Mobile phones and computers belonging to Andre DeSimone, the chief executive of stockbrokerage firm Kestrel Capital, and those of stock market trader Aly-Khan Satchu were also seized in simultaneous raids at their offices. The investigators carried out the raids on the morning of January 16. They are seeking to establish whether Mr Ohana tipped Mr Satchu of KenolKobil’s planned sale to French firm Rubis Energie before the information became public, sparking huge stock purchases that were placed through Kestrel Capital just days ahead of the deal’s announcement, Local business blog Business Daily Reported Today.
The gadgets were returned last week after the detectives retrieved e-mails, text and WhatsApp messages in what is shaping up to be Kenya’s biggest ever insider trading investigation. Kestrel Capital, the investment bank that handled the suspect transaction, has been placed at the centre of the insider trading probe.
KenolKobil moved 433.8 million shares valued at Sh6.1 billion in the six days of trading to October 23, a day before the Rubis deal was made public, compared to 472,500 stocks in the week preceding the start of the share buying frenzy on October 16. The capital markets regulator estimates that those behind the deals stand to gain more than half a billion shillings in profit once they transfer the stocks to the French firm.
The regulator’s unprecedented use of mobile forensic evidence, which involves gathering electronic data for legal use, marks a turning point in the prosecution of white collar crimes in the country. Usually, such technology is deployed in terrorism and drug trafficking investigations.
The CMA first sought a court warrant for the search and seizure, known as an Anton Piller order in legal lingo. The warrant was granted on January 14 by Senior Resident Magistrate Peter Muholi. This effectively cleared the way for the raids and gadgets’ seizure.
“Warrant hereby issued to enter the first respondent’s (Mr De Simone) premises, second respondent’s (Mr Satchu) premises and third second respondent’s (Mr Ohana) premises,” said the search warrant. “Seize, obtain information and remove into the custody of its offices all documents and electronic devises including but not limited to mobile phones and laptops and computers and retain the same for a period of three days.”
The warrant threatened the three CEOs with jail should they breach the terms of the warrant, including offering keys and passwords to CMA investigators to access the seized electronic gadgets.
Sources at the CMA say the regulator hired a leading data recovery and computer forensics firm, East African Data Handlers, for the KenolKobil assignment. The firm is said to have retrieved information from e-mails, computer hard drives and messaging systems like WhatsApp. The firm has the ability to recover altered or deleted electronic data, and this is believed to be helping the CMA build an insider trading case against the three CEOs.
The East African Data Handlers CEO, George Njoroge, Monday declined to comment for this story.
The use of technology, especially wire taps, has been employed to aid regulators in the US and Europe to successfully prosecute insider trading cases and show the inner workings of the dark webs of finance professionals who make profits from trades based on inside information.
Insider trading is when information that is not in the public domain is shared to a small group and then used to make investment decisions like trading in shares for profit or avoiding losses through dumping of stocks.
The CMA suspects that Mr Satchu recommended to Kestrel unsolicited clients who later purchased huge quantities of KenolKobil shares ahead of the takeover announcement. Abdul Sheikh, Jamal Zaherali, Nureen Moledina, Radia Kantilal and Tiwari Simon are named as the clients Mr Satchu recommended to Kestrel to buy KenolKobil shares.
The authority suspects Mr Satchu had prior knowledge of the deal.
The investigation will once again shine the spotlight on the ownership of both KenolKobil and Kestrel through the family of the late powerful Cabinet minister Nicholas Biwott.
Rubis on October 23 bought a 24.99 percent stake or 367,793,124 KenolKobil shares from Wells Petroleum to achieve the minimum ownership threshold it needed to launch a takeover bid.
A Kenol Kobil fuel station in Nairobi. FILE PHOTO | NMG
The local papers analysis of trades in KenolKobil shares shows a significant increase in the volume of trades between October 15 and October 23, excluding the Rubis deal. Investors moved 66.8 million shares worth Sh948.5 million in the October period, averaging a turnover of Sh151.6 million a day at an average price of Sh14.20.
The CMA has its eyes fixed on the fact that buyers of the shares stand to earn about Sh588 million once the takeover is complete, taking into account the Sh8 premium on Rubis’ offer price of Sh23 valuing the suspect shares at Sh1.53 billion.
The biggest trades of KenolKobil shares were done on October 18 and 22, when 27.9 million and 29.5 million stocks changed hands respectively.
Stock market data also shows that KenolKobil recorded significant price increases on the two days — up 9.7 percent to Sh14.70 on October 18 and 4.5 percent to Sh15.25 on October 22 — indicating that the bulk share buyers were willing to pay a premium to get their hands on the stock.
KenolKobil traded an average of 58,380 shares a day in the preceding week. The company’s share shed 10.8 per cent in the period.
The trading dropped significantly to 243,100 shares on October 26 and 146,000 on October 27 after the CMA cited the counter for possible insider trading.
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