Dubai Watchdog Fines Abraaj Group With A Record $315 Million

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The financial regulator in Dubai fined a $314.6 million collapsed private equity corporation Abraaj, a record punishment in its emirate of the Persian Gulf for deceptive investors and non-authorized operations.

Fine for Abraaj, the biggest private equity firm in the Middle East, with almost $14 billion in reported assets until its meltdown last year, the Dubai Financial Services Authority struck a further fine. Among the shareholders in Abraaj’s funds were the Bill and Melinda Gates Foundation, Bank of America Corp., and the US government’s Overseas Private Investment Corp.

Abraaj misused the resources of shareholders to pay costs and send cash to several of his managers, the regulator said. The regulatory body added that this activity was covered by misleading economic data.

The disappointment, the DFSA said, was accomplished by lending cash to generate momentarily inflated bank balances only before economic reporting dates. Abraaj also altered reports of delays in money distribution to cover deficiencies, deflected requests for data and lied to the Regulator.

DFSA Chief Executive Officer Bryan Stirerecht commented in a press release: “The top management rode roughshod over their compliance function and misconducted and deceived persistently. “We will continue to conduct the people or organizations that perpetrated the work, including those who allowed this to occur in the full extent of our powers through significant corporate governance violations.”

The fine follows that six former leaders of Abraaj, including founder Arif Naqvi, were criminally indicted on allegations of fraud and racketeering by U.S. Attorneys. Mustafa Abdel-Wadood, one of those managers, has been convicted of this. In London, Mr. Naqvi is awaiting the extradition process to decide if his father will be sent to the United States, for £ 15 million ($18.2 million) bail.

American prosecutors have accused Mr. Naqvi of over $250 million of Abraj’s misappropriation. Following more than $1 billion of debt, the company entered temporary liquidation in June last year.

The spokesperson of Mr. Naqvi refused a good remark. The founder of Abraaj has retained his innocence and expects any charges to be cleared. At a court hearing in London in June, Mr. Naqvi’s lawyer stated that his client believes that the American case against him is politically motivated by the threat that he did not specify of US interests by Abraaj.

The DFSA claimed that the fine is its biggest economic punishment. The DFSA is responsible for the Abraaj International Finance Center in Dubai. The DI FC is separated from the remainder of the United Arab Emirates, which complies with Islamic legislation, by its own English common law court.

The DFSA has never handled such a crash as Abraaj’s. A family-run jewelry business was one of its most important instances before Abraaj where three Brothers were accused of taking cash incorrectly. In 2010, the government imposed a fine of $2.9 million.

The DFSA said there is an “important danger” that due to Abraaj’s liquidation the fine will not be gathered. The company is insolvent and how to repay its debts is being negotiated by its creditors and investors.

The liquidators of Abraaj refused to comment.

“We would not take any retrieval action that would prejudice fund investors ‘ interests,” said the DFSA. The regulator said that even if they no longer operate in Dubai, it can fine people engaged in violating laws.

Abraaj had a complex structure with hundreds of firms and funds embedded in jurisdictions around the globe, making his regulatory supervision liability turbid. The DFSA said the only Abraaj unit it was liable for overseeing was Abraaj Capital Ltd. DFSA fined the unit $15.3 million for failing to keep appropriate capital, giving incorrect data, and failing to comply with minimum norms of integrity and fairness.

The regulator levied a much bigger fine of $299.3 million on Abraaj Investment Management Ltd, based in the Cayman Islands. The DFSA said it was not allowed to run this unit in Dubai.

Three investors from Abraaj said in interviews that before it crashed, they thought that the DFSA was the general regulator of the firm. In discussions and records, Mr. Naqvi and other Abraaj managers commonly indicated that they had high standards of governance. A marketing document intended for prospective investors said, “Our decision was to function in a controlled setting,” and since 2006, “Abraaj” has been authorized by the DFSA. “Abraaj has adopted a holistic structure encompassing corporate governance, regulation, and enforcement,” said the paper.

The DFSA said that Abraaj Investment Management “was never an authorized company from DFSA. The DFSA stated that the Cayman Islands addresses for Abraaj Investment Management and another unit called Abraaj Holdings “were merely paper offices; neither company had physical premises or staff in the Cayman Islands.” DFSA stated that Abraaj did not keep the money of investors strictly segregated in the Cayman Islands. The money should be used to purchase stakes in businesses. The proceeds should be sent back straight to investors when those stakes are sold.

For instance, Abraaj sold his interest in Network International payment business for $330 million in 2015. The money was transmitted to a bank account in Abraaj Investment Management, from which cash flowed to another Abraaj fund from the one used to invest in Network International and to a business owned by an unnamed senior official in Abraaj, the regulator said.

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