CMA to probe Cytonn’s unregulated fund


CMA to probe Cytonn’s unregulated fund
Cytonn Investment Chief Executive Officer Edwin Dande during his interview with Citizen Digital on November 23, 2019

In Summary

  • The capital markets regulator has asked aggrieved investors to file complaints with its complementary police unit- the Capital Markets Fraud Investigation Unit (CMFIU)
  • Cytonn'’s CHYS was flung to the limelight again on Thursday after a viral video from a distressed investor in the fund who lamented the non-payment of monies falling due next month.
  • On its part, the management of Cytonn has denied any wrong doing as it attributes the delayed remittance of investor funds to disruptions including COVID-19.

The Capital Markets Authority (CMA) says it is currently investigating potential criminal violations for investors in the Cytonn High Yield Solutions (CHYS), an unregulated fund by Cytonn Investments.

The capital markets regulator has asked aggrieved investors to file complaints with its complementary police unit.

“Investors who are affected by investing in unregulated products should report to the Capital Markets Fraud Investigation Unit (CMFIU),” CMA said.

Cytonn’’s CHYS was flung to the limelight again on Thursday after a viral video from a distressed investor in the fund who lamented the non-payment of monies falling due next month.

The investor under the user name Lynn Ngugi on Twitter slammed Cytonn for asking her to extend the maturity of her investments by a further year, even after taking an initial one year moratorium, or convert her investment into real estate by taking up property in Cytonn.

The viral video adds to previous accusations facing the CHYS by investors after the moratorium on payments was effected by Cytonn early last year.

For instance, the CMA disclosed in court documents (related to another matter) that 13 of the 4000 investors in the CHYS had approached it complaining over non-payment of arrears.

Further, three businessmen sued Cytonn over an invested sum of Ksh.46.7 million relating to the CHYS and Cytonn Project Notes (CPN).

On its part, the management of Cytonn has denied any wrong doing as it attributes the delayed remittance of investor funds to disruptions including COVID-19.

In a CHYS/CPN conversion to real estate term-sheet dated April 1, 2021, Cytonn offered housing units under its projects in place of redemptions for investors unwilling to extend moratoriums to the firm.

“COVID-19 has significantly impacted two sectors we operate in- real estate developments and hospitality, hence we needed to take mitigation measures. This directly impacts two of our funds totaling Ksh.13.5 billion. In this environment, given our model of borrowing from individuals, the contract between the fund and the projects allows the investment manager to request investors for a restructuring just the same way developers are approaching banks for their debt restructuring,” read part of the term sheet.

“In order to preserve value and to ensure that all investors get their investments and returns back, the board approved a one year moratorium. However, those not keen on a moratorium can take real estate, individually or in groups, equivalent to their real estate units. A cash deposit is required for all three projects covered in this term-sheet to address the current liquidity challenges faced by the funds.”

Both the CYHS and the CPN are unregulated funds. However, the CMA regulates six funds by the company under Cytonn Asset Management Limited, a licensed fund manager.

This include Cytonn Money Market Fund; Cytonn Balanced Fund; Cytonn Equity Fund; Cytonn Africa Financial Services Fund; Cytonn Money Market Fund (USD); and Cytonn High Yield Fund (CHYF).

“So far CMA has not received any complaints on these regulated products,” the CMA stated.

Previously, Cytonn Investment CEO Edwin Dande warned the fall out from the moratorium on investor remittances under the CHYS was having adverse effects on its other funds after marking increased withdrawal requests by invested clients.

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