Blow to Cytonn as CMA probes over uncontrollable funds

Once a large and reputable firm, the financial storms have not diluted the their books, but their brand is gradually getting eroded amidst the ongoing allegations. Cytonn Kenya is under pressure after the Capital Markets Authority (CMA), began a rigorous probe over it’s unregulated funds. According to a viral video of a distressed investor that did rounds all over the social platforms, there was a large outcry of Kenyans, as cases begun to emerge exposing more vices done by Cytonn Kenya. The said investor lamented desperately on non-payment of monies falling due next month. This happens immediately as Cytonn High Yield Solutions (CYHS) blames the fallout as effect from Covid-19 among other economic disruptions.

The investor under Twitter username Lynn Ngugi bashed and criticised 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.

This video caught the attention of CMA, who have since issued a notice to all 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.

According to CMA, Cytonn High Yield Solutions (CHYS)is an impending risk to most investors in the country after a number of accusations towards the firm in the last quarter of the year. The viral video adds to previous accusations facing the CHYS by investors after the moratorium on payments was effected by Cytonn early last year.

CMA Chief Executive Wyckliffe Shamiah has urged investors hit by investing in the unregulated products to report to the Capital Markets Fraud Investigation Unit. He further added that Cytonn Group Investment leads were forced to come out after several inquiries on the licensing status of the company.

“The authority confirms that Cytonn Investments is not a licensed and approved entity,” said Mr Shamiah in a statement sent to newsrooms.

For a long time investigations have been going on as some of the investors had to resort on using the directorate of criminal investigation in order to be assisted. The company which operates both regulated and unregulated products, with the unregulated ones now receiving much traction with the investors has at least 25 court cases which include liquidation petitions – by investors irked by the extension of maturity dates last year after Cytonn invoked a force majeure citing Covid-19.

According to the management of Cytonn, the delayed remittance of investor funds was due 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 totalling 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.

Its also continued …“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 comes at time when the economy is weak, businesses are suffering and many MSMEs are only but surviving. These unregulated funds mostly tend to have high rewards that are attractive, but until things don’t go right that you will also hear the many cries in the market.

These 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).

With the impending pressure, the CYHS is facing risk of a license ban if it may not remitt the percentage required for the investors. So far CMA has had no challenges with the regulated products they have been offering.

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