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MPs want Cytonn boss held liable for Sh2bn loss in housing project
Cytonn CEO Edwin Dande while appearing before the Public Petitions Committee at Parliament Buildings on February 21, 2023.
A parliamentary committee wants Cytonn CEO Edwin Dande held liable for the loss of Sh2 billion in the 7.8 million-a-unit Kiambu housing project as investors will have to wait for six months for the completion of the liquidation process in order to get compensation.
The MPs in a report tabled in parliament has also called on the Directorate of Criminal Investigations (DCI) to investigate Mr Dande over possible loss of Sh2 billion of the project dubbed The Ridge.
The committee wants DCI to begin investigations on Mr Dande and prefer criminal prosecution against him and any other person found culpable on the issues raised in the petition that was presented to parliament by Alego Usonga MP Samuel Atandi on behalf of three investors.
MPs have also called on the DCI to investigate the relationship between officials of Cytonn and the Capital Markets Authority (CMA) between the years 2015 and 2021, and business dealings involving 49 Special Purpose Vehicles, including their assets and liabilities.
“The committee recommends that the CEO of Cytonn be held personally liable for the loss of funds. The committee proposes that he be investigated thoroughly and proper charges be preferred for him in court,” reads the report.
The report noted that Cytonn High Yields Solution (CYHS) was an unregulated product with the promise of guaranteed returns contrary to the provisions of the Capital Market Securities (Public offers, listings and disclosure) Regulations, 2022, hence investors on the project could not benefit from the Investors Compensation Funds.
One of the three petitioners asked the parliamentary committee to recommend that investors be compensated from the Investors Compensation Funds as stipulated under Section 18 of the Capital Markets Act and Regulation 64 of the Capital Marketing (Licensing Requirements) General Regulations 2002.
Section 18 of the Capital Markets Act and Regulation 64 of the Capital Marketing (Licensing Requirements) General Regulations 2002 provides that investors in Capital Markets products or services are entitled to compensation from the fund if they suffer pecuniary loss resulting from the failure of a licensed stockholder or dealer to meet his contractual obligations, and paying beneficiaries from collected unclaimed dividends when they resurface.
Compensation fund
Further, Regulation 69 requires that investors shall apply to CMA for compensation from the compensation fund in cash or securities equal to the net loss following a pecuniary loss due to the failure of a stockbroker, dealer or investment bank carrying out stock broking business or dealing operations, to meet its contractual obligations.
However, the committee found out that the investors in the Cytonn High Yields Solution (CHYS), under which the Ridge project falls, are not liable for compensation from the fund as the product is unregulated.
“Therefore, investors in the CHYS are not entitled to benefit from the investor compensation fund in case they suffer a loss of their investment,” reads the report.
However, there is hope for the investors as MPs have called on the receiver overseeing the liquidation of Cytonn to complete the process within six months so that the investors can be compensated.
Mr Mark Gakuru is the official receiver appointed by the court in January 2023 as the liquidator of Cytonn High Solutions and Cytonn Real Estate Project.
The committee says the conclusion of the liquidation process will allow for the availing of funds to compensate investors.
“The committee recommends that the official receiver speeds up the process of liquidation and reports to the National Assembly within six months,” reads the report.
The committee also noted that at the time it was considering the petition, liquidation orders against certain entities such as Cytonn High Yields Solution (CHYS) under Cytonn were issued by the courts where an official receiver was appointed.
“The order was made against The Ridge which is at the heart of this petition. Therefore, the court process on liquidation be allowed to proceed to its logical conclusion,” reads the report.
The lawmakers also faulted Cytonn in the report for failing to procure a license to allow it to operate the services and products that fall within the purview of the Capital Markets Authority (Collective Investment Schemes) Regulations, 2001 and also apply for a fund manager license under the CMA (Licensing Requirements) general regulations, 2002.
