Reports reaching TechMoran indicate that Emma Kariuki, Stanley Mumo and Timothy Gachehe, Kenyan Bitcoin peer-to-peer traders using Localbitcoins.com have been arrested and freed on bail over allegedly participating in a banking fraud.

The three were arrested, detained and later presented at Milimani Law Courts in Nairobi, the Kenyan capital and charged with conspiracy to commit felony. They were later released on Ksh 500,000 cash bail.

The three had traded with a user ‘BADASS20’ on localbitcoins.com who is allegedly behind a Ksh 10m banking fraud. The ‘BADASS20’ account was only 3 weeks old on localbitcoins.com. The police want to hold the three because the money trail leads to their bank accounts.

It’s alleged that the Ksh 10.2m was stolen from Kenya’s I&M Bank and Safaricom Pay Bill No 517822 and then channeled through Bitcoin transactions sold by the three traders on the peer-to-peer lending platform bitcoin.

‘BADASS20’ overpaid for the transactions by Ksh 96,000 and asked Emma to send the balance to an account at Equity Bank. Stanley Mumo traded 360,000 with BADASS20 and received sums in excess of 50,000. BADASS20 promised to open another trade to settle the extra 50,000 but never did so.

Emma and Stanley Mumo were first arrested on Friday. Emma was detained  overnight at Kileleshwa Police Station till Saturday morning. She reported back on Monday only to be held and detained overnight till Tuesday.

 Localbticoins.com doesn’t hold customer data and the identity of ‘BADASS20’ is not yet known.  The three Kenya traders deny any knowledge of the counterpart and source of funds. The three were released on bail on Wednesday evening.

The charge sheet alleges Emma conspired to steal 10,244,544 via Safaricom Paybill. However, Emma and Stanley Mumo only received 500,000 relating to a bitcoin trade. The party from whom the money was received was not charged nor present at court. We will follow up with a comprehensive report next week.

In December 2015, the Central Bank of Kenya issued a caution to the public on holding and trading in virtual currencies in Kenya. The Bank said no entity is currently licensed to offer money remittance services and products in Kenya using virtual currency such as Bitcoin.

“This is to inform the public that virtual currencies such as Bitcoin are not legal tender in Kenya and therefore no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” said the Bank arguing that transactions in virtual currencies such as bitcoin are largely untraceable and anonymous making them susceptible to abuse by criminals in money laundering and financing of terrorism.

The Central Bank also warned that virtual currencies are traded in exchange platforms that tend to be unregulated and consumers may therefore lose their money without having any legal redress and there is no underlying or backing of assets and the value of virtual currencies is speculative in nature causing high volatility in value hence exposing users to potential losses. CBK therefore warned the public to desist from transacting in Bitcoin and similar products.