JMK Partners Advocate



Over the past few years, there have been several reports of investors losing alarming amount of money in investment schemes. While many of these schemes experience genuine market hiccups that lead to investors losing their money, most of them are fraudulent investments set up with the sole intention of defrauding innocent and suspecting investors. They are usually set up and paraded as investment opportunities characterized by above average returns on investment to lure investors and in the end many Kenyans fall victim to these traps. There is an obvious public outcry and this leads to the question: where is the law in protecting common mwananchi from these fraudulent schemes?

It is important to note that in Kenya there are regulated and non-regulated investments. The regulated markets are controlled by the Capital Markets Authority (CMA). One of the principal objectives of CMA is to protect investor\’s interest. The Authority, through its regulatory framework is able to regulate public issuing of shares and equities and Collective Investment schemes. It does this by issuing licenses to the market players who meet the set conditions and approving the market products offered to the public that fulfill the set criteria. The law prohibits any person from dealing with an investment market product without a license from the Authority.

On the other hand, unregulated market products are not under the supervision or control of any regulatory body. The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations of 2002, the main law governing the issuing of securities to the public is not applicable to Private Offers. They are essentially a closed shop and they operate as private contracts with the investors governed by the terms of that contract. The law restricts private offers to a select group of investors who are assumed to be capable of understanding the nature of the investment they are purchasing and the risk they are take. Under Regulation 21 of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, a private offer is stipulated to be one that meets at least one of the below conditions:

  1. the securities are offered to not more than one hundred (100) persons; 
  2. the securities are offered to the members of a club or association that can reasonably be regarded as having a common interest with each other;
  3. the securities are offered to a restricted circle of persons whom the offeror reasonably believes to be sufficiently knowledgeable to understand the risks involved in accepting the offer;
  4. The securities are offered in connection with a bona fide invitation to enter into an underwriting agreement with respect to them;
  5. the securities are of a private company and are offered by that company to:
    • members or employees of the company;
    • members of the families of any such members or employees; or
    • the securities are offered to a restricted circle of persons whom the offeror reasonably believes to be sufficiently knowledgeable to understand the risks involved in accepting the offer;
  6. the minimum subscription for securities per applicant is not less than Kenya Shillings one hundred thousand (Kshs. 100,000);
  7. the securities result from the conversion of convertible securities and a prospectus relating to the convertible securities was approved by the Authority and published in accordance with the Regulations;
  8. the securities of a listed company are offered in connection with a take-over scheme approved by the Authority; or
  9. the securities are not freely transferable.

If the offer meets any of these conditions, it can be regarded as a Private Offering therefore not requiring the strict regulation by the CMA.

Private Offers are prohibited from being publicly advertised or being offered to the wider unknowing public. Investors of a Private Offer are assumed to have fully understood the nature of their investment and to have voluntarily assumed the risk involved. Therefore, the regulators have no jurisdiction on them. It is due to this that victims of fraud in private market investments are left with no recourse when the investment schemes go bust.

Why the law as it is, is not sufficient to protect the investors

From the definition of private offers as stipulated above, it is certain that they are meant for a certain private class of investors. However, these offers are being publicly advertised through referral systems and technology such as WhatsApp Group thus enticing the general public into making investments and in the long run defeating the very definition of a private offer.

Additionally, the definition of a private offer as an offer where the minimum subscription for securities per applicant is not less than Kenya Shillings one hundred thousand (Kshs. 100,000) has been used as an avenue by promoters of investment schemes to shield themselves from the hands of the law. In essence, the regulations came into force in the year 2002 and it can speculated that the contemplation of the regulations was that a person who would be willing to invest at least Kshs. 100,000 is a sophisticated investor with knowledge of the risks associated with the investment . However, in the face of the current economy, kshs. 100,000/- can be said to be a relatively small investment amount which has become a leeway for public members to be trapped in offers that ought to be otherwise regulated.


The misuse of the unregulated market through private offers needs to be checked. The Capital Markets Authority has received its fair share of blame even prompting a parliamentary inquiry on the matter. This is despite the fact that the Authority has less control on these entities. The government needs to come up with a way to ensure private offers are not used as vehicles for defrauding investors.

This article is for informational purposes only and should not be taken to be or construed as a legal opinion. For more insights, please do not hesitate to contact Jane Makena Kirimi (