In the first instalment of this eye-opening series, we delve into the murky world of online forex trading in Kenya. This narrative, penned by investigative journalist Otiato Guguyu, uncovers the cunning machinations of fraudulent traders who exploited regulatory loopholes to swindle unsuspecting Kenyans out of their hard-earned money. From the heart of Nairobi to the far reaches of the internet, we explore how these dubious entities operated in plain sight, promising lucrative returns while operating without licenses. This exposé not only led to a crackdown by the Capital Markets Authority (CMA) but also revealed a shocking truth: the vast majority of Kenyans who venture into online forex trading end up losing their investment. As we navigate through this intricate web of deceit, we invite you to join us on this journey of discovery, shedding light on a sector that has cost Kenyans billions and prompting urgent calls for regulatory reform.

By Otiato Guguyu.

I could have lost all the money I almost invested in trading currencies back in 2019, when as a journalist I did a story about online forex trading.

I was doing an investigative piece on the state of online forex trading uncovering how Kenyans were being duped by fraudsters in plain sight.

The expose led to a crackdown by authorities after CMA launched an undercover operation that established Interweb Global Fortunes was collecting money from the public without a license, offering a 20 percent monthly return on forex trading.

About 2015 the government noticed billions leaving the Kenya to fringe European countries like Cypress, Ireland and the UK to online forex trading companies in a market that was not even regulated.

At the time, authorities estimated that around 50,000 Kenyans were trading forex online and losing millions and tasked the Capital Markets Authority (CMA) to clamp down on this market.

In 2019, CMA had just began issuing online forex trading licenses, which prompted my investigations into this nascent sector.

A Nairobi con

It was one of those interesting stories where I had to pose as a customer and tried to open an account with one of the players and from the onset, I smelt the fraud from miles away.

Although they operated at the heart of the city at View Park towers there was no signage anywhere at the lobby of the building. You had to ask and get directions and that made you stand out because all their other clients walked right in as if they had prior instructions.

Once inside one, you quickly notice how the con is set up. The shuttered walls, concealed company name, plain desks with saleswomen repeating a pitch about guaranteed returns and reference to a ‘director’ who also doubles up as the trader who will balance your investments so you do not lose.

They operated from three offices on two floors, probably having expanded because they had a stream of customers lined up.

At the time when Kenya’s stock market was struggling to get retail investors, I joked that these crowds would be the envy of any investment firm I have ever visited.

Turns out they had a great multilevel marketing ploy and they would get referrals from these clients expanding their cash out significantly. When the story came out they were hostile online, I remember, but I had gotten my story, exposed how the forex con was bad for the country.

The regulator clamped down hard, freezing their accounts and opening criminal charges against them. According to CMA laywer Timothy Githendu they even tried to cut a deal with the regulator.

Small fry

If only it were a fairy tale with a happy ending; turns out that we had merely caught small fry.

In the story, I was trying to distinguish between the ones the regulator was licensing, the others who operated online unregulated and the back alley guys the outright fraudsters.

Today however, authorities may be realizing that they are all the same; in this casino, the house always wins. Out of every 100 traders who put money in online forex trading companies, licensed or not, 85 of them will lose their money.

Internal documents show a total 198,801 Kenyans gambled Kes6.5 billion on hot forex and lost Kes5.5 billion.  Kenya was feeding directly into a manipulated $10 trillion market controlled by JP Morgan, HSBC, Societe General, Wells Fargo and the Bank of America.

The high loss rates witnessed on online forex trading has shocked Kenyan officials who are debating on whether to treat these products like cigarettes, literally attaching glaring warning signs saying you are unlikely to win and 90 per cent chance your money goes into the internet vanishes to Europe.

According to a high level meeting by the market regulators, the government has admitted that online forex trading is not profitable for the country and they are at a complete loss on what to do about it.

Although the companies ship Kes5 billion from Kenya, in actual sense they pay pennies in taxes with EGM for instances just paying Kes328,077 in taxes after declaring a profit of just Kes10 million in 2021.

Half of the trading companies are operating in losses and the entire industry employs just 113 Kenyans.

But trust the government to want in on the action.

“The CMA is seeking an introduction of a regulatory fee of 3 percent of the annual gross revenue of online forex trading brokers,” a source told this journalist.

Part 2: What tomatoes, NSE and forex have in common? – Coming soon!

Cover Image has been generated with AI ∙ May 2, 2024 at 11:36 AM