The decision by the Capital Markets Authority (CMA) to carry out a forensic audit on claims lodged by clients of troubled Nyaga Stockbrokers prior to payment is not only laudable, but healthy for Kenya's capital market.

In recent months, the local stock market has been treated to scenes of corporate fraud that led to the closure of two prominent firms -Nyaga Stockbrokers and Francis Thuo and Partners - and left investors counting huge losses.

These scenes have left the capital markets regulator with a blot on its credibility following claims that it did little to curtail the dealings of rogue traders masking as investment gurus.

Therefore, any action coming from the regulator geared at nipping in the bud the blatant corporate fraud at our local capital markets stands to instil confidence in a market that has been thrown into a crisis.

In this regard, we strongly believe that pre-emptive rather than reactive action by CMA would also act as a deterrent to the growing culture of impunity that has encouraged fraudsters to invade the market.

On Nyaga Stockbrokers, details emerging on the dealings of the stockbrokers after its placement under statutory managers on March 5, 2008 have been at odds with positions held before the appointment of the managers.

First was the underestimation of the claims, which are now expected to be within touching distance of Sh1 billion and is currently giving the statutory managers a headache on how to settle them.

Then, were claims that the broker had about 200,000 investors on its clients roll, which has since been revised to 124,000.

These conflicting positions point to fertile grounds for fraud and puts a strong case for the statutory managers to thoroughly verify and evaluate all claims before dishing out payments.

Already, memories are still fresh in the market how claims from collapsed stockbroker Francis Thuo and Partners, which closed shop last year, ballooned to about Sh180 million compared to the initial claims of Sh100 million.

This raises serious credibility issues now that the Nairobi Stock Exchange board is seeking for a separate audit on the payment process.

With the audit taking place after the payment process has been concluded, it's our take that the audit would unlikely lead to the arrest of the fraudsters or refunds on the overpaid claims should the probe expose any malpractices.

To avoid these pitfalls, it's in order for the capital markets regulator and the bourse to smoke out the fraudsters before they line their pockets with the illegal payments.