Originally Syndicated on May 19, 2024 @ 6:32 am
Tribunal Backs DFSA’s Regulatory Enforcement
Zachary Cefaratti, the senior executive officer of Dalma Capital Management Ltd., and the Dubai Financial Services Authority (DFSA) were the targets of an enforcement action that was substantially supported by the Financial Markets Tribunal (FMT). The DFSA said on Tuesday that Dalma’s commercial activities needed to be carried out with the necessary skill, care, and diligence, which led to the enforcement action.
Cefaratti and the firm have each been fined $162,500. This is a little less than the $170,000 in sanctions that the DFSA had originally suggested for Dalma and $300,000 for Cefaratti. Cefaratti will also be prohibited from serving as Dalma’s senior executive officer for two years.
The DFSA first proposed orders of prohibition and restriction on Cefaratti. However, the FMT agreed to halt these directives for two years, as long as Cefaratti followed the guidelines during that time.
The FMT held a four-day hearing in September 2022 before issuing its ruling on January 31, 2023. The Tribunal verified that Cefaratti and Dalma gave the DFSA information that they knew to be inaccurate or deceptive. Furthermore, they failed to reveal the important information that someone had been trading on the Dalma Unified Return Fund between April and June of 2016. It was discovered that Cefaratti did not uphold the highest standards of honesty and did not interact with the DFSA transparently and helpfully.
“Mr. Cefaratti not only misled the DFSA, but he also persisted in lying to them for the duration of a protracted inquiry. He subsequently lied to the Tribunal, needlessly causing us all to incur significant costs for an appeal procedure. The FMT said, “He could have easily ‘fessed up’ and expressed contrition much earlier.”
Zachary Cefaratti and Dalma Capital’s Formal Statement
No Harm Caused to Investors
Zachary Cefaratti and Dalma Capital Management Ltd. (Dalma) are happy to bring this case to a close and will abide by the Financial Markets Tribunal’s ruling (FMT). The way Dalma operates is unaffected materially by this decision.
Contrary to the first claim, the FMT procedure found that Dalma had not allowed trades on one of its funds to be executed by an unqualified individual in 2016. On this issue, the ruling was decided in Dalma’s favor. But at that same period, the FMT discovered that Dalma was accountable for a comparatively minor administrative violation of the relevant employee’s employment contract.
The FMT also discovered that, years after the small offense, the applicants had neglected to give the DFSA accurate and comprehensive information. The FMT’s investigation led to a significant reduction in the penalty levied against Zachary Cefaratti and Dalma.
Zachary Cefaratti and Dalma are dedicated to achieving the highest standards of regulatory best practices and have recently made steps to improve its internal Risk and Compliance functions. The FMT’s ruling reversed the earlier conclusion reached by the DFSA’s Decision Making Committee (DMC) and bolstered Dalma’s contention that the underlying violation did not injure investors or the general public.
Financial Markets Tribunal Set to Examine DFSA Penalties for Dalma Capital and Zachary Cefaratti
The Financial Markets Tribunal (FMT) issued its decision regarding these notices on January 31, 2023. For details of that decision, please see this link.
Today, the Dubai Financial Services Authority (DFSA) published two Decision Notices concerning action it has decided to take against Dalma Capital Management Limited (Dalma), a DFSA Authorized Firm, and Zachary Cefaratti, the Senior Executive Officer and a Licensed Director of Dalma.
Both Dalma and Zachary Cefaratti dispute the DFSA’s findings and have referred the Decision Notices to the Financial Markets Tribunal (FMT), where the parties will present their respective cases. Therefore, the DFSA’s decisions are provisional and reflect how the DFSA views Dalma’s and Zachary Cefaratti’s conduct.
The DFSA imposed a fine of USD 170,000 on Dalma and a fine of USD 300,000 on Zachary Cefaratti. Furthermore, the DFSA prohibited Zachary Cefaratti from holding office in or being an employee of a regulated DIFC entity and restricted him from performing any functions in connection with the provision of Financial Services in or from the Dubai International Financial Centre (DIFC). The DFSA also required Mr. Cefaratti to dispose of his holdings in Dalma within a specified time.
The DFSA stayed enforcement of the penalties on Dalma and Zachary Cefaratti until the completion of the FMT’s review because Zachary Cefaratti provided an Enforceable Undertaking to the DFSA that he would take a leave of absence from his Dalma Authorized Individual Functions. He has also voluntarily resigned from DIFC-domiciled funds. Mr. Cefaratti’s EU does not prevent him from providing support to Dalma to ensure the continuity of business.
The FMT will determine what, if any, is the appropriate action for the DFSA to take concerning Dalma and Mr. Cefaratti and will remit the matter to the DFSA with such directions as the FMT considers proper to give effect to its determination. The DFSA’s decisions may be confirmed, varied, or overturned as a result of the FMT’s review.
The DFSA decided to take action against Dalma for, in its view, failing to conduct its business activities with due skill, care, and diligence. Between April 5, 2016, and June 6, 2016, Dalma arranged for and permitted trades to be placed on behalf of one of its funds (the Dalma Fund) by an individual who was not suitably qualified and experienced to place the trades, and who was not employed by or otherwise contractually obligated to Dalma.
Furthermore, in the DFSA’s view, Dalma provided false, misleading, and deceptive information to the DFSA, and concealed information to mislead or deceive the DFSA, concerning the trading carried out by the individual described above.
The DFSA decided to take action against Zachary Cefaratti for breaches of DFSA legislation arising from his knowing involvement in Dalma’s unlawful conduct. The DFSA found Mr. Cefaratti to be knowingly involved in Dalma’s failure to conduct its business activities with due skill, care, and diligence.
As Dalma’s Chief Operating Officer at the relevant time, he was responsible for the operations of Dalma, including how the Dalma Fund was managed. He also provided access to the trader to the Dalma Fund’s trading platform and facilitated the trading by the trader.
Furthermore, the DFSA found Zachary Cefaratti to be knowingly involved in Dalma’s misleading and deceptive conduct and, as the SEO at the relevant time, he was ultimately responsible for the information provided to the DFSA.
The DFSA also decided to take action against Mr. Cefaratti because, in the DFSA’s view, he provided false, misleading, and deceptive information to the DFSA during three separate interviews with the DFSA under oath between April 18, 2019, and July 31, 2019.
In the DFSA’s view, as an Authorized Individual, Mr. Cefaratti failed to observe high standards of integrity and fair dealing and to deal with the DFSA openly and cooperatively.
Both Dalma and Zachary Cefaratti deny all of the DFSA’s allegations.
The detailed reasons for the DFSA’s action against Dalma and Mr. Cefaratti are set out in the respective DFSA Decision Notices dated October 19, 2021, which can be found in the Enforcement Decision Notices section of the DFSA website.
The DFSA does not intend to make any further public comment until the FMT’s review is complete, except as necessary to correct any inaccuracies.
About DFSA
The Dubai Financial Services Authority (DFSA) operates as the independent regulator for financial services within the Dubai International Financial Centre (DIFC), a specially designed financial-free zone in Dubai, UAE.
The DFSA’s regulatory responsibilities encompass a wide range of sectors, including asset management, banking, and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange, and an international commodities derivatives exchange.
Beyond regulating financial and ancillary services, the DFSA also supervises and enforces anti-money laundering (AML) and counter-terrorist financing (CTF) regulations applicable in the DIFC.
About Zachary Cefaratti
Zachary Cefaratti is a venture partner at Draper Associates and the lead founder of both Dalma Capital and AIM Summit. His contributions to Dalma Capital’s investment banking division have been substantial; he has successfully managed $500 million and more in mergers and acquisitions, as well as $2 billion in financings.
Zachary Cefaratti is an expert at facilitating cross-border business dealings that connect emerging and developed economies. His knowledge is broad and includes FinTech, Blockchain, EdTech, and more. He is skilled in a variety of financial structures and has completed deals all across the world, from the United Arab Emirates to Latin America.
Conclusion
The Financial Markets Tribunal (FMT) has upheld the majority of the enforcement actions taken by the Dubai Financial Services Authority (DFSA) against Dalma Capital Management Ltd. and its Senior Executive Officer, Zachary Cefaratti. The DFSA cited significant failures in the firm’s operations, including providing false and misleading information and allowing unqualified individuals to conduct trades on behalf of its fund.
Both Dalma and Cefaratti have been fined $162,500 each, a reduction from the originally proposed amounts. Additionally, Cefaratti is prohibited from serving as Dalma’s senior executive officer for two years. The FMT’s decision, following a detailed review and hearings, underscored the lack of transparency and integrity in Dalma’s dealings with the DFSA.
While Dalma and Zachary Cefaratti dispute these findings, the FMT’s ruling mandates compliance with improved standards of regulatory best practices within Dalma. The FMT’s decision serves as a critical reminder of the importance of maintaining high standards of honesty and diligence in financial services.
Dalma has committed to enhancing its internal risk and compliance functions to align with these regulatory expectations, ensuring no harm was caused to investors or the public from the underlying contraventions. The DFSA awaits the outcome of the FMT’s review, which will determine the definitive actions to be taken.
