Source: Business daily; http://www.bdafrica.com/index.php?option=com_content&ta...&id=4022&Itemid=5812

October 31, 2007: In what is yet another manifestation of the massive hunger for investment opportunities in a loosely regulated market, thousands of Kenyans have lost millions of shillings in a phoney ICT services company that has been operating a pyramid-type scheme.

The investors had been lured by newspaper adverts into putting millions of shillings into Sasanet, an Information Communication Technology (ICT) oriented firm, that had indicated it wanted to use the money to expand its business.

Through notices posted in December last year, Sasanet had asked prospective investors to contribute a minimum of Sh500,000 to the expansion plan with a promise of returns at the rate of 10 per cent per month or Sh360,000 payable biannually.

This promise is said to have attracted up to 3,000 investors — who contributed varied amounts of up to Sh6 million. Things went on smoothly until last August when the company sent letters to investors asking for a 45-day grace period to re-organise its operations only to close shop.

People close to the company told the Business Daily that Sasanet had collected more than Sh1 billion before it wound up its operations.

The investment scheme, which now appears to have been a well crafted ICT-based version of the infamous pyramid schemes, had been initiated by Sasanet Limited — an ICT services company.

Telecommunications industry regulator, the Communications Commission of Kenya’s (CCK) records indicate that Sasanet was formed in 2003 and licensed to offer premium rate and national payphone services.

It then set out to raise the money it needed to grow its business in an increasingly competitive telecoms market by setting up an investment arm. Since its founding in 2003, however, Sasanet Limited has changed the name of its so-called investment arm three times raising suspicion among investors.

From the onset, investment into the company was made through Sasanet Limited via legal agreements managed by Siddondo Mwangi and Company advocates — a Nairobi based law firm.

In May 2006, however, the investment company changed its name to Sasanet Sacco before ultimately adopting its last operations name Sasanet Investment group early this year.

What has surprised many legal experts about the deal is the way Sasanet crafted the agreement it signed with investors on the fundraiser. Despite being asked to contribute large amounts of money to the company, the contract drawn by Siddondo, Mwangi and Company advocates states that it “is not and does not create a partnership, joint venture, or other form of legal entity or business enterprise and neither of them has an authority to bind the other outside the agreement.”

Mr Emmanuel Wetangula, a Nairobi-based commercial lawyer, reckons that the whole scheme appeared to have been a sham since several clauses in the contract do not make legal sense if Sasanet was to specifically do business according to the licence it obtained from the CCK.

The investment group is said to have had between 3,000 and 4,000 members mainly drawn from Nairobi, Mombasa, Kisumu and some the diaspora.

Mr Ben Agunda, one of the investors who joined the scheme in July last year with Sh900,000 payment has not earned the promised returns.

“I expected to earn a profit of Sh90, 000 per month and take home Sh85,000 after a five per cent tax deduction,” he said.


Teleposta TowersCopies of contract documents that the Business Daily obtained from some of the investors indicate that some had ploughed in more than Sh6 million into the scheme. The majority of investors however contributed between Sh1 million and Sh2 million.

Trouble for the investors started on August 25 this year after the management of Sasanet Investment Co-operative Society Limited posted a notice in a local daily informing the investors it was in the process of reorganising its operations and needed 45 days to do so.

“Kindly note that all payments by cheque and standing order have been stopped for the period of reorganization. Please note that Siddondo Mwangi and company advocates are not involved in the operation of the co-operative,” the notice said.

Shortly thereafter, it dawned on the investors that they may have been cheated of their money after top managers of the company went underground and after closing its offices at Teleposta Towers, Nairobi.

Siddondo Mwangi and Company advocates also shut down their offices in the city without telling the investors their next address.

An investor who requested anonymity citing because of his involvement in the co-operative movement as a researcher said the company had kept its promise of paying investors at the agreed until it posted the notice in August.

Efforts by Business Daily to contact Sasanet offices located at Teleposta Towers proved futile as the company’s phones went unanswered.

BM Security — the security firm that guards Teleposta Towers — however said Sasanet had vacated the building about seven weeks ago.

At Standard Building where Siddondo, Mwangi and Company Advocates were previously housed, a security guard displayed a letter showing that the law firm’s lease was terminated on October 25 “due to contravention of rules and regulations of the tenancy agreement.”

“We cancelled the lease upon realising that the company had partnered with some pyramid scheme and there seemed to be a problem between them and the investors who were causing chaos in the building,” said Mr Joseph Waithaka, a manager with the estate management firm.

As a start up company in 2003, Sasanet failed to raise capital from the formal market because most banks don’t lend to start-ups in ICT related ventures. This forced directors of the company to turn to friends and relatives for capital.

Copies of the agreements that investors signed with Sasanet indicate that the contractual agreement would last for a period of one year and members were to include an initial contribution fee of Sh8,000.

Sasanet was to be responsible for running the business.

In return, the firm was to pay any investor who contributed Sh500,000 a bi-annual sum of Sh360,000 as profit, which would include additional monies payable to the investor on account of increased contribution.

The forms also indicates that in the event that any dispute arose between Sasanet and the investor as to their rights and liabilities under this agreement, it would be referred to the arbitration chaired by an official agreed upon by both parties.

Termination of the contract either through the lapse of the contractual period or failure by Sasanet to remit the agreed profits to the investor in good time would be done by either party in writing three months in advance.

Any investor who chose to terminate the agreement before the expiry of the notice was to receive their contribution less five per cent and any profits earlier considered as damages.

Sasanet’s termination of the agreement before the expiry would herald payment of the investor’s entire contribution and an additional five per cent in damages in respect of the termination.

Failure by Sasanet to meet any of the obligations would have its directors personally and jointly liable for payment of any sums that may be due to the investor.

how can investors be protected from such shenigans?

jameni, why are there so many mushrooming investment schemes all fraudulent

who can protect the common investor? especially when CMA, NSE and Govt organs appear indolent?

Sad story.
I think this topic was first discussed in Investment forum or some other thread a while ago. I hope someone here did not get their fingers burnt.

However, there is need to streamline the investment laws to protect the unsuspecting wananchi. Meanwhile, The gava should give an executive order, or a fatwa if need be to have these guys, or even their lawyers arrested in order to retreive the stolen money.

ndugu sajini

the govt composed of politicians cant do that.

why? coz some of these monies were to be used for campaigns.

sadly, its the common investor who gets burnt

it seems like Kenyans are thirsty for investments but they have fallen short of ideas or is it greed for quick money? The government (through the central bank) gave a warning to the public not to deposit their money with such schemes but the public didnt heed the call.We can still blame the government for not arresting these fraudsters but even the victims have their share of the blame. Can you imagine these pyramids are still operating in down town Nairobi? Guys are still 'investing' with these crooks! i think ignorance played a bigger role here.....and that is no defence.Where in the world can one get a rate of return of over 120%. What is so special that these folks are doing that other investment companies are not doing? some guys had even taken Sacco loans and 'rarua mkopo na salo' loans to deposit in these schemes.Allow me to laugh!!

Good people,

I wont offer any sympathies to anybody. Greed begets such losses. The media,both print and electronic, was awash with the dangers of these get rich schemes.Even my "Cucu" in gichagi knew of them. When exposed people take on such dangerous ventures, whom do you blame. Default and losses is a way of the market regulating itself. One would reasonably expect that such heavy penalties will make such investments unattractive.Just as the returns can be really attractive, the penalties ought to be great as well. I wish others suffer as hard in order to rid our financial system such value destroying investments.

quote:

I wont offer any sympathies to anybody. Greed begets such losses.

'Paka'

You have hit the nail on the kiongo. The need to double and re-double money leads the easy to some of the wildest schemes that I have ever seen. In one of the papers todays the Directors of Sasanet are going to court to block the refund of monies deposited with them and I can bet you the judge will grant orders to block the refund.

wa Mathira