By Robert Hummy and Duncan Miriri
NAIROBI, May 15 (Reuters) - A Kenyan court on Thursday froze the assets of a stock brokerage owner accused of fraudulently using client money, after the national regulator for the first time in its history sued on behalf of aggrieved investors.
Nyaga Stockbrokers was put under statutory management in March when it failed to honour its obligations to clients, becoming the second firm to be suspended from the Nairobi Stock Exchange <.NSEK> in two years.
The Kenyan stock market has been bullish for several years but talk of insider trading and the suspension of the two firms has sparked a confidence crisis among investors in a country infamous for widespread corruption.
"I hereby freeze an account at Barclays Bank of Kenya belonging to Patrick Ndwiga Gakiavih until the case is heard on June 9," Judge Jessie Lesit said in his ruling.
Kenya's regulator, the Capital Markets Authority (CMA), initiated the suit which has led to Gakiavih's extensive land holdings and bank accounts being frozen pending the outcome of the suit.
CMA in its suit alleges that Gakiavih, who owns 99 percent of the firm, "was involved in a well-planned, large-scale and calculated scheme to fraudulently use cash and finances belonging to the broker and its customers to enrich himself."
He is accused of improperly withdrawing 523 million Kenya shillings ($8.46 million) from the brokerage account, two-thirds of which could not be traced after a forensic audit.
Gakiavih's lawyers declined to comment, which is customary under Kenyan laws that prohibit parties involved in a case to speak about it.
"It is a positive step," said Aly-Khan Satchu an independent stock analyst and publisher of website www.rich.co.ke. "There was a sense in the general public's mind of impunity."
Kenya's stock market has attracted unprecedented foreign interest with the flotation of a 25 percent stake of leading mobile phone firm Safaricom [SCOM.NR], east Africa's most profitable company.
It is expected to be the largest IPO in sub-Saharan African history. But market players say that Kenya still lacks the thorough regulation that would bring fuller confidence to the market.
Last year, the CMA closed down Francis Thuo and Partners, for selling clients' shares without permission. It sold Francis Thuo's seat on the Nairobi Stock Exchange to help repay investors.
Thousands of Nyaga's clients have been queuing outside the appointed statutory managers' offices in downtown Nairobi seeking refunds. Many investors from rural areas have had to travel long distances to make their claims in time. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Editing by Bryson Hull and Elaine Hardcastle)
