The Capital Markets Authority (CMA) has been accused of leaking to the media and the public fabricated documents about a case with Cytonn Investments, in which CMA has been seeking to limit the Cytonn High Yield Funds (CHYF) investments 10 percent.
In a replying affidavit, Cytonn CEO Edwin Dande accuses the regulator of sponsoring false stories against CHYF in a bid to destroy Cytonn’s credibility, and scare away investors. Dande even says that he has never seen some of the documents being circulated in public
“In what seems like a sponsored media advert, the Standard Newspaper published, in its newspaper of 30th September, 2020 a misleading inflammatory and alarmist headline titled “The riddle of Cytonn: Where’s the money? Selling hot air? Edwin Dande bagged billions from eager Investors with a promise of mega returns. Now, investors are running to court to get their money back as the fund battles a cash crunch.” The title to the article sharply contrasts the details of the story followed therein and by the very nature and reason of the publication of the aforesaid false defamatory words/articles the 2nd Interested Party (CHYF) and Cytonn group of companies as a whole have attracted unnecessary and clearly undeserved public spite from the public,” Dande says in his replying affidavit.
The same documents are said to have been submitted in court where CMA argued that CHYF can only invest up to 25 percent of funds pooled from the public in a single entity, and can only invest up to 10 percent of the funds pooled from the public in related parties and/or entities. This, CMA argued in court documents, was according to Regulations 78 of the Collective Investment Scheme regulations.
However, Dande said that the Regulations are wrongly quoted and that the aforementioned regulation does not deal with the 10 percent issue.
“The Respondents Replying Affidavit as drawn and sworn is replete with factual errors and is a further manifestation of the mix-up and confusion (either deliberate or otherwise) of how the Respondent chooses to interpret and apply the Regulations selectively when dealing with the Interested Parties and Cytonn group of Companies,” adds Dande.
CMA has been in a tussle with Cytonn over the multibillion Cytonn High Yield Solution (CHYS) and the Cytonn Private Notes (CPN), which are privately operated and not regulated by the CMA unlike CHYF.
On April 8, CMA requested Cytonn for a meeting to explain the contractual nature of CHYS and CPN.
In a document dated September 21, 2020, CMA leaked to the public a document, though to be an e-mail to Cytonn, containing names and details of 11 investors whose payments had allegedly been delayed after investing with CHYS and CPN.
It emerged that the document could have been leaked maliciously to scare away investors. According to Dande, the two (CHYS and CPN) have over 4,000 investors, and it was likely that the list was used maliciously.
Also, it emerged that there was a moratorium agreed upon with investors due to Covid-19, hence no funds had been defaulted.
“CHYS is a fund invested in real estate and whose board of investors approved an extension of maturities by 12 months for Pre-COVID funds. The decision is binding to all CHYS Pre-COVID investors. Out of 4,000 investors, about 13 of them were unhappy and approached CMA, and that is the letter that is making rounds in the news,” said Dande in a statement on September 25.
According to the agreement dated June 29 and seen by this writer, CHYS would extend Principal Amounts for the entire portfolio for 12 months, with the view that that is the worst-case estimate for the pandemic period, with consistency to the moratoriums that banks had given real estate developments.
On September 24, the High Court issued stay orders against CMA over its attempt to limit CHYF to 10 percent investments into Cytonn managed projects.
Also, the court has issued a conservatory order staying the CMA’s decision to limit the investment of the CHYF’s portfolio funds to 10% and its further directive through the Trustee not to allow theCytonn Asset Management Ltd to invest any further funds held at SBM Bank and in Cytonn affiliated notes pending the hearing and determination of the Application.
The case will be heard on October 6, 2020.
CMA has been accused of trying to protect the banking sector given bank dominance in the Capital Market, where the CMA Chairman James Ndegwa owns a number of money market funds.