DFSA enforcement action against Al Masah upheld

Dubai: The Financial Markets Tribunal (FMT), a specialist independent tribunal, has affirmed a decision by the Dubai Financial Services Authority (DFSA) to take enforcement action against two firms and three individuals for unauthorised financial services activities and making misleading and deceptive statements.

The firms are Al Masah Capital Limited, a Cayman Islands registered company now in liquidation and Al Masah Capital Management Limited, a DFSA Authorised firm, also now in liquidation. The three individuals are Shailesh Dash, Nrupaditya Singhdeo and Don Lim Jung Chiat.

Following an eight day hearing earlier this year, the FMT issued its decision on 27 October in which it upheld the DFSA’s decisions as set out in its Decision Notices of 25 September 2019 as publicised in the DFSA’s Media Release of 11 May this year.

The FMT imposed financial penalties on all five:

• $3,000,000 (AED 11,010,000) on Al Masah Capital (AMC);

• $1,500,000 (AED 5,505,000) on Al Masah Capital Management Limited (AMCML);

• $ 225,000 (AED 825,750) on Mr Dash;

• $175,000 (AED 642,250) on Mr Singhdeo; and

• $150,000 (AED 550,500) on Mr Lim.

Higher fines

The FMT sanctions are the same as those imposed by the DFSA, except for the fine for Mr Singhdeo, which the FMT increased by $25,000. This was because the FMT saw Singhdeo’s responsibility for the misconduct as somewhat greater than that reflected in the fine imposed by the DFSA.

The FMT also upheld the DFSA’s decision to prohibit all three individuals and concluded they are not fit and proper to perform any function in connection with financial services in or from the DIFC. The FMT also ordered them to pay the DFSA’s costs of the proceedings.

The case involved complicated structures in which investors bought shares in companies that then bought shares in other businesses. However, the FMT agreed with the DFSA that the arrangements were investments in funds. The FMT took the view that these were managed by AMC, the Cayman registered entity, from within the DIFC when it was not authorised to do so.

The FMT found that the two companies and three individuals had concealed from potential investors the payment of placement fees to AMC. In particular, annual reports and audited financial statements had been altered to remove the full extent of fees that had been paid. The FMT noted that the misrepresentation of fees was intentional and deceptive, and the altered documents were used as marketing materials to persuade potential investors to invest, and so any misleading statement therein would be a breach of the prohibition on misleading and deceptive conduct.

Breaches

The FMT found that the two companies had committed breaches and that the three individuals were knowingly involved in the contraventions. Dash was well aware that the investments acted much like Funds and tried to distance himself from this by claiming not to have any active roles in the companies. However, the FMT concluded he did not give accurate evidence about his role and found his claims “wholly unconvincing”.

“Firms and the individuals in charge have a responsibility to ensure that all financial services activities in or from the DIFC are appropriately authorised and carried out properly. The DFSA is particularly concerned by attempts to use legal structures to avoid regulation when the substance of the activity is a financial service conducted in or from the DIFC,” said Bryan Stirewalt, Chief Executive of the DFSA.

Lack of integrity

FMT said in a statement that it was clear to the FMT that Dash and his colleagues did not want the placement fees disclosed. The FMT found Dash’s knowing concern and involvement demonstrated a lack of integrity calculated to facilitate the misleading of existing and potential investors. The FMT reached similar conclusions in respect of Mr Singhdeo and found that both of them breached their obligations as Authorised Individuals.

The FMT also found that Singhdeo and Lim were knowingly involved in altering a copy of a bank statement to conceal placement fees. It found the forgery was intended to mislead or deceive but could not be sure what the purpose was, but it seemed to the FMT that they were “seeking to cover their tracks” and was obviously in connection with a Financial Product or Service.

“This matter also shows the extent to which the DFSA will take action to ensure investors are treated fairly and are not misled by misrepresentation, concealment or omission. Protection of direct and indirect users of DIFC financial services is a key priority of the DFSA. The DFSA will also take appropriate action against individuals involved in the running of companies that breach the DFSA’s rules,” said Stirewalt.