Shuaa Capital, the UAE's largest investment bank by market value, has been fined nearly Dh3.5 million (US$953,000) for manipulating the price of DP World's shares and then obstructing an investigation into the case. It is a further blow to a financial sector already reeling from the meltdown on Wall Street, the withdrawal of foreign investors and a widening investigation into alleged corruption in the property sector in Dubai.
According to the Dubai Financial Services Authority (DFSA), on March 31 Shuaa Capital bid "prices well above those at which DP World shares had been trading in the ordinary course of business". The purpose was to mark up the book value of its own proprietary holdings in the company, thus boosting its own financial performance at year end. This is the largest fine imposed by the DFSA and sends a strong signal that the authorities are getting tough on insider trading and other abuses in the stock markets.
"The manipulation of markets for ulterior motives is a classic form of market abuse that is outlawed in all well-regulated, exchange-traded markets," said David Knott, the chief executive of the DFSA. "Shuaa Capital artificially inflated the price of DP World shares and generated a false market in those shares. The seriousness of this offence was exacerbated by Shuaa Capital's obstruction of the DFSA's investigation."
Along with the fines, Shuaa Capital has agreed to appoint a chief risk management officer, commission and implement the recommendations of an independent risk management review and train staff in the requirements of the laws and regulations. Shuaa said in a statement that it had reached a settlement with the DFSA. "Shuaa regrets the lapse in its internal control systems and will take measures to ensure that this will not be repeated in the future. The trade in question was an isolated incident and does not reflect Shuaa's values or history," it said.
Shares in Shuaa dropped 11.43 per cent to a three-year low of Dh3.95 on the Dubai Financial Market. The General Index has fallen 34 per cent so far this year. "The regulator's judgment could not have come at a worse time," said Eymen el Saheb, the head of operations at Drahem Brokerage. "Already Dubai is investigating a number of listed and private firms and the Shuaa investigation is not going to help market conditions."
The unprecedented fine sends a clear message that Dubai is serious about its anti-corruption drive and implementing higher standards of corporate governance, he added. "Dubai is ready to take anyone to task, no matter how big or small they are." Ali Khan, a director at Arqaam Capital, said that news of the fine was unlikely to improve market sentiment. "The market desperately needs positive news to improve sentiment right now, not more investigations," he said.
DP World, which has seen its shares fall 45 per cent since its public offer last October, said that "we are pleased the regulator is actively monitoring the market and fully support its investigation". "We are pleased to note the DFSA has clearly stated that DP World is entirely blameless in this matter and is not implicated in any way," said a spokesman for DP World. Shares in DP World, which is listed on the Dubai International Financial Exchange, remained unchanged yesterday at Dh0.71.
Shuaa posted a net profit of Dh400.5m for the financial year ending on March 31, up 53 per cent from the previous year. The DFSA did not specify to what extent Shuaa profited from the illegal trades. Shuaa Capital was one of four lead managers of DP World's initial public offering, the region's largest to date. @Email:shamdan@thenational.a
