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  • Writer's pictureAkram Cheik - Lawyer

Investment scams in Dubai

Investment scams in Dubai have become quite common in recent years. In particular, scammers often target foreign investors by offering them supposedly lucrative investments in sectors such as real estate, energy, or cryptocurrencies which turn out to be Ponzi schemes, or simply a breach of trust. . These non-violent scams are very common and are based on promises of winnings often backed up by amplified numbers.

Thus, the Ponzi scheme is a scam where the promoters lure new investors by promising high returns, often without risk and without any real basis. Returns are paid with the money of new investors, rather than the actual profits of the company. The promoter uses part of the money to pay investors who have invested previously and keeps part for himself. Ponzi promoters may even post fraudulent account statements or fake customer testimonials to give the appearance of outstanding performance. These Ponzi schemes are often difficult to spot because they appear to be legitimate investments. Investors should be careful and carry out thorough checks before investing money, including checking the legitimacy of the company, the background of the promoter and reviewing the details of investment contracts. If the promised returns are too high or sound too good to be true, the investment is likely a Ponzi scheme. Investors should also be aware that if they participate in a Ponzi scheme, they could lose all their invested money.

Therefore, these more or less elaborate scams are liable to criminal prosecution under Federal Law No. 3 of 1987 on the regulation of commercial enterprises. According to Article 399 of the Emirates Penal Code, anyone who deliberately misleads a person into believing false information with a view to inducing him to invest in a company, is liable to a prison sentence of up to 3 years and a fine of up to 200,000 dirhams.

Additionally, Section 401 provides that anyone who uses fraudulent means to obtain funds from a person to invest in a business is also subject to criminal prosecution. This offense is punishable by a prison sentence of up to 10 years and a fine of up to 1 million dirhams (about 275,000 USD).

It is important to note that the UAE has taken steps to strengthen investment and finance regulations to protect investors from fraud. However, it is still important for investors to do their due diligence before making an investment decision and to seek professional advice before making financial transactions. Our firm, having been seized on numerous occasions by French-speaking clients, we have been able on several occasions to prevent offenders from leaving the territory of the Emirates so that the latter can face justice.

Therefore, the most frequent scams remain those concerning investments in the digital field (I) and those concerning real estate (II).

I – The different digital investment scams in Dubai

A – Cryptocurrency and trading project scams in Dubai

Scams related to cryptocurrency projects and trading are also quite common in Dubai. Scammers often use promises of high and fast earnings to lure investors. They may also use fictitious or fraudulent project names to deceive investors and get their money.

In some cryptocurrency scams, fraudsters may claim that their business is based in Dubai or is backed by reputable investors in the region. They can also claim that their project has received permissions or licenses from local regulators to gain investor confidence. Thus, some scams consist of the sale of a cryptocurrency project that is based solely on aggressive marketing, suggesting the long-term reliability of a project, whereas this one is only based on marketing speculation.

When it comes to trading scams, fraudsters may use sham or fake trading strategies to trick investors into entrusting them with their money. They can also claim to have inside information on the financial markets to justify their trading decisions.

These scams are liable to criminal prosecution. Local authorities have taken steps to regulate cryptocurrencies and trading activities in the region to protect investors from fraud.

B - Mining operations

Mining is the process by which computers or servers perform complex calculations to validate transactions and add new blocks to a blockchain. Thus, miners are rewarded for their work with cryptocurrency tokens. Hence, mining is an essential part of the infrastructure of many cryptocurrencies, such as Bitcoin, Ethereum, Litecoin and others. Therefore, miners play an important role in the security and reliability of the blockchain, as they verify transactions and ensure the proper functioning of the network.

However, mining has become increasingly difficult and expensive over time, as the calculations needed to validate transactions become increasingly complex, requiring advanced computing equipment and significant power consumption.

So, the most common scams in mining are Ponzi schemes, these scams come in the form of mining schemes that promise high returns in exchange for the initial investment. Investors are compensated with new investors' money, rather than actual cryptocurrency mining, and end up losing their money when the system crashes.

Another scam is fraudulent cloud mining, some companies offer cloud mining contracts that promise to mine cryptocurrency for their customers at a fixed cost. However, many companies do not actually own mining equipment and pay customers with the money of new investors.

Another method is through malware mining: some hackers install malware on computers without permission, using the computer's processing power to mine cryptocurrency for their benefit.

Finally, fraudsters' fake wallets can create fraudulent cryptocurrency wallets that claim to allow cryptocurrency mining. Investors who deposit cryptocurrency there may lose their money or be victims of theft. It is important to be vigilant and exercise caution when investing in cryptocurrency mining, checking the reputation of the company or service before investing any money.

II – Real estate investment scams in Dubai

A – Fictitious real estate investment projects in Dubai

When it comes to real estate investment scams, fraudsters can promise high returns on real estate investing, usually in exchange for a large upfront investment. They can claim that they have access to exclusive properties that generate high rental income. Fraudsters may also promise short-term profits by tricking investors into buying pre-sale properties with the goal of reselling them quickly for a profit.

However, once the investors transfer their money, the scammers disappear with the money. The same goes for many fictitious real estate projects that see fraudsters creating exuberant real estate projects, such as luxury hotels or residential complexes, to attract investors. They can claim that these projects are under development or have already been completed, and then ask investors to buy shares or units of these projects. Fraudsters may use fake documents and false information to make the project look real, but investors later find out that the project never existed or was never completed.

B – Property Fraud in Dubai

One form of property fraud is when fraudsters pretend they own a property or have ownership rights to a property, which they then sell to potential investors. The investors then transfer money to the fraudsters in exchange for ownership, but later discover that the ownership documents are fake or the ownership rights are not transferable. A method applicable to so-called “off plan” or off plan investments which sees fraudsters claiming that they are selling real estate off plan, that is to say before the construction has been completed. They may promise high returns on investment or resale guarantees at a higher price.

Hence, the fraudsters may then disappear with the investors' money, or the investors may find out later that the project was never completed or is not of the quality promised.

These scams can also apply to property rentals. Thus, fraudsters can claim that they have properties to rent at affordable prices. They may ask potential tenants to pay a reservation or security deposit fee before they can move in. Fraudsters can disappear with tenants' money without providing a property to rent. Care should therefore be taken when booking properties, fraudsters may claim that they have exclusive properties for sale at bargain prices. They ask potential buyers to pay a deposit or reservation fee to reserve the property. More often than not, the scammers then disappear with the buyers' money, leaving the victims with no property and no recourse.

The Nextcap firm accompanies you with its local partners to bring any legal action.

By Akram Cheik, Lawyer

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