Introduction
1. This Petition dated 18th June 2021, was filed by the Petitioners, Mr. Edwin H. Dande, Ms. Patricia N. Wanjama, and Ms. Elizabeth Nkukuu, who are directors and shareholders of Cytonn Investment Management PLC (CIMP), the holding entity of the Cytonn Group of Companies, which operates through various subsidiaries and investment vehicles, including Cytonn High Yield Solutions LLP (“CHYS”) and Cytonn Real Estate Project Notes LLP (“Project Notes”), the Interested Parties herein.
2. The Petitioners and Interested Parties challenge the regulatory actions of the Capital Markets Authority (CMA), the 1st Respondent, and the investigative measures of the Directorate of Criminal Investigations (DCI), the 2nd Respondent, in relation to Cytonn High Yield Solutions LLP and Cytonn Real Estate Project Notes LLP.
3. The Petition, which is brought pursuant to Articles 22, 23, and 165 of the Constitution of Kenya and the Constitution of Kenya (Protection of Rights and Fundamental Freedoms) Practice and Procedure Rules, 2013, seeks the following orders against the Respondents: -
i. A declaration be and is hereby issued that the purported illegal, unlawful, and malicious directive issued by the 1st Respondent through a letter dated 13th November 2020 purporting to close down the consideration of proposed conversion of CHYS into CIMP-REIT and advising that CHYS has been forwarded to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigation constitutes a violation of the petitioner’s and other stakeholders rights under Articles 27, 28, 40, 47 and 50 of the Constitution;
ii. A declaration that the summoning for inquiry and the intention to charge the Petitioners and any other persons, assigns, and/or agents of Cytonn Group of Companies with regards to the products Cytonn High Yield Solutions (CHYS) and Cytonn Reals Estate Project Notes LLP is a violation Article 47 and 50 of the Constitution on fair administrative and the right to a fair hearing respectively;
iii. A declaration that the Petitioners be compensated a total sum of Kshs. 10,000,000.00 or any other amount that the court deems sufficient and/or appropriate by the 1st Respondent for the violation of the Petitioners' rights and fundamental freedoms under Articles 27, 28, 40, 47, and 50 of the Constitution;
iv. A declaration that the activities of Cytonn High Yield Solutions in fundraising through an identifiable restricted market constitutes a “private offer” under Section 30A of the Capital Markets Act and Regulation 21 of the Capital Markets (Securities, public offers, Listing and Disclosures) Regulations, 2002;
v. An order of permanent injunction restraining the 2nd Respondent and any other agent or entity acting under its instructions from purporting to arrest, interrogate, and intimidate through prosecution, the petitioner and any other employee or director of Cytonn Group of Companies on any issue regarding the legality of Cytonn High Yield Solutions and Cytonn Project Notes; and
vi. Costs of this Petition.
4. The Petitioners aver that, contrary to the position taken by the Capital Markets Authority, CHYS and Project Notes (by the 1st and 2nd Interested Parties, respectively) were deliberately structured as private offers under Section 30A of the Capital Markets Act and Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002, and therefore fell outside CMA’s regulatory ambit.
5. They allege that CMA’s directives, including the letter dated 25th April 2017 branding CHYS as an unlicensed collective investment scheme, and the letter dated 13th November 2020 referring the matter to the DCI, were therefore arbitrary, inconsistent, and violated their constitutional rights under Articles 27, 28, 40, 47, and 50 of the Constitution.
6. The Petition is opposed by both the 1st Respondent and the 2nd Respondent.
7. The 1st Respondent, in a Replying affidavit dated 9 September 2021, sworn by Abubakar Hassan Abubakar, the Director of Market Operations, contends that CHYS and Project Notes were in substance collective investment schemes within the meaning of Section 2 of the CMA Act, pooling funds from thousands of members of the public, and therefore required licensing and registration. CMA argued that its actions were lawful, necessary, and aimed at protecting investors from exposure to unregulated products, and urged the Court to dismiss the Petition as misconceived, premature, and an abuse of process.
8. The 2nd Respondent, on its part, through the Replying Affidavit of Chief Inspector Samwel Chumo, sworn on 12 May 2023, urged the Court to dismiss the Petition, contending that the investigations undertaken were lawful, necessary, and within the statutory mandate of the DCI.
9. According to the 2nd Respondent, the investigations were commenced after receipt of numerous complaints not only from the CMA, but also from several individual investors between 10 October 2020 and 4 June 2021, alleging non-payment of returns promised under CHYS and Project Notes.
Background
10. For context, the Court finds it critical to set out the factual background of the present dispute.
11. The dispute between the Petitioners and CMA dates back to 13th April 2015, when CMA wrote to the Interested Parties demanding an information notice under Section 30A of the Act, following a Business Daily report of 9th April 2015 alleging a private placement valued at Kshs. 1.1 billion. According to the letter, CMA required disclosure of the nature, structure, and operational details of the investment products, including their fundraising methods, investor base, and governance arrangements.
12. On 28th April 2015, the Interested Parties responded to CMA, explaining that the shares had been offered to a restricted circle of friends and family, believed to be sufficiently knowledgeable to understand the risks involved, and therefore qualified as a “private offer” under Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002, and thus fell outside the approval and licensing requirements applicable to public offers and collective investment schemes.
13. By a letter dated 6th May 2015, CMA insisted that the offer constituted a restricted public offer requiring disclosure. Cytonn replied on 13th May 2015, clarifying that the publication was not an invitation to the public, and reiterated its private offer exemption.
14. Cytonn alleged that by correspondence dated 11th December 2015, the 1st Respondent (CMA) accepted the 1st Interested Party’s explanation, closed the inquiry, and thereby permitted the company to continue offering shares to a controlled clientele.
15. By a letter dated17 February 2016, Cytonn sought clarification from CMA on the distinction between public and private offers. CMA responded on 14th April 2016, but the Petitioners allege that CMA’s reply was vague and did not provide clear thresholds or definitions of “sophisticated investors.”
16. The Petitioners alleged that on 22nd August 2016, CMA issued Circular No. 8/2016, expressly acknowledging that cash management products were excluded from the ambit of the Act and constituted unregulated activity. It is alleged that a meeting was held on 31st August 2016, where CMA confirmed this position.
17. The Petitioners allege that despite these acknowledgments, CMA later shifted its stance, issuing its findings on 25th April 2017, wherein CMA termed CHYS as an unregistered collective investment scheme and CIMP as an unlicensed fund manager. Findings which were disputed by the Interested Parties vide their letter dated 10th May 2017, offering clarification, and requesting a meeting.
18. Parties thereafter embarked on an extensive engagement, with the intention of converting the Interested Parties' product, CHYS, into a regulated Cytonn High Yield Fund (CHYF) or to a Development Real Estate Investment Trust (D REIT).
19. However, on 13th November 2020, CMA issued the contested directive closing consideration of the proposed conversion of CHYS, and referring the matter to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigations (DCI) for further investigation.
20. The DCI thereafter commenced investigations. Between late 2020 and mid-2021, the DCI issued summonses to the Petitioners requiring their attendance for inquiry into alleged offences, including carrying out business as an unlicensed collective investment scheme and obtaining money by false pretenses.
21. It is this directive of 13th November 2020 by the CMA and the consequent action by the DCI that forms the substratum of this Petition, with the Petitioners and Interested Parties arguing that the CMA’s directives and subsequent referral of the matter to DCI were inconsistent with its earlier position, violated constitutional rights, and amounted to harassment.
22. The 1st Respondent (CMA), however, maintains that its actions were necessary to protect investors and enforce compliance with the law, whilst the 2nd Respondent (DCI) asserts that its investigations were instigated by genuine complaints and were conducted lawfully.
23. The Petition proceeded by way of written submissions, which were briefly orally highlighted in court on 16 July 2025.
Petitioners’ and Interested Parties’ Submissions
24. The Petitioners and Interested Parties filed their respective submissions, both dated 4th August 2023.
25. Counsel for the Petitioners submitted that the genesis of the dispute can be traced to the correspondence exchanged between the Petitioners and the 1st Respondent beginning in April 2015. By a letter dated 13th April 2015, CMA demanded that Cytonn Investment Management Limited file an information notice under Section 30A of the Capital Markets Act following a Business Daily report of 9th April 2015 alleging a private placement valued at Kshs. 1.1 billion.
26. In reply, by a letter dated 28th April 2015, Mr. Edwin Dande explained that the shares had been offered to a restricted circle of friends and family, believed to be sufficiently knowledgeable to understand the risks involved, and therefore qualified as a private offer under Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002.
27. The Petitioners point to CMA’s subsequent Circular No. 8 of 2016 dated 22nd August 2016, which expressly acknowledged that cash management products were excluded from the ambit of the Capital Markets Act and constituted unregulated activity. They argue that this circular confirmed their position that CHYS was outside CMA’s jurisdiction.
28. Counsel submitted that CMA’s later directives, including the letter dated 25th April 2017 branding CHYS as an unregistered collective investment scheme, and the letter dated 13th November 2020 referring the matter to the DCI, were inconsistent with its earlier position and amounted to harassment. They contend that CMA has deliberately maintained ambiguity in defining “private offers” and “sophisticated investors,” thereby violating the Petitioners’ rights under Article 47 of the Constitution on fair administrative action.
29. The Petitioners rely on Article 27 (equality before the law), arguing that CMA has singled them out while other market players offering similar products have not been subjected to regulatory action. They invoke Article 28 (human dignity), contending that being branded as operators of illegal schemes has demeaned their reputation. They further cited Article 40 (protection of property), alleging unlawful interference with investors’ funds, and Article 50 (fair trial), arguing that the referral to the DCI undermines their presumption of innocence.
30. In support of their case, the Petitioners cited, among others, the case of Dry Associates Ltd v Capital Markets Authority & Another [2012] eKLR, where the Court held that Article 47 subjects’ administrative processes to constitutional discipline, and that relief for administrative grievances must be measured against constitutional standards. They also relied on Anarita Karimi Njeru v Republic [1979] eKLR, emphasizing the requirement to plead constitutional violations with precision, which they submit they have satisfied.
31. The Petitioners therefore urged the Court to declare that CHYS and Project Notes were lawful private offers, that CMA’s directives and the DCI’s investigations violated their constitutional rights, and to award compensation of Kshs. 10 million together with injunctive relief restraining further interference.
32. The Interested Parties (Cytonn Investment Management PLC, Cytonn High Yield Solutions LLP, and Cytonn Real Estate Project Notes LLP), on their part, aligned with the Petitioners’ arguments and urged the Court to find that the products offered by the 2nd and 3rd Interested Parties were lawful private offers, exempt from regulation by the Capital Markets Authority (CMA), and that the Respondents’ actions amounted to harassment and violation of constitutional rights.
33. The Interested Parties contended that Cytonn Investments is a holding company with various subsidiaries, some of which are duly licensed and regulated, while others operate private offers outside CMA’s ambit. They argued that CHYS and Project Notes were structured as private offers under Section 30A of the Capital Markets Act and Regulation 21 of the 2002 Regulations, targeting a restricted circle of investors with minimum subscription thresholds of Kshs. 100,000.
34. They emphasized that investors were subjected to pre-qualification criteria, including net worth, financial knowledge, and sophistication, thereby meeting the definition of private offers. They contended that CMA’s attempt to classify these products as collective investment schemes was erroneous and ultra vires.
35. The Interested Parties relied heavily on the long trail of correspondence between Cytonn and CMA, most of which I have enumerated in the foregoing paragraphs, including the 25th April 2017 letter in which CMA issued findings stating that CHYS was an unregistered collective investment scheme and CIMP as an unlicensed fund manager; and the letter of 13 November 2020 in which CMA issued the contested directive closing consideration of the proposed conversion of CHYS and referring the matter to the DCI.
36. The Interested Parties therefore argued that the correspondences demonstrate CMA’s inconsistency and arbitrariness, shifting positions over time and failing to provide clear guidance.
37. According to the Interested Parties, their products fell squarely within the exemptions under Regulation 21(1)(c), (e), (f), and (i) of the 2002 Regulations, which define private offers. They argue that CMA’s reliance on Section 23 and Section 30 of the Act to classify CHYS as a collective investment scheme was misplaced, as the statutory thresholds for public offers were not met.
38. They further contend that CMA’s actions violated Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act, 2015, which guarantees lawful, reasonable, and procedurally fair administrative action.
39. In support of their arguments, the Interested Parties relied on several authorities, including the following: -
i. Civil Case No. E249 of 2021, Cytonn Investment Management PLC v Wycliffe Shamiah & CMA, in which the Court held that Cytonn Asset Managers Ltd was duly licensed and regulated, and acknowledged that CMA had no mandate over private offers. The Interested Parties argued that this case dissuades the notion that CHYS was illegal.
ii. High Court Petition No. E414 of 2022, Cytonn Investment Management PLC v CMA & 3 Others; where the Court issued an order of mandamus compelling CMA to release an inquiry report allegedly criminalizing CHYS. The Interested Parties argue that CMA’s refusal to furnish the report violated constitutional provisions on fair administrative action and access to information.
iii. Republic v National Police Service Commission ex parte Daniel Chacha [2016] eKLR; to emphasize that administrative actions must comply with Article 47 of the Constitution.
iv. Judicial Service Commission v Mbalu Mutava & Another [2015] eKLR: Relied upon to underscore that Article 47 entrenches the right to fair administrative action in the Bill of Rights.
40. The Interested Parties asserted that there is no illegality in the formation or activities of CHYS and Project Notes. They therefore urged the Court to declare that these products were lawful private offers, find that CMA acted ultra vires and in violation of constitutional rights, and to restrain the Respondents from further interference.
41. The Interested Parties further argued that CMA’s actions have caused reputational harm, investor panic, and economic loss, and that the Petitioners and Interested Parties are entitled to compensation and injunctive relief.
1st Respondent's Submissions
42. The 1st Respondent filed its submissions dated 11th March 2024 and argued that its actions in the present case were in line with its statutory objective of protecting investor interests under Section 11(1)(d), including its powers under Section 11(3) to issue guidelines and notices, grant licences, register and regulate collective investment schemes, give directions to licensed persons, and impose sanctions for breach of the Act or Regulations.
43. It was the 1st Respondent’s case that the Petitioners and the 1st Interested Party were engaged in pooling funds from the public through Cytonn High Yield Solutions LLP (2nd Interested Party) and Cytonn Real Estate Project Notes LLP (3rd Interested Party), which in substance constituted collective investment schemes within the meaning of Section 2 of the Act. The Respondent argued that these activities required licensing and registration, which the Petitioners failed to obtain, thereby operating illegally.
44. Regarding CHYS, the 1st Respondent maintained that it was neither licensed nor approved, yet it engaged in pooling funds from more than one hundred investors, thereby exceeding the statutory threshold for private offers under Section 30A and Regulation 21 of the Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2002. It was contended that the Petitioners’ characterization of CHYS as a private offer is untenable, as the number of subscribers and the manner of solicitation clearly amounted to a public offer.
45. Similarly, it was the 1st Respondent’s position that the Project Notes were structured debt instruments backed by real estate projects, marketed to the public without approval. The Respondent argued that these products mimicked regulated collective investment schemes and real estate investment trusts (REITs), but were operated outside the law.
46. Counsel for the 1st Respondent emphasized that despite numerous engagements, including meetings on 31st August 2016 and 5th July 2017, and commitments by the Petitioners to convert CHYS into a regulated Cytonn High Yield Fund (CHYF) or to a Development Real Estate Investment Trust (D REIT), the Petitioners failed to complete the process. Consequently, CMA closed the application for a D REIT by its letter dated 5 November 2020, and thereafter issued the contested directive of 13 November 2020, referring the matter to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigations.
47. The 1st Respondent maintained that its actions were lawful, reasonable and procedurally fair, and squarely within its statutory mandate. It relies on Section 11(3)(cc) of the Act, which empowers the Authority to impose sanctions for breach of the Act or Regulations, including ordering restitution, publishing findings of malfeasance, and suspending trading of securities.
48. The 1st Respondent asserted that the Petitioners cannot seek injunctive relief to shield themselves from lawful regulatory oversight. It argued that it complied with Article 47 of the Constitution, as the Petitioners were engaged, invited to meetings, and given reasons for the directives issued.
49. The 1st Respondent emphasizes that numerous complaints were lodged by investors who had subscribed to CHYS and Project Notes but were not paid their returns. It submitted that the Petitioners’ operations exposed the public to risk, and that referring the matter to the DCI was necessary to safeguard investors.
50. The 2nd Respondent also asked the Court to take judicial notice of the existence of a liquidation order issued in HCCOMM IP NO. E063 OF 2021: CHYS LLP -VS – THE OFFICIAL RECEIVER; and, HCCOMM E064 OF 2021: CYTONN REAL ESTATE PROJECT NOTES LLP vs THE OFFICIAL RECEIVER against the special investment vehicles managed by the 2nd Petitioner. The 1st Respondent emphasized that in both cases, the 2nd and 3rd Interested Parties herein are being liquidated due to failure to pay back their investors.
51. In support of its position, the Respondent cited, among others, the case of Republic v Public Procurement Administrative Review Board & 2 Others [2019] eKLR, where the Court emphasized that statutory bodies must act within the powers conferred upon them, and that ultra vires actions are subject to judicial review. Counsel also referred to Joy Brenda Masinde v Law Society of Kenya & Another [2015] eKLR, affirming the argument.
52. In the premises, the 1st Respondent asserted that the Court ought to dismiss the Petition with Costs and find that CHYS and Project Notes were collective investment schemes operated without approval, and that CMA acted within its statutory mandate in issuing directives and referring the matter for investigation.
The 2nd Respondent’s Submissions
53. The 2nd Respondent, the Directorate of Criminal Investigations Department (CID), filed submissions dated 27th May 2024, stating that the Directorate is established under Section 28 of the National Police Service Act, with the mandate to investigate serious crimes, including economic crimes, fraud, and money laundering.
54. According to the 2nd Respondent, once complaints are lodged, the DCI is duty-bound to investigate, and cannot be restrained unless there is clear evidence of abuse of power.
55. The 2nd Respondent stated that between October 2020 and June 2021, at least twenty (20) complainants reported that they had invested in CHYS and Project Notes on the promise of returns ranging between 15% and 20%, but that the entities failed to honour their obligations. According to the 2nd respondent, the complaints involved substantial sums, ranging from Kshs. 500,000 to Kshs. 25 million, deposited into accounts held at Standard Chartered Bank in the name of Cytonn Investment Management Limited.
56. Counsel referred to the orders obtained from the magistrate’s court on 30th October 2020, granting the DCI access to investigate and inspect the relevant bank accounts. According to the 2nd Respondent, the investigations revealed that over 1,000 members of the public had invested more than Kshs. 1 billion over a five-year period, and that the Petitioners were the directors and signatories to the accounts.
57. The 2nd Respondent further submitted that its investigations established that CHYS and Project Notes were operated as collective investment schemes without approval from the Capital Markets Authority. That it further found that the Petitioners obtained money from the public under false pretences, promising high returns which were not honoured. Consequently, it referred the matter to the Office of the Director of Public Prosecutions, with a recommendation that the Petitioners be charged for:
i. Carrying on business as a collective investment scheme without a licence, contrary to Section 23(2) as read with Section 34(1)(a)(ii) of the Capital Markets Act; and
ii. Obtaining money by false pretences, contrary to Section 313 of the Penal Code.
58. Counsel for the 2nd Respondent argued that the Petitioners have not demonstrated a violation of their constitutional rights. They maintained that being summoned for inquiry does not amount to a violation of dignity under Article 28, as summons are lawful tools of investigation under Section 52 of the National Police Service Act. That Article 50 rights to fair trial accrue only upon commencement of criminal proceedings, not during investigations.
59. It was further the 2nd Respondent’s argument that Article 47 rights to fair administrative action were observed, as the Petitioners were informed of the scope of investigations and given an opportunity to respond.
60. In support of its position, the 2nd Respondent cited, among others, the case of Commissioner of Police & Another v Kenya Commercial Bank Ltd & 4 Others [2013] eKLR, where the Court held that police investigations are within their exclusive domain and should not be interfered with unless there is clear evidence of abuse of power. Counsel also relied on Republic v Attorney General & 4 Others ex parte Kenneth Kariuki Githii [2014] eKLR, affirming that the coexistence of civil and criminal proceedings does not in itself constitute abuse of process.
61. The 2nd Respondent therefore urged that the Petition ought to be dismissed with costs, submitting that the investigations were instigated by genuine complaints, were conducted lawfully, and that granting the orders sought would shield the Petitioners from accountability and undermine the public interest in protecting investors.
Analysis and Determination
62. I have carefully considered the Petition, the affidavits filed in support and in opposition, the voluminous correspondences exchanged between the parties, the authorities cited, and the applicable constitutional and statutory framework. The Court finds that the issues for determination are as follows:
i. Whether the directive issued by the 1st Respondent vide its letters of 13 November 2020 was ultra vires and unconstitutional;
ii. Whether the investigations by the 2nd Respondent infringed the Petitioners’ rights;
iii. Whether the products offered by the 2nd and 3rd Interested Parties constituted private offers exempt from regulation, or public offers, subject t o the remit of CMA; and
iv. What final orders are merited.
Whether the directive issued by the 1st Respondent vide its letters of 13 November 2020 was ultra vires and unconstitutional
63. The Petitioners contended that the 1st Respondent’s letter dated 13 November 2020, which, inter alia, terminated consideration of the proposed conversion of CHYS into a regulated real estate investment structure and referred the matter to the Capital Markets Fraud Investigation Unit under the DCI, was ultra vires, arbitrary, opaque, and disproportionate.
64. They posited that the Capital Markets Act, from which the 1st Respondent derives its powers, does not expressly authorize the kind of sweeping directives contained in the impugned letter, and that the Authority thereby exceeded its remit. In any event, they argued, the Authority failed the constitutional standard of fair administrative action by (i) withholding the very inquiry report it had invoked as the basis of its stance; (ii) denying the Petitioners sight of adverse material; and (iii) issuing drastic measures without exploring less restrictive supervisory options.
65. Citing Article 47 of the Constitution, and the Fair Administrative Action Act (FAAA), which guarantees every person the right to lawful, reasonable, and procedurally fair administrative action, the Petitioners submitted that CMA’s directive was “draconian” and actuated by malice, and that the Petitioners were denied written reasons and disclosure of the Inquiry Report underpinning the decision.
66. They relied on, among others, HC Petition No. E414 of 2022: Cytonn Investment Management PLC v Capital Markets Authority & 3 Others, where the High Court (Ongudi J – as she then was) held that CMA’s refusal to disclose the “inquiry report” violated Article 35(1)(b) and issued mandamus compelling disclosure.
67. The Petitioners therefore asserted that CMA’s directive amounted to unlawful interference with private investment vehicles and was actuated by bad faith.
68. The Interested Parties, aligned with the Petitioners’ arguments, and maintained that CHYS/Project Notes are private offers within Regulation 21 of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, and section 30A of the Capital Markets Act. They argued that CMA’s approach amounted to overreach. They also emphasized that the court’s finding in HC Petition No. E414 of 2022, which found that the Authority had breached the Petitioners’ right to access to information, as illustrative of a procedural deficiency in the CMA’s administrative process.
69. On its part, the 1st Respondent – CMA, maintained that, in issuing the impugned directives, it acted squarely within its statutory mandate under section 11(3) of the Capital Markets Act to supervise, issue directions, inquire, publish findings, order remediation, and to do such other acts as are incidental or conducive to its objectives, primarily investor protection.
70. The 1st Respondent pointed to investor complaints on non-payments, and insolvency-related events concerning the affiliated vehicles (2nd and 3rd Interested Parties) as justifying robust supervisory action, including halting an unsuitable conversion path and referring complaints to the Fraud Investigation Unit for appropriate inquiry.
71. On process, CMA avers that there was sustained engagement with the Petitioners and their affiliates through correspondence and meetings, and that the Petitioners were aware of the regulatory concerns. It urges this Court not to stifle investigations, absent proof of abuse or illegality.
72. From the parties’ respective submissions on this issue, the Court finds it necessary to first consider the scope of the powers of t
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1. This Petition dated 18th June 2021, was filed by the Petitioners, Mr. Edwin H. Dande, Ms. Patricia N. Wanjama, and Ms. Elizabeth Nkukuu, who are directors and shareholders of Cytonn Investment Management PLC (CIMP), the holding entity of the Cytonn Group of Companies, which operates through various subsidiaries and investment vehicles, including Cytonn High Yield Solutions LLP (“CHYS”) and Cytonn Real Estate Project Notes LLP (“Project Notes”), the Interested Parties herein.
2. The Petitioners and Interested Parties challenge the regulatory actions of the Capital Markets Authority (CMA), the 1st Respondent, and the investigative measures of the Directorate of Criminal Investigations (DCI), the 2nd Respondent, in relation to Cytonn High Yield Solutions LLP and Cytonn Real Estate Project Notes LLP.
3. The Petition, which is brought pursuant to Articles 22, 23, and 165 of the Constitution of Kenya and the Constitution of Kenya (Protection of Rights and Fundamental Freedoms) Practice and Procedure Rules, 2013, seeks the following orders against the Respondents: -
i. A declaration be and is hereby issued that the purported illegal, unlawful, and malicious directive issued by the 1st Respondent through a letter dated 13th November 2020 purporting to close down the consideration of proposed conversion of CHYS into CIMP-REIT and advising that CHYS has been forwarded to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigation constitutes a violation of the petitioner’s and other stakeholders rights under Articles 27, 28, 40, 47 and 50 of the Constitution;
ii. A declaration that the summoning for inquiry and the intention to charge the Petitioners and any other persons, assigns, and/or agents of Cytonn Group of Companies with regards to the products Cytonn High Yield Solutions (CHYS) and Cytonn Reals Estate Project Notes LLP is a violation Article 47 and 50 of the Constitution on fair administrative and the right to a fair hearing respectively;
iii. A declaration that the Petitioners be compensated a total sum of Kshs. 10,000,000.00 or any other amount that the court deems sufficient and/or appropriate by the 1st Respondent for the violation of the Petitioners' rights and fundamental freedoms under Articles 27, 28, 40, 47, and 50 of the Constitution;
iv. A declaration that the activities of Cytonn High Yield Solutions in fundraising through an identifiable restricted market constitutes a “private offer” under Section 30A of the Capital Markets Act and Regulation 21 of the Capital Markets (Securities, public offers, Listing and Disclosures) Regulations, 2002;
v. An order of permanent injunction restraining the 2nd Respondent and any other agent or entity acting under its instructions from purporting to arrest, interrogate, and intimidate through prosecution, the petitioner and any other employee or director of Cytonn Group of Companies on any issue regarding the legality of Cytonn High Yield Solutions and Cytonn Project Notes; and
vi. Costs of this Petition.
4. The Petitioners aver that, contrary to the position taken by the Capital Markets Authority, CHYS and Project Notes (by the 1st and 2nd Interested Parties, respectively) were deliberately structured as private offers under Section 30A of the Capital Markets Act and Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002, and therefore fell outside CMA’s regulatory ambit.
5. They allege that CMA’s directives, including the letter dated 25th April 2017 branding CHYS as an unlicensed collective investment scheme, and the letter dated 13th November 2020 referring the matter to the DCI, were therefore arbitrary, inconsistent, and violated their constitutional rights under Articles 27, 28, 40, 47, and 50 of the Constitution.
6. The Petition is opposed by both the 1st Respondent and the 2nd Respondent.
7. The 1st Respondent, in a Replying affidavit dated 9 September 2021, sworn by Abubakar Hassan Abubakar, the Director of Market Operations, contends that CHYS and Project Notes were in substance collective investment schemes within the meaning of Section 2 of the CMA Act, pooling funds from thousands of members of the public, and therefore required licensing and registration. CMA argued that its actions were lawful, necessary, and aimed at protecting investors from exposure to unregulated products, and urged the Court to dismiss the Petition as misconceived, premature, and an abuse of process.
8. The 2nd Respondent, on its part, through the Replying Affidavit of Chief Inspector Samwel Chumo, sworn on 12 May 2023, urged the Court to dismiss the Petition, contending that the investigations undertaken were lawful, necessary, and within the statutory mandate of the DCI.
9. According to the 2nd Respondent, the investigations were commenced after receipt of numerous complaints not only from the CMA, but also from several individual investors between 10 October 2020 and 4 June 2021, alleging non-payment of returns promised under CHYS and Project Notes.
Background
10. For context, the Court finds it critical to set out the factual background of the present dispute.
11. The dispute between the Petitioners and CMA dates back to 13th April 2015, when CMA wrote to the Interested Parties demanding an information notice under Section 30A of the Act, following a Business Daily report of 9th April 2015 alleging a private placement valued at Kshs. 1.1 billion. According to the letter, CMA required disclosure of the nature, structure, and operational details of the investment products, including their fundraising methods, investor base, and governance arrangements.
12. On 28th April 2015, the Interested Parties responded to CMA, explaining that the shares had been offered to a restricted circle of friends and family, believed to be sufficiently knowledgeable to understand the risks involved, and therefore qualified as a “private offer” under Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002, and thus fell outside the approval and licensing requirements applicable to public offers and collective investment schemes.
13. By a letter dated 6th May 2015, CMA insisted that the offer constituted a restricted public offer requiring disclosure. Cytonn replied on 13th May 2015, clarifying that the publication was not an invitation to the public, and reiterated its private offer exemption.
14. Cytonn alleged that by correspondence dated 11th December 2015, the 1st Respondent (CMA) accepted the 1st Interested Party’s explanation, closed the inquiry, and thereby permitted the company to continue offering shares to a controlled clientele.
15. By a letter dated17 February 2016, Cytonn sought clarification from CMA on the distinction between public and private offers. CMA responded on 14th April 2016, but the Petitioners allege that CMA’s reply was vague and did not provide clear thresholds or definitions of “sophisticated investors.”
16. The Petitioners alleged that on 22nd August 2016, CMA issued Circular No. 8/2016, expressly acknowledging that cash management products were excluded from the ambit of the Act and constituted unregulated activity. It is alleged that a meeting was held on 31st August 2016, where CMA confirmed this position.
17. The Petitioners allege that despite these acknowledgments, CMA later shifted its stance, issuing its findings on 25th April 2017, wherein CMA termed CHYS as an unregistered collective investment scheme and CIMP as an unlicensed fund manager. Findings which were disputed by the Interested Parties vide their letter dated 10th May 2017, offering clarification, and requesting a meeting.
18. Parties thereafter embarked on an extensive engagement, with the intention of converting the Interested Parties' product, CHYS, into a regulated Cytonn High Yield Fund (CHYF) or to a Development Real Estate Investment Trust (D REIT).
19. However, on 13th November 2020, CMA issued the contested directive closing consideration of the proposed conversion of CHYS, and referring the matter to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigations (DCI) for further investigation.
20. The DCI thereafter commenced investigations. Between late 2020 and mid-2021, the DCI issued summonses to the Petitioners requiring their attendance for inquiry into alleged offences, including carrying out business as an unlicensed collective investment scheme and obtaining money by false pretenses.
21. It is this directive of 13th November 2020 by the CMA and the consequent action by the DCI that forms the substratum of this Petition, with the Petitioners and Interested Parties arguing that the CMA’s directives and subsequent referral of the matter to DCI were inconsistent with its earlier position, violated constitutional rights, and amounted to harassment.
22. The 1st Respondent (CMA), however, maintains that its actions were necessary to protect investors and enforce compliance with the law, whilst the 2nd Respondent (DCI) asserts that its investigations were instigated by genuine complaints and were conducted lawfully.
23. The Petition proceeded by way of written submissions, which were briefly orally highlighted in court on 16 July 2025.
Petitioners’ and Interested Parties’ Submissions
24. The Petitioners and Interested Parties filed their respective submissions, both dated 4th August 2023.
25. Counsel for the Petitioners submitted that the genesis of the dispute can be traced to the correspondence exchanged between the Petitioners and the 1st Respondent beginning in April 2015. By a letter dated 13th April 2015, CMA demanded that Cytonn Investment Management Limited file an information notice under Section 30A of the Capital Markets Act following a Business Daily report of 9th April 2015 alleging a private placement valued at Kshs. 1.1 billion.
26. In reply, by a letter dated 28th April 2015, Mr. Edwin Dande explained that the shares had been offered to a restricted circle of friends and family, believed to be sufficiently knowledgeable to understand the risks involved, and therefore qualified as a private offer under Regulation 21 of the Capital Markets (Securities, Public Offers, Listing and Disclosures) Regulations, 2002.
27. The Petitioners point to CMA’s subsequent Circular No. 8 of 2016 dated 22nd August 2016, which expressly acknowledged that cash management products were excluded from the ambit of the Capital Markets Act and constituted unregulated activity. They argue that this circular confirmed their position that CHYS was outside CMA’s jurisdiction.
28. Counsel submitted that CMA’s later directives, including the letter dated 25th April 2017 branding CHYS as an unregistered collective investment scheme, and the letter dated 13th November 2020 referring the matter to the DCI, were inconsistent with its earlier position and amounted to harassment. They contend that CMA has deliberately maintained ambiguity in defining “private offers” and “sophisticated investors,” thereby violating the Petitioners’ rights under Article 47 of the Constitution on fair administrative action.
29. The Petitioners rely on Article 27 (equality before the law), arguing that CMA has singled them out while other market players offering similar products have not been subjected to regulatory action. They invoke Article 28 (human dignity), contending that being branded as operators of illegal schemes has demeaned their reputation. They further cited Article 40 (protection of property), alleging unlawful interference with investors’ funds, and Article 50 (fair trial), arguing that the referral to the DCI undermines their presumption of innocence.
30. In support of their case, the Petitioners cited, among others, the case of Dry Associates Ltd v Capital Markets Authority & Another [2012] eKLR, where the Court held that Article 47 subjects’ administrative processes to constitutional discipline, and that relief for administrative grievances must be measured against constitutional standards. They also relied on Anarita Karimi Njeru v Republic [1979] eKLR, emphasizing the requirement to plead constitutional violations with precision, which they submit they have satisfied.
31. The Petitioners therefore urged the Court to declare that CHYS and Project Notes were lawful private offers, that CMA’s directives and the DCI’s investigations violated their constitutional rights, and to award compensation of Kshs. 10 million together with injunctive relief restraining further interference.
32. The Interested Parties (Cytonn Investment Management PLC, Cytonn High Yield Solutions LLP, and Cytonn Real Estate Project Notes LLP), on their part, aligned with the Petitioners’ arguments and urged the Court to find that the products offered by the 2nd and 3rd Interested Parties were lawful private offers, exempt from regulation by the Capital Markets Authority (CMA), and that the Respondents’ actions amounted to harassment and violation of constitutional rights.
33. The Interested Parties contended that Cytonn Investments is a holding company with various subsidiaries, some of which are duly licensed and regulated, while others operate private offers outside CMA’s ambit. They argued that CHYS and Project Notes were structured as private offers under Section 30A of the Capital Markets Act and Regulation 21 of the 2002 Regulations, targeting a restricted circle of investors with minimum subscription thresholds of Kshs. 100,000.
34. They emphasized that investors were subjected to pre-qualification criteria, including net worth, financial knowledge, and sophistication, thereby meeting the definition of private offers. They contended that CMA’s attempt to classify these products as collective investment schemes was erroneous and ultra vires.
35. The Interested Parties relied heavily on the long trail of correspondence between Cytonn and CMA, most of which I have enumerated in the foregoing paragraphs, including the 25th April 2017 letter in which CMA issued findings stating that CHYS was an unregistered collective investment scheme and CIMP as an unlicensed fund manager; and the letter of 13 November 2020 in which CMA issued the contested directive closing consideration of the proposed conversion of CHYS and referring the matter to the DCI.
36. The Interested Parties therefore argued that the correspondences demonstrate CMA’s inconsistency and arbitrariness, shifting positions over time and failing to provide clear guidance.
37. According to the Interested Parties, their products fell squarely within the exemptions under Regulation 21(1)(c), (e), (f), and (i) of the 2002 Regulations, which define private offers. They argue that CMA’s reliance on Section 23 and Section 30 of the Act to classify CHYS as a collective investment scheme was misplaced, as the statutory thresholds for public offers were not met.
38. They further contend that CMA’s actions violated Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act, 2015, which guarantees lawful, reasonable, and procedurally fair administrative action.
39. In support of their arguments, the Interested Parties relied on several authorities, including the following: -
i. Civil Case No. E249 of 2021, Cytonn Investment Management PLC v Wycliffe Shamiah & CMA, in which the Court held that Cytonn Asset Managers Ltd was duly licensed and regulated, and acknowledged that CMA had no mandate over private offers. The Interested Parties argued that this case dissuades the notion that CHYS was illegal.
ii. High Court Petition No. E414 of 2022, Cytonn Investment Management PLC v CMA & 3 Others; where the Court issued an order of mandamus compelling CMA to release an inquiry report allegedly criminalizing CHYS. The Interested Parties argue that CMA’s refusal to furnish the report violated constitutional provisions on fair administrative action and access to information.
iii. Republic v National Police Service Commission ex parte Daniel Chacha [2016] eKLR; to emphasize that administrative actions must comply with Article 47 of the Constitution.
iv. Judicial Service Commission v Mbalu Mutava & Another [2015] eKLR: Relied upon to underscore that Article 47 entrenches the right to fair administrative action in the Bill of Rights.
40. The Interested Parties asserted that there is no illegality in the formation or activities of CHYS and Project Notes. They therefore urged the Court to declare that these products were lawful private offers, find that CMA acted ultra vires and in violation of constitutional rights, and to restrain the Respondents from further interference.
41. The Interested Parties further argued that CMA’s actions have caused reputational harm, investor panic, and economic loss, and that the Petitioners and Interested Parties are entitled to compensation and injunctive relief.
1st Respondent's Submissions
42. The 1st Respondent filed its submissions dated 11th March 2024 and argued that its actions in the present case were in line with its statutory objective of protecting investor interests under Section 11(1)(d), including its powers under Section 11(3) to issue guidelines and notices, grant licences, register and regulate collective investment schemes, give directions to licensed persons, and impose sanctions for breach of the Act or Regulations.
43. It was the 1st Respondent’s case that the Petitioners and the 1st Interested Party were engaged in pooling funds from the public through Cytonn High Yield Solutions LLP (2nd Interested Party) and Cytonn Real Estate Project Notes LLP (3rd Interested Party), which in substance constituted collective investment schemes within the meaning of Section 2 of the Act. The Respondent argued that these activities required licensing and registration, which the Petitioners failed to obtain, thereby operating illegally.
44. Regarding CHYS, the 1st Respondent maintained that it was neither licensed nor approved, yet it engaged in pooling funds from more than one hundred investors, thereby exceeding the statutory threshold for private offers under Section 30A and Regulation 21 of the Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2002. It was contended that the Petitioners’ characterization of CHYS as a private offer is untenable, as the number of subscribers and the manner of solicitation clearly amounted to a public offer.
45. Similarly, it was the 1st Respondent’s position that the Project Notes were structured debt instruments backed by real estate projects, marketed to the public without approval. The Respondent argued that these products mimicked regulated collective investment schemes and real estate investment trusts (REITs), but were operated outside the law.
46. Counsel for the 1st Respondent emphasized that despite numerous engagements, including meetings on 31st August 2016 and 5th July 2017, and commitments by the Petitioners to convert CHYS into a regulated Cytonn High Yield Fund (CHYF) or to a Development Real Estate Investment Trust (D REIT), the Petitioners failed to complete the process. Consequently, CMA closed the application for a D REIT by its letter dated 5 November 2020, and thereafter issued the contested directive of 13 November 2020, referring the matter to the Capital Markets Fraud Investigation Unit under the Directorate of Criminal Investigations.
47. The 1st Respondent maintained that its actions were lawful, reasonable and procedurally fair, and squarely within its statutory mandate. It relies on Section 11(3)(cc) of the Act, which empowers the Authority to impose sanctions for breach of the Act or Regulations, including ordering restitution, publishing findings of malfeasance, and suspending trading of securities.
48. The 1st Respondent asserted that the Petitioners cannot seek injunctive relief to shield themselves from lawful regulatory oversight. It argued that it complied with Article 47 of the Constitution, as the Petitioners were engaged, invited to meetings, and given reasons for the directives issued.
49. The 1st Respondent emphasizes that numerous complaints were lodged by investors who had subscribed to CHYS and Project Notes but were not paid their returns. It submitted that the Petitioners’ operations exposed the public to risk, and that referring the matter to the DCI was necessary to safeguard investors.
50. The 2nd Respondent also asked the Court to take judicial notice of the existence of a liquidation order issued in HCCOMM IP NO. E063 OF 2021: CHYS LLP -VS – THE OFFICIAL RECEIVER; and, HCCOMM E064 OF 2021: CYTONN REAL ESTATE PROJECT NOTES LLP vs THE OFFICIAL RECEIVER against the special investment vehicles managed by the 2nd Petitioner. The 1st Respondent emphasized that in both cases, the 2nd and 3rd Interested Parties herein are being liquidated due to failure to pay back their investors.
51. In support of its position, the Respondent cited, among others, the case of Republic v Public Procurement Administrative Review Board & 2 Others [2019] eKLR, where the Court emphasized that statutory bodies must act within the powers conferred upon them, and that ultra vires actions are subject to judicial review. Counsel also referred to Joy Brenda Masinde v Law Society of Kenya & Another [2015] eKLR, affirming the argument.
52. In the premises, the 1st Respondent asserted that the Court ought to dismiss the Petition with Costs and find that CHYS and Project Notes were collective investment schemes operated without approval, and that CMA acted within its statutory mandate in issuing directives and referring the matter for investigation.
The 2nd Respondent’s Submissions
53. The 2nd Respondent, the Directorate of Criminal Investigations Department (CID), filed submissions dated 27th May 2024, stating that the Directorate is established under Section 28 of the National Police Service Act, with the mandate to investigate serious crimes, including economic crimes, fraud, and money laundering.
54. According to the 2nd Respondent, once complaints are lodged, the DCI is duty-bound to investigate, and cannot be restrained unless there is clear evidence of abuse of power.
55. The 2nd Respondent stated that between October 2020 and June 2021, at least twenty (20) complainants reported that they had invested in CHYS and Project Notes on the promise of returns ranging between 15% and 20%, but that the entities failed to honour their obligations. According to the 2nd respondent, the complaints involved substantial sums, ranging from Kshs. 500,000 to Kshs. 25 million, deposited into accounts held at Standard Chartered Bank in the name of Cytonn Investment Management Limited.
56. Counsel referred to the orders obtained from the magistrate’s court on 30th October 2020, granting the DCI access to investigate and inspect the relevant bank accounts. According to the 2nd Respondent, the investigations revealed that over 1,000 members of the public had invested more than Kshs. 1 billion over a five-year period, and that the Petitioners were the directors and signatories to the accounts.
57. The 2nd Respondent further submitted that its investigations established that CHYS and Project Notes were operated as collective investment schemes without approval from the Capital Markets Authority. That it further found that the Petitioners obtained money from the public under false pretences, promising high returns which were not honoured. Consequently, it referred the matter to the Office of the Director of Public Prosecutions, with a recommendation that the Petitioners be charged for:
i. Carrying on business as a collective investment scheme without a licence, contrary to Section 23(2) as read with Section 34(1)(a)(ii) of the Capital Markets Act; and
ii. Obtaining money by false pretences, contrary to Section 313 of the Penal Code.
58. Counsel for the 2nd Respondent argued that the Petitioners have not demonstrated a violation of their constitutional rights. They maintained that being summoned for inquiry does not amount to a violation of dignity under Article 28, as summons are lawful tools of investigation under Section 52 of the National Police Service Act. That Article 50 rights to fair trial accrue only upon commencement of criminal proceedings, not during investigations.
59. It was further the 2nd Respondent’s argument that Article 47 rights to fair administrative action were observed, as the Petitioners were informed of the scope of investigations and given an opportunity to respond.
60. In support of its position, the 2nd Respondent cited, among others, the case of Commissioner of Police & Another v Kenya Commercial Bank Ltd & 4 Others [2013] eKLR, where the Court held that police investigations are within their exclusive domain and should not be interfered with unless there is clear evidence of abuse of power. Counsel also relied on Republic v Attorney General & 4 Others ex parte Kenneth Kariuki Githii [2014] eKLR, affirming that the coexistence of civil and criminal proceedings does not in itself constitute abuse of process.
61. The 2nd Respondent therefore urged that the Petition ought to be dismissed with costs, submitting that the investigations were instigated by genuine complaints, were conducted lawfully, and that granting the orders sought would shield the Petitioners from accountability and undermine the public interest in protecting investors.
Analysis and Determination
62. I have carefully considered the Petition, the affidavits filed in support and in opposition, the voluminous correspondences exchanged between the parties, the authorities cited, and the applicable constitutional and statutory framework. The Court finds that the issues for determination are as follows:
i. Whether the directive issued by the 1st Respondent vide its letters of 13 November 2020 was ultra vires and unconstitutional;
ii. Whether the investigations by the 2nd Respondent infringed the Petitioners’ rights;
iii. Whether the products offered by the 2nd and 3rd Interested Parties constituted private offers exempt from regulation, or public offers, subject t o the remit of CMA; and
iv. What final orders are merited.
Whether the directive issued by the 1st Respondent vide its letters of 13 November 2020 was ultra vires and unconstitutional
63. The Petitioners contended that the 1st Respondent’s letter dated 13 November 2020, which, inter alia, terminated consideration of the proposed conversion of CHYS into a regulated real estate investment structure and referred the matter to the Capital Markets Fraud Investigation Unit under the DCI, was ultra vires, arbitrary, opaque, and disproportionate.
64. They posited that the Capital Markets Act, from which the 1st Respondent derives its powers, does not expressly authorize the kind of sweeping directives contained in the impugned letter, and that the Authority thereby exceeded its remit. In any event, they argued, the Authority failed the constitutional standard of fair administrative action by (i) withholding the very inquiry report it had invoked as the basis of its stance; (ii) denying the Petitioners sight of adverse material; and (iii) issuing drastic measures without exploring less restrictive supervisory options.
65. Citing Article 47 of the Constitution, and the Fair Administrative Action Act (FAAA), which guarantees every person the right to lawful, reasonable, and procedurally fair administrative action, the Petitioners submitted that CMA’s directive was “draconian” and actuated by malice, and that the Petitioners were denied written reasons and disclosure of the Inquiry Report underpinning the decision.
66. They relied on, among others, HC Petition No. E414 of 2022: Cytonn Investment Management PLC v Capital Markets Authority & 3 Others, where the High Court (Ongudi J – as she then was) held that CMA’s refusal to disclose the “inquiry report” violated Article 35(1)(b) and issued mandamus compelling disclosure.
67. The Petitioners therefore asserted that CMA’s directive amounted to unlawful interference with private investment vehicles and was actuated by bad faith.
68. The Interested Parties, aligned with the Petitioners’ arguments, and maintained that CHYS/Project Notes are private offers within Regulation 21 of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, and section 30A of the Capital Markets Act. They argued that CMA’s approach amounted to overreach. They also emphasized that the court’s finding in HC Petition No. E414 of 2022, which found that the Authority had breached the Petitioners’ right to access to information, as illustrative of a procedural deficiency in the CMA’s administrative process.
69. On its part, the 1st Respondent – CMA, maintained that, in issuing the impugned directives, it acted squarely within its statutory mandate under section 11(3) of the Capital Markets Act to supervise, issue directions, inquire, publish findings, order remediation, and to do such other acts as are incidental or conducive to its objectives, primarily investor protection.
70. The 1st Respondent pointed to investor complaints on non-payments, and insolvency-related events concerning the affiliated vehicles (2nd and 3rd Interested Parties) as justifying robust supervisory action, including halting an unsuitable conversion path and referring complaints to the Fraud Investigation Unit for appropriate inquiry.
71. On process, CMA avers that there was sustained engagement with the Petitioners and their affiliates through correspondence and meetings, and that the Petitioners were aware of the regulatory concerns. It urges this Court not to stifle investigations, absent proof of abuse or illegality.
72. From the parties’ respective submissions on this issue, the Court finds it necessary to first consider the scope of the powers of t
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