The Financial Markets Tribunal (FMT), in a majority Decision, has largely upheld enforcement action taken by the Dubai Financial Services Authority (DFSA) against an Authorised Firm Dalma Capital Management Ltd (Dalma) and its Senior Executive Officer (SEO) Mr Zachary Cefaratti for misleading the DFSA and failing to conduct Dalma’s business activities with due skill, care and diligence. Each was fined USD 162,500, an amount reduced from the fines proposed by the DFSA of USD 170,000 for Dalma and USD 300,000 for Mr Cefaratti. Mr Cefaratti will also be restricted from acting as SEO of Dalma for a period of two years.
The DFSA had originally proposed orders of prohibition and restriction against Mr Cefaratti. However, in imposing such orders, the FMT decided that they would be suspended for 2 years on condition that Mr Cefaratti comply with the terms of its Order during that period.
Following a four-day hearing in September 2022, on 31 January 2023 the FMT issued its decision confirming that Mr Cefaratti and Dalma provided information to the DFSA that they knew to be false or misleading and omitted to disclose the highly relevant fact that an individual had been trading on the Dalma Unified Return Fund from April to June 2016. Mr Cefaratti was also found to have failed to observe high standards of integrity and deal with the DFSA in an open and cooperative manner, in breach of Principles 1 and 4 for Authorised Individuals respectively. Whilst the DFSA had previously alleged that the individual carrying out the trading in question was unqualified and inexperienced, the FMT held that the DFSA had failed to make out its case in this regard.
The FMT commented that:
“Mr Cefaratti didn’t just lie to the DFSA; he continued to lie to them throughout a lengthy investigation and then he lied to the Tribunal and needlessly dragged us all through a rather expensive appeal process. He could easily have “fessed up” and exercised contrition much earlier.”
With regard to the penalties imposed on Mr Cefaratti, the FMT commented that sustained deceit would usually lead automatically to immediate orders of prohibition and restriction. In this case, however, in view of Mr Cefaratti’s ongoing position within Dalma and the fact that he accepted his guilt (albeit far too late), the FMT determined that it was appropriate for orders of restriction and prohibition to be suspended for two years, provided that Mr Cefaratti complies with an order restricting his activities at Dalma. Under this order, Mr Cefaratti is restricted from acting as SEO at Dalma by ceasing all activities in relation to the functions he carries out in connection with the provision of Financial Services in or from the DIFC, with the exception of reasonable activities which Mr Cefaratti may conduct in connection with the ongoing management of Dalma in order to ensure continuity of business.
Dalma has appointed an individual to carry out the role of SEO on a temporary basis, whilst it is in the process of obtaining DFSA Authorisation for an individual to act as SEO for the period of Mr Cefaratti’s restriction.
Ian Johnston, Chief Executive of the DFSA, said:
“As the FMT commented in this case, the DFSA can only operate as a regulator if market participants act with integrity and are open and cooperative. This is reflected in the FMT’s indication that the starting point when fixing a fine for misleading the DFSA will be USD 125,000 to USD 150,000.
Dalma and Mr Cefaratti failed in their duty to be open and honest with the DFSA over a period of years, and then compounded this failure by denying the breaches until the Tribunal gave its judgment. This conduct is unacceptable and the DFSA will therefore continue to take strong action where firms and individuals mislead us.”
Dalma and Mr Cefaratti disputed the DFSA’s findings and referred the action to the FMT for review. The FMT is a specialist tribunal, operationally independent of the DFSA, which has its own rules of procedure. The FMT conducts a full merits review of DFSA decisions which are referred to it and determines the appropriate action for the DFSA to take.
The detailed reasons for the DFSA’s action against Mr Cefaratti and Dalma are set out in the DFSA’s media release of 9 March 2022 and Decision Notices dated 19 October 2021 which can be found in the Decision Notices and Regulatory Actions section of the DFSA website..
Information about pending FMT matters, including details of any public hearings, can be found on the FMT section of the DFSA website:
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