Mis-selling of investment products is something that frequently crosses my desk in the form of complaints by investors. Over the years, there has been so much done by the regulatory authorities — the UAE Central Bank, the Securities and Commodities Authority — and, where applicable, by the Dubai Financial Services Authority (through press releases, forums, web site announcements, seminars etc).
The average investor has become increasingly well informed as to what his/her recourse is on every single case. To be sure, the success of every regulatory jurisdiction is measured not by the elimination of the practice, but by the minimisation of violations that occur over time. In this regard, it is clear from every conceivable yardstick that the UAE regulators have succeeded in clamping down on the errant practice of mis-selling of investment products for the most part.
However, every once in awhile, an investment “opportunity” comes along that captures the imagination of the media and the public alike. It spreads contagiously throughout the society (especially in the age of instant communication), and despite warnings from the regulatory authorities, the average investor its swept away by the mania.
Such tales almost always end in tears, from the tulip mania to the latest bitcoin frenzy that has swept the world. When the money is lost (as it almost invariably always is), small investors who were left holding little more than worthless paper rush to litigate. And even though there are always instances of violations, it is puzzling that the warning calls by all the regulatory authorities are ignored.
The human instinct to make money will always be the driving force, and as lawyers, we are always there to ensure that the client is not being hoodwinked. However this can only be done if he consultation is made before the investment. Lawyers can always come up with procedural checklists that will aid the investor’s decision-making process.
But it stands to reason that the most powerful checklist of them all is that of common sense and for that the investor needs to do his/her own due diligence. There is almost always a public outcry when an asset or an asset class goes through a boom-bust scenario. This process leads to a rise in litigation.
However, lawyers cannot substitute basic common sense, especially when the regulatory authorities have become so proactive and vocal in issuing warnings about whatever the latest investment mania is.
In an age where there is so much of tech advances that we do not understand, people often assume that because the latest investment scheme has to do with technology, it does not matter if they do not understand it. In point of fact, the lack of comprehension is often a reason for its attractiveness (apart from the unnatural price rise, of course!).
My advice to clients has always been first and foremost, look to the regulators for guidance. It will almost always be the case that there will have been come commentary that will have been issued. Secondly, it is imperative for the investor to understand the product before committing to it.
In the case of bitcoin, the obvious question is that despite the underlying revolutionary technology that makes it “safe”, there have been a number of hacking incidents. This can only be the case if the technology is still developing, and If so, prudence dictates that more information (and time) may be needed before committing to it.
I am not an investment adviser, nor is it my intention to second guess market movements. However, no amount of litigation can protect or undo a bad investment decision.
However, this lesson seems to have been lost throughout the ages. In an age of instant communication, it should be easier to transmit facts and warnings and avoid mishaps. Sadly, sometimes, this does not appear to be the case.
The writer is Senior Partner at NM Advocates, which has a joint venture with GCP Group.