The Dubai Financial Services Authority has fined former Abraaj managing partner Mustafa Abdel-Wadood $1.9 million for breaching its rules and deceiving investors.
The DFSA also banned him from conducting any financial services-related business in or from the Dubai International Financial Centre, it said in a statement on Wednesday.
Abdel-Wadood is out on $10m bail in New York as he awaits sentencing. He was one of the most senior figures for more than a decade, at the now defunct Abraaj Group. From July 2006 to February 2018 he held various roles including managing partner, global head of private equity and board member.
From April 2010, Abdel-Wadood was also the senior executive officer (SEO) of Abraaj Capital Limited (ACLD), the DFSA-authorised unit of the Abraaj Group.
"The DFSA has taken enforcement action against Abdel-Wadood for his involvement in breaches of DIFC legislation by Abraaj Investment Management Limited (AIML), a Cayman entity not authorised by the DFSA. AIML carried out unauthorised financial service activities in or from the DIFC and actively misled and deceived investors in Abraaj funds," the regulator said.
"In particular, Abdel-Wadood was involved in the misuse of investor funds, the withholding of sale proceeds and reports from investors, providing false explanations to investors and the cover [up] of a $200m shortfall in a fund at its financial reporting date."
Last year, a New York court postponed the sentencing of Abdel-Wadood at the request of the US Attorney for the Southern District of New York, pending the outcome of a request for the extradition of the company’s founder, Arif Naqvi.
Mr Naqvi is the lead defendant in the case and is out on £15m (Dh71.5m) bail in London. He denies the charges against him and is contesting his extradition to the US.
In a statement to The National, Paul Shechtman, the lawyer for Abdel-Wadood said his client "did not have visibility into the full extent of [Mr] Naqvi’s crimes".
"Mustafa’s loyalty to Abraaj and his desire to right the ship led him to stay on when he should have walked away," he said. Abdel-Wadood "did not benefit financially from any wrongdoing ... [and] is pleased that the DFSA matter has been resolved".
Abraaj, which was founded in 2002 and claimed to manage about $14bn of assets at its peak, was the Middle East’s biggest private equity firm and one of the world’s most active emerging market investors with interests across Africa, Asia, Latin America, Turkey and the Middle East.
It was forced into liquidation in 2018 after investors, including the Bill & Melinda Gates Foundation, commissioned an audit to investigate alleged mismanagement of money in Abraaj’s $1bn healthcare fund.
That investigation served to deepen scrutiny of the company and allegations of misappropriation of funds secured from US investors attracted the attention of the Securities and Exchange Commission, and other US authorities.
Abdel-Wadood is one of six former Abraaj executives facing extortion and securities fraud charges following an investigation by New York prosecutors into the collapse of what was once the largest private equity firm in the Middle East.
Abdel-Wadood, 50, who holds Egyptian and Maltese citizenship, was arrested in New York in April 2019. He is the only defendant who has appeared in a US court, pleaded guilty to seven counts of an indictment against him and is co-operating with the US government.
At a US court hearing in June 2019, Abdel-Wadood pleaded guilty to conspiracy charges and agreed to co-operate with the US inquiry into a fundraising scheme that helped lead to the collapse of Abraaj.
"Abdel-Wadood was furthermore involved in AIML’s unauthorised financial service activities through his actions in managing the Abraaj funds from the DIFC and his role as a permanent member of the AIML Global Investment Committee," the DFSA said.
As ACLD SEO, Abdel-Wadood had significant responsibility for ACLD’s activities but "he failed to take reasonable care to ensure that ACLD complied with legislation applicable in the DIFC," the DFSA said.
Abdel-Wadood "failed to identify that ACLD’s prudential returns and financial statements, which he signed, contained false and misleading information. He took no steps to stop ACLD resources from being used by AIML to conduct unauthorised activity in or from the DIFC", it added.
The fine imposed "reflects the seriousness of the offences" and is based on Abdel-Wadood’s earnings from the Abraaj Group, the DFSA said.
In setting the fine amount, the DFSA said it gave "due consideration to the significant level of cooperation that Abdel-Wadood has provided and continues to provide to the DFSA and the US authorities and there is no evidence to suggest that Abdel-Wadood received a direct economic benefit as a result of his actions".
DFSA chief executive Christopher Calabia said Abdel-Wadood co-operated over the past two years with the regulator and US authorities, which is reflected in the reduction of his fine.
In a 72-page regulatory decision notice, the DFSA said were it not for a 30 per cent settlement discount, it would have imposed a $2.75m fine on Abdel-Wadood.
"The DFSA aims to prevent wrong-doing from taking place, but when instances are discovered, the DFSA expects full, open, and honest cooperation from individuals and will take this into account when setting penalties," Mr Calabia said.
"We continue our actions against other individuals who were involved in Abraaj’s misconduct, and we will make any further public announcements at the appropriate time.”
Abdel-Wadood could be sentenced to 125 years in prison if all the terms for each of his charges are served consecutively.
