By Ephraim Njega via FB
I have watched a video by KTN titled Sunken Fortunes with respect to Cytonn. In the video, a lady who invested KShs 2.9 million of her late husbands pension is in tears.
She lost her job due to coronavirus pandemic. She got into depression and is on medication. All this because of the inability to liquidate her investment in Cytonn.
Cytonn continues to insist that all they are facing is a liquidity crisis and the investment is safe. If you finance long term assets such as real estate with short term funds it is only a matter of time before you get into a liquidity crisis.
How could experienced financial experts not foresee this? Cytonn insists it is not a Ponzi scheme. However, Cytonn was operating like a Ponzi scheme because their plan it seems was to manage the liquidity risk by continuously raising funds. Such that in the short run the investors could be paid from funds by other investors and not from the sale of real estate.
If indeed Cytonn High Yield Solution product was a genuine private placement they shouldn’t have marketed it to more than 100 people. This is a requirement by CMA regulation for private placements.
Why did they sell the product to 4,000 people? This made it a mass market product which debunks their claims about targeting sophisticated investors.
The conversion option Cytonn is floating is not viable for everyone. Some of the people have urgent financial and cannot wait to sell houses allocated to them to get their money back.
If Cytonn doesn’t handle this issue well it will also affect their other products including their regulated ones. In dealing with financial products good intentions are not enough; professional execution is also important.
What next for the investors? very unfortunate if they lose their hard earned investments