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CMA blames courts for Cytonn funds debacle

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CMA blames courts for Cytonn funds debacle


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CMA chief executive Wycliffe Shamiah. FILE PHOTO | NMG

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Summary

  • The Capital Markets Authority (CMA) has blamed the courts for issuing orders baring the regulator from pursuing Cytonn Group for defaulted investments in Sh13.5 billion funds.
  • The CMA told Parliament that its hands are tied, following a court order barring the authority from investigating two of the firm’s funds — the Cytonn High Yield Solutions (CHYS) and Cytonn Real Estate Projects Notes LLP.

The Capital Markets Authority (CMA) has blamed the courts for issuing orders baring the regulator from pursuing Cytonn Group for defaulted investments in Sh13.5 billion funds.

The CMA told Parliament that its hands are tied, following a court order barring the authority from investigating two of the firm’s funds — the Cytonn High Yield Solutions (CHYS) and Cytonn Real Estate Projects Notes LLP.

The CMA does not regulate the two funds, which have failed to pay investors upon maturity of their investments in properties Cytonn developed.

The company has been marketing the funds as private placements, a closed shop of a few sophisticated investors, which do not fall under the ambit of the markets regulator.

Wyckliffe Shamiah, CMA chief executive, said the regulator wanted to transition the CHYS into a Real Estate Investment Trust (Reit) but the firm moved to court in April 2020, obtaining orders to stop any enforcement action by the authority.

The transition would have seen the unregulated funds fall under products that the CMA supervises.

“We had roadmaps to the transition, which never materialised. We had directed them to cease in 2019 but Cytonn continues to operate. Our hands are tied due to the court order,” he said.

Cytonn had raised money from 4,000 investors in breach of regulations that demand funds raised through private placements to involve less than 100 people.

The firm has, since last year, faced many legal suits from investors over contract breaches after the company asked them to postpone payment of their investments, citing liquidity problems due to the effects of Covid-19.

“We have clearly indicated we issued orders to Cytonn asking them to stop the unregulated scheme. We extended our mandate because we believed that there was an exposure. We demanded that Cytonn comes into a regulated environment,” Mr Shamiah said.

He said Cytonn instead decided to change their product name from Cytonn Cash Management to Cytonn High Yield Solutions.

“We knew that Cytonn Group was engaging in unregulated activities outside the parameter of regulated products as early as 2016,” he added.

The CMA faces a parliamentary inquiry in the wake of mounting complaints from investor reports of delayed payment of returns from investments like Cytonn real estate products.



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88E70B70D1Aa46A497A524Eca9E5C16A?S=96&D=Mm&R=G Cma Blames Courts For Cytonn Funds Debacle
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