Is Cytonn a Ponzi Scheme? After Techspace Africa reported yesterday that Cytonn Investments was under siege from investors who claimed they were being frustrated by the firm, the Capital Markets Authority (CMA) has now launched investigations into some of the funds managed by Cytonn for criminal violations.
The Capital Markets Authority (CMA) on Thursday said it has opened investigations into Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN)—which have investments worth Sh13.5 billion.
CMA Chief Executive Wyckliffe Shamiah urged investors hit by investing in the unregulated products to report to the Capital Markets Fraud Investigation Unit. He said they were forced to come out following “numerous inquiries” on the licensing status of Cytonn Investment Group.
“The authority confirms that Cytonn Investments is not a licensed and approved entity,” said Mr. Shamiah in a statement sent to newsrooms.
Cytonn on the other hand released a statement rubbishing the statement from CMA.
“Kindly note that CHYS was structured as a private offer within the meaning of Regulation 21 of the Capital Markets (Securities) Regulation after consultations with the regulator, see letter attached. In their letter dated April 14th, 2016, the then Director of Market Operations, Wycliffe Shamiah, stated that ‘As you had observed, an offer will be considered a private offer if it meets any of the conditions provided.'”
“The statement appears malicious and an attempt to distance itself from a real estate fund that has operated for over 8 years, and like other real estate funds globally, has had liquidity challenges given that real estate is a long-term asset and in this case is financed by short-term obligations.” The company states.
Is Cytonn a pyramid scheme?
Unfortunately, this is not the first time Kenyans have come online to cry over unpaid investments from the company.
Cytonn says they have had to extend maturities for most of their investments for up to two years, arguing that the coronavirus pandemic hurt its cashflows.
Some critics have, however, likened the investment company to a Ponzi scheme due to its promise of giving returns way above the market rates and failing to pay out repeatedly.
But this ponzi scheme was expected to crumble anytime soon.
Cytonn was paying old investors from money received from new investors, not return on their investments.
Now that there are no new investors kimeumana!!!!! https://t.co/xSV1cWnkmB
— Tony Watima (@Watimz) June 17, 2021
Ponzi scheme 101. Usually base returns on Sacco dividend. This year it was 9% on avarage what is cytonn doing to get 14% during covid? Don't let greed make decisions for you.
— Christian Eriksen🙏 (@APSkenyan) June 17, 2021
“A Ponzi scheme has no underlying assets; we do,” founder Edwin Dande told journalists dismissing claims he was running a pyramid scheme that promised high returns but failed to pay on maturity.
“We urge all our 30,000 investors to keep calm as we continue to address the issues making rounds in the social media, and just as we have handled previous unfair administrative action from CMA, we shall also handle this particular one. CHYS is invested in 10 well-researched real estate projects, hence the investments are very safe but illiquid. The respective contracts do not allow withdrawals in periods of illiquidity.”
The fight between CMA and the real estate investment firm’s CHYF is not new, the investment firm claims is a witch hunt over a request by the authority that the CHYF lessen its investments into Cytonn-related projects to 10 percent of the fund’s total assets under management (AUMs) to minimize risks and protect investors in the investment.
