Bad news for Nyagah investors

May 22, 2009

, NAIROBI, Kenya, May 22 – Investors who lost money through the collapsed Nyagah Stock Brokers may not get more than a maximum of Sh50,000 in compensation.

The Capital Markets Authority (CMA) says it is banking on the Investor Compensation Fund that has a cap on the maximum amount an aggrieved investor could claim.

CMA chairman Micah Cheserem explained on Friday that despite investors losing more than the cap amount, there is nothing much the authority could do.

“It is important not to raise too much expectation since compensation will be limited to a certain amount of money. The Central Bank’s Deposit Protection Fund limits an individual only to Sh100,000,” Mr cheserem said.

CMA Chief Executive Stella Kilonzo said the only hope for investors would be if Treasury injected more money into the fund or if a recently set up Investor Compensation Committee develops an ingenious source of money.

Mrs Kilonzo said the compensation committee would soon be receiving a report on the Nyaga case from the statutory manager.

“Given the funds available and the magnitude of the amount lost, one of the points of reference is for this committee is to see how they can come up with other ways that investors can be compensated,” Mrs Kilonzo said.

She noted that the company will be looking at other aspects such as a cap on how much CMA can claim from a collapsed brokerage which currently stands at Sh5 million.

“For instance, they will be looking at what happens if the amount of loss is more than that Sh5 million; what should the CMA do?”

Meanwhile operations of the recently established Capital Markets Fraud Investigation Unit (CMFIU) have now begun. The unit comprises of officers seconded from the Criminal Investigation Department who specialise in economic and cyber crime.

 Mr Cheserem said CMA would train the unit in securities fraud and best practices in capital markets enforcement.

“It’s unfortunate that in the past some players in the industry have got away with cases of fraud with impunity, this will no longer be the case,” he said.

He observed that with increased market development, securities fraud and other related irregularities were getting more sophisticated.   

Speaking during the launch of a Public Education Programme by the Authority, Mr Cheserem said the awareness programme was necessary to reflect the changes and challenges being experienced in the market currently.

The changes include among other things rapid expansion of the market and not necessarily in tandem with improved investor knowledge and an increase in cases of fraud due to technological advance. 

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