According to signed court documents shared with BitcoinKE, KeniCoin, as the applicant, had sought the following against CMA:
Issuance of a temporary injunction against CMA restraining it from interfering with the applicant’s trade and in any way whatsoever or dealing in any way with the plaintiff affairs pending the case hearing and determination
The defendants actions are not mandated under the CMA Act in dealing with cryptocurrency and are thus an abuse of authority
The defendant has published a cautionary statement in a local newspaper warning the members of the public from trading in KeniCoin which has caused panic to the customers
The defendant has already published in the local media quotes that have made Safaricom close the Paybill for customers of KeniCoin
The defendant’s actions should be injuncted to prevent market loss of KeniCoin
The plaintiff sought restraining orders to prevent irreparable damage by the defendant’s actions whereas it lacks mandate
The court documents also reveal that KeniCoin is a sole proprietorship and had engaged in an Initial Coin Offering (ICO) that sought to raise money from private investors and speculators and would eventually have had a public ICO.
In defense, CMA stated the following:
CMA has the statutory mandate to issue guidelines and notices on capital markets activities and products which appropriately cater for the proper protection of investor interests and appropriate level of disclosure.
CMA as a regulator is mandated to regulate public offers of securities and since the nature and features of capital raising were taking the form of capital markets which had not been approved, decided to publish the cautionary press statement
CMA has the jurisdiction over the nature of crypto asset as ICOs are similar to traditional IPOs which are regulated by CMA
Pending the publication of an appropriate framework for the regulation of ICOs, it would be failure on the part of CMA to observe while the investing public were at a risk of significant loss without the respondent taking appropriate measures
CMA applied the Howey Test against the provisions of the Capital Markets Act and found KeniCoin to have all the hallmarks of a Security
Part of the court ruling reads:
“Pending legislative process on publication of appropriate framework for regulation of Initial Coin Offerings (ICOs), the investing public ought to be protected through regulatory measures.”
With the disposition classifying cryptocurrencies as securities, the court ruling may have set a precedent that will see all future cryptocurrency and digital assets issuance fall under the Capital Markets Authority of Kenya as securities until an appropriate regulatory framework is in place.