Trans-National lost Sh200m in fraudulent bond trading

The identity of the victims of the fraudulent bond trade was finally revealed in a petition filed by Tsavo Securities – the firm that Mr Mweni run – seeking to block the Capital Markets Authority from making a ruling that would require the dealer to pay the bank Sh200 million.

The court documents show that Trans-National approached Tsavo Securities in October 2012, to facilitate a bond Sale Buy Back (SBB) transaction on its behalf.

SBBs involve the sale in secondary market of government treasury bonds by one bank to another with a promise to buy it back in the future.  Commercial banks often use SBBS as a tool for the management of liquidity.

Tsavo Securities says in its petition that the transaction was concluded on October 9 of that year but was not successful.

The dealer argues that at the time of the transaction, the financial services sector regulator, the Central Bank of Kenya (CBK) had not come up with any procedures and legal frameworks governing it making any effort to legally penalize the dealer a nullity.

The failed transaction was among the six worth Sh1.44 billion that commercial banks reported to the CBK and the Capital Markets Authority (CMA) as having backfired.

The questionable bond dealings took place between October 18 and December 31, 2012 and the CBK said all the cases involved transactions by brokers who did not have valid agreements with the owners and were concluded via e-mail.

Some of the transactions were also considered fraudulent because they had not been authorised by the signatories of the CDS accounts where the bonds were held.

It has emerged that Trans-National Bank’s failed bond deal was one of the reasons that the CMA threw out and blacklisted the then well-known investment advisor securities market.

The CMA has in the past accused Mr Mweni of blocking investigations into the bonds scam by refusing to disclose transaction details of two other suspected deals it executed.

Mr Mweni has argued that he could not disclose confidential client information to a third party.

The CBK then introduced a rule requiring all transactions to be handled through a new Swift Message MT599 system in November 2012 to regulate the bonds trade.

To be considered valid the MT599 message should at the minimum contain security name, quantity, price or price limits, duration or validity of instructions and names of two authorized signatories of the CDS account.

Robert Gachathi, the general manager of Tsavo Securities, says in court documents that the firm had appeared before the CMA for a hearing on the botched transaction.
-  businessdailyafrica