The Capital Market Authority (CMA) announces compensation for more than 17,000 affected investors from the violations committed in relation to the shares of Dar Alarkan Real Estate Development Company. These violations were carried out by 17 violators, against whom a final decision was issued by the Appeal Committee for Resolution of Securities Disputes (ACRSD), published on the websites of the CMA and the General Secretariat of the Committees for Resolution of Securities Disputes on July 20, 2023. The decision, resulting from the penal lawsuit filed by the Public Prosecution and referred by the CMA, obligated them, along with five additional investors, to pay SAR 1.196 billion for the illegal gains realized as a result of these violations.
The compensations were deposited into the accounts of the affected investors through the Compensation Fund, which was established pursuant to a resolution of the CMA's Board to compensate affected parties in accordance with the distribution plan approved by the CRSD. This facilitates the compensation process and ensures that entitlements are delivered to their beneficiaries promptly and with minimal burden on them.
Since the publication of the ACRSD's decision, the CMA has worked on assessing the possibility of applying Article (59) of the Capital Market Law, which grants the CMA the power to regulate procedures for compensating persons affected by violations, and on evaluating the suitability of establishing dedicated compensation funds sourced from the recovered illegal gains. This led to the establishment of the Compensation Fund to reimburse eligible beneficiaries in accordance with a distribution plan approved by the CRSD, in line with the necessary rules, procedures, and legal framework designed to enhance the efficiency of such funds.
This fund is considered the second of its kind to compensate those affected by violations committed in the capital market, following the first fund announced in July, whose distribution to affected investors was completed less than three months ago. It marked the first practical application of the compensation funds concept in the Kingdom and represented the launch of the powers granted to the CMA under the Capital Market Law. This underscores the CMA's determination to continue implementing this approach, aimed at facilitating compensation mechanisms for affected investors and reinforcing confidence in the capital market.
The approved distribution plan was designed to align with the scale of the violations committed, the value of the illegal gains realized from those violations, and the extent of harm suffered by investors who traded the company's shares during the violation period. In some cases, compensation amounts reached more than SAR 1 million. The CMA affirms that the distribution plan adopted by the CRSD covered all investors who were proven to have suffered harm, based on technical records. This does not prejudice the right of any individual who believes they were harmed but was not included in the distribution plan to file an individual claim before the CRSD, after first submitting a complaint to the CMA in this regard.
Compensation funds serve as a complement to the mechanisms that facilitate compensation for investors affected by violations in the capital market, adding to the existing avenues of compensation such as individual and class actions. The CMA adopts a set of criteria to determine the suitability of establishing a compensation fund from the illegal gains recovered from violators whenever the facts and circumstances of a case demonstrate that actual harm has occurred. Where the CMA deems that establishing such a fund would be more effective and practical than other compensation mechanisms, it proceeds accordingly. The CMA has further clarified that it employs a range of analytical tools to arrive at a systematic assessment on the appropriateness of creating a fund to compensate those affected by illegal gains recovered under final decisions issued by the CRSD. These criteria contribute to identifying the most suitable mechanism for compensation, whether through direct payouts via such funds or through class actions, and include aspects related to the enforcement and recovery of such gains, the nature, multiplicity, and impact of the violations, as well as the extent to which CRSD adopt and apply the principle of compensation to the violations and their affected investors.
The CMA affirms that, in the context of enhancing compensation opportunities, it has carefully studied international best practices applied in global capital markets and adopted those most suitable to the nature of the Saudi capital market. This approach contributes to raising the efficiency of compensation mechanisms, strengthening investor confidence in the market, and protecting their rights. These efforts come as part of a package of strategic initiatives launched by the CMA to complete the building of a more advanced, competitive, and effective financial ecosystem that better upholds justice.
