Farhaz Khan acts for successful DFSA in DIFC Financial Markets Tribunal

The Financial Markets Tribunal (FMT) has upheld enforcement action taken by the Dubai Financial Services Authority (DFSA) against Dr Mubashir Ahmed Sheikh for serious misconduct including misleading and deceptive behaviour.

Following a five-day fully remote hearing in April of this year, the FMT issued its decision on 20 October upholding the DFSA’s findings and imposing the following sanctions:

  • A fine of USD225,000;
  • A direction that Dr Sheikh pay restitution of at least USD644,836 to MAS Clearsight Ltd (MAS) representing the cash he had previously withdrawn in a deceptive way, along with interest;
  • A prohibition from holding office in or being an employee of certain DFSA-regulated entities; and,
  • A restriction from performing any function in connection with the provision of Financial Services in or from the DIFC.

Dr Sheikh was the Chairman, Senior Executive Officer and majority beneficial owner of MAS, formerly a DFSA Authorised Firm which has been in liquidation since November 2015. As publicised in the DFSA’s media release, dated 3 October 2019, the DFSA decided to take action against Dr Sheikh for breaches of DFSA legislation. Dr Sheikh 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 that are referred to it and determines the appropriate action for the DFSA to take. The restitution direction is the first ever imposed on an individual, and the fine is the highest imposed on an individual. In addition, the FMT ordered Dr Sheikh to pay USD15,000 towards the DFSA’s costs.

The FMT imposed the action on Dr Sheikh because it found that he:

  • demonstrated a lack of integrity by knowingly acting dishonestly and deceptively;
  • knowingly provided false, misleading or deceptive information to the DFSA; and
  • knowingly caused MAS to breach the DFSA’s prudential rules.

The key facts and findings of the case include:

  • In early 2015, Dr Sheikh’s company (MAS) was in an increasingly weak financial position, and required to report its financial position to the DFSA on a monthly basis, in particular as to whether it was maintaining its regulatory capital of USD600,000;
  • In May and June 2015, Dr Sheikh withdrew over USD512,000 in cash from MAS’ bank account, depleting almost all of its liquid assets, and causing MAS to breach its regulatory capital requirement;
  • By concealing his cash withdrawals and knowingly providing false information about them within MAS, Dr Sheikh knowingly caused MAS, via its Finance Officer, to misreport its regulatory capital position to the DFSA;
  • When the DFSA became aware of the true position in June 2015, it promptly suspended MAS’ licence, to protect users of financial services in the DIFC. Subsequently in 2015, MAS entered into liquidation with significant outstanding debts including unpaid employee entitlements;
  • In an attempt to defend his misconduct, Dr Sheikh repeatedly, over the course of several years, provided the DFSA and the FMT with an elaborate and improbable version of events. This included false claims that Dr Sheikh withdrew the cash initially to pay investors as part of an investment deal, and later when the deal fell through to pay other legitimate debtors, which claims he tried to support with fabricated documents and false witness testimony.

In its decision, the FMT described Dr Sheikh’s misconduct as a “dishonest set of steps aggravated by devious acts to try to conceal and cover up over a long period”. The FMT also found that Dr Sheikh knew full well that his withdrawals had been causing MAS to breach its regulatory capital requirement “because his story of the deal is a lie”.

Bryan Stirewalt, Chief Executive of the DFSA, said: “The DFSA has zero tolerance for individuals who deliberately mislead and attempt to deceive the regulator, particularly where an individual takes such elaborate and dishonest steps to conceal their conduct. Such individuals will be held accountable to the fullest degree of the law, and they have no place in the DIFC. The DFSA will also require, where appropriate, wrongdoers to compensate those who have suffered losses arising from their misconduct. Individuals in control of financial services firms must manage the firm’s finances responsibly, in the interest of all stakeholders including employees, and act with integrity at all times.”

The FMT refused Dr Sheikh permission to appeal its decision to the DIFC Court. Dr Sheikh did not file an application to the DIFC Courts for permission to appeal against the FMT’s decision and, therefore, the FMT’s decision is final.

The FMT’s decision can be found on the FMT section of the DFSA website, and a copy of it can be accessed here. Information about pending FMT matters, including details of any public hearings, can be found via the same link. Click here to read the full judgment.

Farhaz Khan acted for the DFSA.

Adam Temple recently successfully acted for the DFSA on getting the DIFC Financial Markets Tribunal to affirm fines that were imposed against two Al Masah companies and three individuals. Click here to read more on this case.