Markets Act,” added the CMA.

The irregular trades, known as front-running, arise when a crooked dealer or trader uses knowledge of customers’ orders to buy and sell to trade in their own accounts ahead of the market.

It happens when rogue dealers insert themselves or another party in a deal, to buy bonds from an investor who is selling at a lower price.

Such a trader then goes on to sell the same bonds to another person at a higher price and pockets the gain, often within a day (dual trading).