A multi million shilling fine for Insider Trading on Mr. David by Goliath CMA

CMA said Tuesday in a statement that Mr David Maena, formerly of CBA Capital, has been found guilty of dealing with 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.

The Capital Markets Authority (CMA) has fined a former CBA Capital executive a total of Sh166.9 million for engaging in insider trading in Treasury bonds between 2016 and 2017. “The Board of the Capital Markets Authority (CMA) has taken enforcement action against David Tumaini Maena, following the conclusion of investigations with respect to allegations of irregular trading of Government securities in 2016 and 2017,” the CMA said.

The regulator said that following investigations, it had 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. It did not name the other involved agencies nor indicate whether they would also be fined. CMA said the illegal trades were done through creation of artificial arbitrage opportunities based on privileged knowledge of customer orders.

“The investigation further established that the gains arising from these trades would be shared between fixed income dealers and the bond facility owners in contravention of the capital markets legal and regulatory framework,” CMA said. According to CMA, Mr Maena, “a key player in the scheme” used his position as a dealer in Government securities to obtain illegal gains amounting to Sh83,475,000 by trading ahead of his clients’ accounts in bond transactions that he facilitated as a broker. The Capital Markets Act (Chapter 485A) imposes a criminal offence on a person who is convicted of insider trading.