- CMA cited Regulation 64 of the Capital Market (Licensing Requirements) (General) Regulations 2002 as the reason
- Cytonn Investments has however assured investors who put money into one of its projects that they will not suffer losses
Investors in a project by Cytonn Investments will not benefit from Investor Compensation Fund in case they suffer losses, the Capital Markets Authority has stated.
The financial regulatory entity told MPs investors in Cytonn High Yield Solutions platform will not be granted compensation if they suffer pecuniary loss in Ridge Project in the Ridgeways area in Nairobi.
In submissions to National Assembly’s Public Petitions Committee, CMA cited Regulation 64 of the Capital Market (Licensing Requirements) (General) Regulations 2002 as the reason.
The regulation provides that every buying or selling stockbroker or dealer that is a trading participant of a securities exchange shall contribute to the Investor Compensation Fund such amount as shall be prescribed from time to time by the Authority.
Further, Regulation 69 requires that investors shall apply to the Authority for compensation from the fund in cash or securities equal to the net loss.
“Based on the above provisions, investors in the CHYS are not entitled to benefit from the Investor Compensation Fund in case they suffer the loss of their investment,” CMA Chief Executive Officer Wycliffe Shamiah added.
Compensation of investors is done through the Investor Compensation Fund, established for compensating investors who suffer pecuniary loss resulting from the failure of a licensed stockbroker or dealer to meet their contractual obligations.
Investor Compensation Fund is established under Section 18 of the Capital Markets Act.
On February 21, however, Cytonn Investments assured investors who put their lifetime savings into one of its projects that they have not lost a single shilling of their money.
Chief Executive Officer Edwin Dande, who had appeared before the committee, assured that his firm had not misappropriated any money or declined to refund investors who opted out of the project.
He said funds for the Ridge Project in the Ridgeways area in Nairobi were managed in strict accordance with the respective constitutive documents and the Investments Policy Statement.
“We are working to refund those who opted out of the project,” he told the committee.
Three investors have sought the intervention of Parliament fearing they could lose their money.
In a petition filed by Alego Usonga MP Sam Atandi to the National Assembly, Josephine Awuor, Caroline Atieno and Omondi Abonyo said the company has delayed refunding their money after the housing project failed to take off.
The petitioners claimed the company has been trying to sell off its properties and they fear it might dissolve with their money.
“Efforts to ensure the company honours the agreement with investors have not been productive despite further engagement with the Capital Markets Authority,” they added.
Dande told the committee the project progressed well until 2020 when it started experiencing liquidity due to a number of factors key among them the Covid-19 pandemic.
He said the only complaint by the petitioners, which is true, is that he is not able to refund them their money now.
The company placed adverts for one-bedroom apartments valued at Sh7.8 million along Kiambu Road in Kiambu County. The Ridge consisted of 1, 2 and 3-bedroom units
“By the year 2018, some investors who were paying by instalment had each paid in excess of Sh3.9 million during which it seemed the company had started to experience internal financial problems since no construction ever started,” the petitioners said.