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Court blocks prosecution of forex dealer in Sh215m fraud case
Under online forex trading regulations, a money manager is only allowed to oversee a portfolio on behalf of a client, in return for a fee based on a percentage of the client’s funds under management.
A court has blocked the prosecution of a city forex trader charged with defrauding clients of Sh215.3 million, opening a window for him to trade.
The High Court last week ordered a temporary freeze of the criminal charges facing Michael Gitonga alias Tosh and also rescinded a decision by the Capital Markets Authority (CMA) to suspend operations of his company, Trade Sense Limited, pending the hearing and determination of the two cases in July this year.
The markets regulator has accused Trade Sense Limited of contravening regulations that bar licensed money managers from handling clients’ funds.
The charged sheet indicated that between April 28, 2022 and August 29, 2024, he handled and diverted Sh212.16 million worth of clients’ cash for his use and obtained an additional Sh3.14 million from three other parties by falsely pretending he would invest in forex trading on their behalf.
Under online forex trading regulations, a money manager is only allowed to oversee a portfolio on behalf of a client, in return for a fee based on a percentage of the client’s funds under management.
The trader challenged the decisions at the High Court, where he obtained orders that, among others, compelled the CMA to reinstate the licence and suspended the criminal charges against him pending the hearing of the cases.
“Prayers B, C, D, E, G and H are allowed,” says the High Court order that was issued on May 26.
Prayers B and C were lifting the suspension of Trade Sense’s license and quashing of the criminal charges against Mr Gitonga, respectively, while prayer D was to bar the CMA or its officials from enforcing the suspension of the licence or taking any further regulatory action.
Trade Sense lists the requirement of a minimum investment of Sh258,380 ($2,000) for retail investors and Sh1.2 million ($10,000) for corporate and high-net-worth individuals, a lock-in period of 90 days for the principal invested, and a management fee of three percent prorated daily.
Before suspending the licence, the CMA said it had been engaging Trade Sense for the past two years over the breaches, suggesting that Mr Gitonga had been under the radar of the regulator for some time.
The other charges show that between April 2023 and April 2024, at the Trade Sense offices in Nairobi, he obtained Sh1.3 million from an investment company known as Ingotse 95 on the pretense that he would invest the funds in online forex trading on their behalf.
Similarly, he is said to have obtained under the same pretense Sh1.54 million from Chepkemboi Labbat between March 27 and April 12, 2024, and Sh300,000 from James Mwaura Mbugua between March 2022 and September 2024.
His lawyers argued that the criminal charges were founded on an unlawful administrative decision by the CMA.
“The institution of criminal proceedings violates Article 50(2) of the Constitution, which guarantees the right to a fair trial, including the right to be informed of the charge with sufficient detail to answer it,” the lawyers said in the petition.
Court documents show that Mr Gitonga and his company have accused the CMA of ignoring orders from the Commission of Administrative Justice (CAJ) to provide the report that was used as the basis for the licence revocation.
CAJ had directed the regulator to furnish Mr Gitonga and his company with the report within seven days, orders that the regulator ignored Besides triggering criminal charges against Mr Gitonga, the CMA suspended Trade Sense’s licence in a bid to allow for a complete investigation of the firm and determine whether to lift the ban or take further action.
The lawyers also wanted the High Court to issue orders restraining the Director of Public Prosecutions from proceeding with the criminal charges against Mr Gitonga until the hearing of his petition.
Over the past decade, tech-savvy Kenyans have increasingly tapped into the global forex market through online platforms, giving rise to unregulated entities and rogue traders who take advantage of the demand.
The forex market is one of the largest, most traded and liquid financial markets in the world, with daily transactions of more than $7.5 trillion.
Following a surge in fraud cases, the CMA developed the Online Foreign Exchange Trading Regulations in 2017 to rein in the unregulated brokers and traders. The rogue, unregulated traders duped investors by offering huge, unsupported returns for forex investments.
