The Dubai Financial Services Authority (DFSA), the regulator for the emirate's financial hub, is seeking to fine a local investment bank US$75,000 (Dh275,482) amid allegations about how it accounted for some artwork.
The watchdog claims Arqaam Capital broke the rules when it marked up eight paintings by the artist Farhad Moshiri, commissioned for $200,000 in 2007, to show a value of $2.45 million in its 2009 accounts.
Arqaam denies any wrongdoing in the affair, as does its auditor Ernst & Young, and is due to contest the allegations in a public hearing scheduled to start in Dubai today.
The facts of the case have been made public by the DFSA because "publicity is the very soul of justice", according to a document it published yesterday. Both Arqaam and Ernst & Young opposed publication.
In 2007, Arqaam asked Mr Moshiri to paint eight works for a total fee of $200,000. Two years later, they were valued at $2.45m by Artspace, a Dubai gallery and Arqaam consulted Ernst & Young on how to reflect the increase in its accounts.
In September 2009, Arqaam entered into two agreements with Alissar, a Syrian company. In the first deal, dated July 29, 2009 Arqaam sold the works to Alissar for $2.45m. In the second, dated July 30, 2009, Arqaam bought the paintings back for the same amount.
The DFSA says although Arqaam and Ernst & Young acted intentionally, there had not been any dishonesty by either of them.
But it claims the treatment of the transactions in the 2009 figures "did not comply with accounting standards" of the DFSA rule book.
The DFSA also alleges the accounting treatment did not comply with international financial reporting standards (IFRS).
Arqaam said it "will rely on the fact that [Ernst & Young] gave an unqualified audit opinion on its 2009 accounts, and will submit expert opinions from leading accounting professionals who specialise in the technical interpretation and application of IFRS".