CMC 2-3 Perpetrating A Fraud on a Person

1. Article 54(c) prohibits an act, practice or course of conduct relating to Investments that the person knows, or reasonably ought to know perpetrates a fraud on any person.
2. The Markets Law does not define “fraud” and so it is necessary to give that term its ordinarily understood meaning in the context. In the DFSA's view, a person perpetrates a fraud on another person if the first person engages in conduct that is dishonest or deceptive and is intended to result in a financial gain or benefit or to avoid a loss (whether to the first person or to another person).

Examples of fraud

3. The following are examples of conduct that, in the DFSA's view, may contravene Article 54(c):
(a) a Reporting Entity publishes accounts that have been deliberately falsified by excluding or including transactions. The purpose of publishing the accounts with the false transactions is to give a more positive impression to investors of the financial position of the Reporting Entity;
(b) a person operates a Ponzi scheme i.e. a scheme where Investments are offered to investors with a high rate of return and little risk but the Investment does not generate returns from actual profits earned but instead is only able to pay returns to investors by using new investors' funds to pay the earlier investors;
(c) a company makes an offer of Investments to a small number of high net worth investors. Information provided to the investors indicates that the funds will be used for a specified purpose related to the business of the company. The officers of the company, however, use the funds raised for their own personal purposes (unrelated to any business of the company);
(d) a person is a contributor of information to the administrator of a price benchmark (that is used as a reference for the pricing of Investments). The person reports non-existent transactions, omits to report transactions or reports transactions selectively to the benchmark administrator in order to manipulate the price of the benchmark and profit from that benchmark price; and
(e) a company is seeking to raise funds on a Crowdfunding Platform, through the offer of Shares to investors. The company creates false financial statements to give potential investors the impression that it has significant assets and income, to help it to obtain funding.
Derived from GM9/2014 (Made 1st January 2015). [VER1/01-15]
[Amended] DSFA GM12/2017 (Made 14th June 2017). [VER3/08-17]