NSE is unfair to Francis Thuo customers!

My primary source of information is from the Business Daily. I will revise the blog entry as as I receive more information. My comments are in RED.

Cash payment to Francis Thuo investors explained

Written by Geoffery Irungu

Photo by: Frederick Onyango The Nairobi Stock Exchange blamed logistical issues for decisions to compensate investors of the collapsed Francis Thuo brokerage firm in cash rather than the equivalent value in shares. 30-August-2007: The Nairobi Stock Exchange yesterday blamed logistic difficulties for its decisions to compensate investors of the collapsed Francis Thuo and Partners Stockbrokers in cash rather than the equivalent value in shares. Oh, please educate us... What were these "logistic difficulties"? During a meeting with majority investors whose business was transacted through the collapsed firm, the NSE was put on the spot over how it picked on a day when the market was generally down as the value date for the compensation. The meeting, which took place on Tuesday, saw the NSE admit that fraud was apparent in some cases where shares were sold by the firm without valid orders from investors. If there was fraud why have no arrests or prosecutions taken place? Why are the crooks being protected? Who is shielding these crooks? The criteria used to pay investors in cash at face value — with no interest or regard to the losses made during the seven months that the firm has been in business — had raised eyebrows soon after NSE announced August 17 as the value date. The value date, if any, should be the date Francis Thuo & Partners shut down. Mr Chris Mwebesa, the NSE Chief Executive, said the date was picked upon because that is the day when Renaissance Capital —which bought the Francis Thuo business for Sh251 million —paid their dues. Well, since the NSE/CMA waited till it received KShs 251mn from the sale of the license then it reasons that the customers/creditors should receive a share of the EXCESS funds!!! Basically, the creditors "own" a company in bankruptcy. So the license (& monies from its disposal belong to the creditors!!!). It was also the date the cheques were being written after the reconciliation of accounts relating to the investors through the insolvent broker. He said 850 investors were involved and the payments were going on as scheduled from Monday and are set to be completed by this Friday. Misunderstandings had arisen mainly because there were investors whose shares were sold by the collapsed firm without them having given sale orders. There is no misunderstanding. I call it FRAUD. Simple as that! If I had shares held there simply because I need a CDS account does not mean I wanted to sell the shares. Replace the shares for shares! The NSE boss said it would have been logistically difficult to start buying the shares again on behalf of the investors. Nonsense! The NSE should give the customers/investors the option of receiving cash or shares. The NSE has a process of "buying-in" shares if not delivered by brokers. The NSE can buy these shares from the market & transfer them to the investors. Mr Chandulal Shah, an investor at the NSE and also a consultant on investment matters, said that investors should have received shares instead of cash in cases where such shares had been ordered and paid for by the broker. Damn straight! Mr. Shah is an experienced shareholder activist & is RIGHT!!! Mr Shah said that those who had sold the shares of investors without their prior approval should be charged in court with fraud. I see the hand of FT & Partners' friends in this matter!!! Some members of the NSE are protecting one of their own including a silly suggestion that FT gets a "golden handshake" for committing fraud... WTF? This may set a precedent where a thief caught in the act gets compensated for his "troubles" coz he was caught stealing! WTF (again)! Although the money owed to investors was initially thought to be around Sh90 million it has since turned out that it is about Sh150 million. Mr Mwebesa said the bourse also has to compensate the investors for dividends and bonuses that had been dispatched to them through the stock broker. Of course, investors should be compensated for bonuses & dividends!!! In fact, investors should demand interest on the cash & dividends!!! The claims paid for included money that had been in the accounts of the investors, funds received from the sale of shares without authority and for shares sold but for which money had not been received by investors. What about interest on the money? And at T-Bill rates!!! Mr Mwebesa said those who had ordered for shares with the brokers but which had not been bought would receive the exact amount of cash they had given the broker. What about interest on the money? And at T-Bill rates!!! Controversy had arisen as to the criteria used to determine the August 17 as the date of reference when compensating investors as the stock market 20-share index had on that date lost nearly 70 points compared to the previous week, depicting a less attractive week to invest in the bourse. Mr Mwebesa said the NSE had during the meeting asked investors to bear with them especially in view of the fact that the bourse had done everything possible to ensure that they did not lose any money. Oh, please! What did the NSE do to protect the investors? The NSE was aware of the bounced cheques from FT & Co. The NSE knew that investors were not getting paid for shares sold! The NSE abetted the fraud. As is the investors should have been compensated for the losses through fraud but neither the NSE nor CMA raised a finger to help them during the tough times! The NSE had the option to repay the claims of the investors through raising funds from their members but they did not! He said that investors would ordinarily have been entitled to Sh50,000 maximum if the money had to be drawn from NSE’s Investor Compensation Fund. “The payments to investors are expected to maintain confidence in the stock market,” he said. So the NSE is saying that to protect oneself against FRAUD, an investor should have no more than 50,000/- in a broker's account? How can I have confidence in such a scenario? I have a good mind to recommend ALL investors should hold certificates!!! The SIPC in the USA insures investors for a minimum of $500,000 (KShs 33,000,000). Finally... where is the CMA in all this????