Prevention of Fraud (Investments) Act

Section 1. Short title and commencement Section This Act may be cited as the Prevention of Fraud (Investments) Act, 1977, and shall come into operation on such date as the Minister may, by notice in the Gazette , appoint, and different dates may be so appointed for different Parts or provisions of this Act.

Section 2. Interpretation Section 2(1)(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for or underwriting securities, or lending or depositing money to or with any co-operative society or building society; or Section 2(1)(b) any agreement the purpose or the proclaimed or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities, and “deal in securities” shall be construed accordingly; Section 2(1)(a) shares or debentures, or rights or interests (whether described as units or otherwise) in any shares or debentures; Section 2(1)(b) securities of the Government of Kenya or of the government of any other country; Section 2(1)(c) securities of statutory corporations and local authorities; or Section 2(1)(d) any other securities or investments, declared by the Minister, by notice in the Gazette , to be securities for the purposes of this Act; Section 2(1)(a) a corporation incorporated directly by an act of Parliament, Section 2(1)(b) any other corporation to which functions in respect of the carrying on of an undertaking are entrusted by or under an Act of S...

Section 3. Saving of other laws Section Save where otherwise expressly stated, the provisions of this Act shall be in addition to and not in derogation of the provisions of any other written law.

Section 4. Establishment of New Issues Committee Section 4(1)(a) one shall be a public officer representing the Minister, who shall be the chairman of the Committee; Section 4(1)(b) one shall be a public officer representing the Minister for the time being responsible for matters relating to commerce; Section 4(1)(c) one shall be a public officer representing the Attorney-General; and Section 4(1)(d) at least two shall be holders of principal’s licences. Section 4(2) The Minister shall, by notice in the Gazette , appoint a public officer to be the secretary to the committee.

Section 5. Regulation of new issues Section 5(1) No local company shall issue, and no statutory corporation shall issue in Kenya, any prospectus unless the issue of the securities to which such prospectus relates has been approved by the Committee. Section 5(2) The Committee may refuse to grant approval of the issue of any securities or of any rights or offers by a local company or statutory corporation, or may make such issue subject to such conditions as the committee may deem necessary in the public interest. Section 5(3) Any applicant for approval under this section who is aggrieved by a decision of the Committee under subsection (2) of this section may, within fourteen days of the receipt of written notification of that decision, appeal to the Minister therefrom, and the decision of the Minister on any such appeal shall be final. Section 5(4) Any local company or statutory corporation which contravenes the provisions of subsection (1) of this section, or fails to comply with any condition imposed under subsection (2) of this section, shall be guilty of an offence. Section 5(5) Notwithstanding the provisions of any other written law, in any criminal proceedings under this secti...

Section 6. Advertisements relating to foreign issues Section 6(1)(a) such advertisement has been approved in writing by the Committee; and Section 6(1)(b) it includes a notification that it has been so approved. Section 6(2) Any person aggrieved by the refusal of the Committee to approve an advertisement under this section may appeal therefrom to the Minister whose decision on such appeal shall be final. Section 6(3) Where any advertisement is published in contravention of this section the person placing the advertisement for publication, or causing it to be so placed, and the proprietor and publisher of the newspaper concerned shall be guilty of an offence. Section 6(4) Notwithstanding the provisions of any other written law, in any criminal proceedings under this section, a certificate purporting to be signed by the secretary to the committee or where an appeal has been made under subsection (2) of this section, by the Permanent Secretary stating that no approval has been given in respect of a particular advertisement, shall be admissible as evidence of the matters stated therein.

Section 7. Licensing of dealers in securities Section 7(1) Subject to the provisions of section 8 of this Act, no person shall carry on or purport to carry on the business of dealing in securities except under the authority of a principal’s licence. Section 7(2) Any person who contravenes this section shall be guilty of an offence.

Section 8. Saving for certain transactions Section 8(1)(a) the Central Bank of Kenya, any statutory corporation, any exempted dealer or any co-operative society or building society; or Section 8(1)(b) any person acting in the capacity of manager or trustee of a unit trust. Section 8(2)(a) any of the persons mentioned in subsection (1) of this section or a person acting on behalf of a person so mentioned; or Section 8(2)(a)(i) any of the persons mentioned in subsection (1) of this section or a person acting on behalf of a person so mentioned; or Section 8(2)(a)(ii) the holder of a licence; Section 8(2)(b) section 40 of the Companies Act (Cap. 486) applies or would apply if not excluded by paragraph (b) of subsection (6) of that section; or Section 8(2)(b)(i) section 40 of the Companies Act (Cap. 486) applies or would apply if not excluded by paragraph (b) of subsection (6) of that section; or Section 8(2)(b)(ii) section 376 of the Companies Act (Cap. 486) applies or would apply if not excluded by paragraph (b) of subsection (5) of that section; Section 8(2)(c) would if the corporation were so registered, be a prospectus to which section 40 of the said Act applies or would apply if n...

Section 9. Application for, and grant and extent of, licences Section 9(1) Subject to the following provisions of this Part, the Minister upon application in that behalf made by any person in the prescribed manner, and on payment of the prescribed fee, shall grant to that person a principal’s licence. Section 9(2) A licence shall, unless it is in the meantime revoked, be valid for the period of one year beginning with the day specified in the licence as the day on which it takes effect. Section 9(3) A principal’s licence shall specify the name for the person thereby authorized to carry on the business of dealing in securities, and shall not authorize such person to carry on that business under any name other than that specified in the licence as his name: Provided that, if the Minister thinks fit, such a licence may, at the request of the applicant therefor, be framed so as to authorize the holder thereof to carry on the said business, either alone or jointly with any other person being the holder of a principal’s licence, under such name or style as the applicant may specify in his application.

Section 10. Restrictions on grant of principal’s licence Section this section shall not apply during any period when there is no stock exchange in Kenya;

Section 11. Guarantee in connection with principal’s licence Section 11(1) Subject to this section, a principal's licence may be granted to a person only if a guarantee, in the prescribed form, is provided by such guarantor as the Cabinet Secretary approves to the effect that, if an insolvency event involving the applicant occurs during the currency of the licence, the guarantor will pay to the bankruptcy trustee or the liquidator the sum of one million shillings or such other sum as the Cabinet Secretary determines from time to time. Section 11(2) The bankruptcy trustee or liquidator may recover from the guarantor a sum that becomes payable to a bankruptcy trustee under a guarantee given in accordance with subsection (1). Section 11(3) If any such sum exceeds the amount required to satisfy the debts and liabilities (including the costs and expenses of the bankruptcy administration, the amount of the excess or the amount of the sum (whichever is the less) is repayable by the bankruptcy trustee or liquidator to or in relation to the guarantor. Section 11(4)(a) the making of a bankruptcy order in respect of the person; Section 11(4)(a)(i) the making of a bankruptcy order in respect o...

Section 12. Refusal and revocation of licences Section 12(1)(a) the applicant or the holder of the licence has not furnished such information relating to himself, and to any circumstance likely to affect his methods of conducting business, as may be prescribed, or has furnished such information otherwise than in a prescribed manner; or Section 12(1)(b) of the applicant or the holder of the licence, or any person employed by, or associated with, such applicant or holder for the purposes of his business, have been convicted, in Kenya or any other country, of an offence, his conviction for which necessarily involved a finding that he acted fraudulently or dishonestly; or Section 12(1)(b)(i) of the applicant or the holder of the licence, or any person employed by, or associated with, such applicant or holder for the purposes of his business, have been convicted, in Kenya or any other country, of an offence, his conviction for which necessarily involved a finding that he acted fraudulently or dishonestly; or Section 12(1)(b)(ii) of such applicant holder or person having been convicted of an offence under this Act or having committed a breach of any rules under this Act for regulating th...

Section 13. Information to be furnished Section 13(1)(a) of any change in the address at which he carries on the business of dealing in securities in Kenya, or Section 13(1)(b) of his ceasing to carry on such business in Kenya. Section 13(2) A corporation which is the holder of a principal’s licence shall forthwith give written notice to the Minister of the name and nationality of any person who becomes, or ceases to be a director of the corporation. Section 13(3) Any person failing to comply with any of the provisions of this section shall be guilty of an offence and liable to a fine not exceeding two thousand shillings.

Section 14. Publication of particulars of holders of principal’s licences Section The Minister shall cause to be published at such times and in such manner as he may think proper the names and addresses of all holders of principal’s licences for the time being in force.

Section 15. Rules relating to conduct of business Section 15(1)(a) for determining the class of persons in relation to whom, and the manner and circumstances in which, any holder of a licence may deal in securities; Section 15(1)(b) for prescribing forms of contracts which may or shall be used in making contracts under the authority of a licence; Section 15(1)(c) for prescribing the books, accounts and other documents which must be kept by the holder of a principal’s licence in relation to any dealing in securities by him; Section 15(1)(d) for requiring the holder of a principal’s licence to produce, for inspection by, or by an agent of, any person with whom he has made any agreement by way of dealing in securities, such contract notes and vouchers relating to that agreement as may be prescribed, and to furnish to that person on demand and on payment of the prescribed fees, copies of entries in books kept by such holder which relate to the transaction. Section 15(2) A person shall not be guilty of an offence by reason only of a breach of any rule made under this section.

Section 16. Fraudulently inducing investment Section any agreement for, or with a view to, acquiring, disposing of, subscribing for or underwriting securities or lending to or depositing money with any co-operative society or building society; or

Section 17. Restriction on distribution of circulars Section 17(1)(a) any invitations to persons to do any of the acts mentioned in paragraphs (a), (b) and (c) of section 16 of this Act; or Section 17(1)(a)(i) any invitations to persons to do any of the acts mentioned in paragraphs (a), (b) and (c) of section 16 of this Act; or Section 17(1)(a)(ii) any information calculated to lead directly or indirectly to the doing of any of such acts by the recipient of the information; or Section 17(1)(b) have in his possession for the purpose of distribution any documents which, to his knowledge, are circulars as aforesaid, being documents of such a nature as to show that the object or principal object of distributing them would be to communicate such an invitation or such information as aforesaid. Section 17(2)(a) in relation to any of the matters mentioned in paragraphs (b), (c) and (d) of subsection (2) of section 8 of this Act; or Section 17(2)(b) in relation to any distribution of documents which is required or authorized by or under any written law other than this Act; or Section 17(2)(c) in relation to any distribution of documents permitted by the Minister. Section 17(3)(a) made or gi...

Section 18. Authorization of stock exchanges Section 18(1) The Minister may, by order, declare any body or association of persons carrying on the business of dealing in securities to be a recognized stock exchange or a recognized association of dealers in securities for the purposes of this Act. Section 18(2) Any order under this section may be varied or revoked by a subsequent order of the Minister, but an order by virtue of which any body ceases to be a recognized stock exchange or a recognized association of dealers in securities shall not take effect until the expiration of the period of three months beginning with the date of publication of such order. Section 18(3) It shall be the duty of every body or association recognized under this section to furnish to the Minister whenever he may so require, with respect to any specified member of such body or association, a list of the persons who are for the time being authorized by that member to deal in securities on his behalf.

Section 19. Exemption of certain dealers Section 19(1)(a) carrying on some business other than the business of dealing in securities; Section 19(1)(a)(i) carrying on some business other than the business of dealing in securities; Section 19(1)(a)(ii) dealing in securities in one or more of the ways mentioned in subsection (2) of this section; and Section 19(1)(b) the Central Bank of Kenya or an exempted dealer; Section 19(1)(b)(i) the Central Bank of Kenya or an exempted dealer; Section 19(1)(b)(ii) the manager or trustee of a unit trust; Section 19(1)(b)(iii) a person acting on behalf of a person mentioned in subparagraph (i) or (ii) of this paragraph; Section 19(1)(b)(iv) the holder of a licence, or be effected, with the consent of the Minister, through the agency of a member of a stock exchange outside Kenya. Section 19(2)(a) issuing any document which is, or is deemed to be a prospectus within the meaning of the Companies Act (Cap. 486); Section 19(2)(b) making or offering to make with any person an agreement for, or with a view to, the underwriting of securities; Section 19(2)(c) making any invitation to persons to subscribe for securities, or to purchase securities on the fir...

Section 20. Interpretation of Part Section In this Part— “the Authority” means the Committee of the Nairobi Stock Exchange; “the Fund” means the Compensation Fund established under section 21 of this Act; “licensee” means the holder of a principal’s licence; “the Trustee” means the Public Trustee appointed under the Public Trustee Act (Cap. 168).

Section 21. Establishment of Fund Section 21(1) The trustee shall establish, maintain and administer a fund, to be called the Compensation Fund, and shall hold the same on trust for the purposes of this Part. Section 21(2) Upon the issue (including the renewal) of a principal’s licence, the person to whom it is to be issued shall pay to the Minister, and the Minister shall pay into the fund, a contribution of two thousand shillings, and the issue (including the renewal) of a principal’s licence may be withheld until such contribution is made. Section 21(3)(a) all contributions paid pursuant to subsection (2) of this section; Section 21(3)(b) all interest, dividends and other income and accretions of capital arising from investments of the Fund or any part thereof; Section 21(3)(c) the proceeds of the realization of any investments of the Fund; Section 21(3)(d) all sums received by the Trustee by virtue of section 24 of this Act; and Section 21(3)(e) all other moneys which may belong or accrue to the Fund received by the Authority or the Trustee in respect thereof.

Section 22. Application of Fund Section for the payment of all costs, charges and expenses of establishing, maintaining, administering and applying the Fund;

Section 23. Grants from Fund Section 23(1) Subject to the provisions of this Act and of any rules made under this Part, the Authority may direct the Trustee to make grants out of the Fund in any case which the Authority thinks suitable for such treatment, and in its absolute discretion decides so to treat, for the purpose of relieving or mitigating any losses sustained by any person in consequence of any dishonesty on the part of any licensee, or of any clerk or servant of a licensee, in connection with the business of such licensee under this Act. Section 23(2)(a) any loss which first came to the knowledge of the loss prior to the commencement of this Act; or Section 23(2)(b) any other loss unless notice of such loss is received by the Authority in such manner, and within such time after the same first came to the knowledge of the loser, as may be prescribed by rules made under this Part, and unless such loss is proved, to the satisfaction of the Authority to be one in respect of which a grant may properly be made under this section. Section 23(3) A grant may be made under this section notwithstanding the fact that the licensee concerned may, subsequent to the commission of the ac...

Section 24. Subrogation Section to any rights or remedies to which the person to whom the grant was made is entitled, on account of such loss, against the license concerned or any other person, or, in the event of the death or insolvency or other disability of such licensee or other person, against his personal representatives or any other persons having authority to administer his estate;

Section 25. Rules Section The Director of Public Prosecutions may make rules with respect to the procedure to be followed in giving effect to the provisions of this Part, and with respect to any matters incidental, ancillary or supplemental to those provisions or concerning the administration or protection of the fund. [Act No. 12 of 2012. Sch.]

Section 26. False statements Section Any person who, in furnishing any information for any of the purposes of this Act or any rules or regulations made thereunder, makes any statement which, to his knowledge, is false in a material particular, shall be guilty of an offence.

Section 27. General penalty and provisions as to offences Section 27(1) Any person guilty of an offence under this Act for which no other penalty is provided shall be liable to a fine not exceeding twenty thousand shillings or to imprisonment for a term not exceeding two years or to both such fine and such imprisonment. Section 27(2) Where any offence under this Act committed by a corporation is proved to have been committed with the consent or connivance of any director, manager, secretary or other officer of the corporation, he, as well as the corporation, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Section 27(3) No proceedings for an offence under section 7 or section 17 of this Act shall be instituted except by or with the consent of the Director of Public Prosecutions: Provided that this subsection shall not prevent the arrest, or the issue or execution of a warrant for the arrest, of any person in respect of such offence, or the remanding, in custody or on bail, of any person charged with such an offence, notwithstanding that the necessary consent to the institution of proceedings has not been obtained. [Ac...

Section 28. Regulations Section The Minister may make regulations for prescribing anything which by this Act, other than Part VI, is required or authorized to be prescribed.