The Dubai Financial Services Authority has fined Arif Naqvi, founder of the defunct Abraaj Group, more than $135 million and banned him from conducting business in the Dubai International Financial Centre “for serious failings” in respect to the company.
The regulator also levied a $1.15m fine against Waqar Siddique, a former managing director at the private equity company, and also prohibited him from operating in the DIFC.
“Mr Naqvi and Mr Siddique dispute the DFSA’s findings and have referred the Decision Notices to the Financial Markets Tribunal (FMT), where the parties will present their respective cases. The DFSA’s decisions are therefore provisional and reflect the DFSA’s belief as to what occurred and how it considers their conduct should be characterised,” the DFSA said on Thursday.
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.
The DFSA said the tribunal would determine “what, if any, is the appropriate action for the DFSA to take and remit the matter to the DFSA with such directions as the FMT considers appropriate to give effect to its determination”.
“The DFSA’s decisions may be confirmed, varied or overturned as a result of the FMT’s review,” it said.
Mr Siddique and Mr Naqvi both applied to the tribunal for orders to prevent the DFSA from publishing the Decision Notices and to have the FMT hearings held in private, the regulator said.
In January 2022, the tribunal determined that the DFSA could publish the Decision Notices and that the FMT hearings would be public.
“The FMT stayed the operation of the financial penalties until the conclusion of the FMT proceedings but the prohibition and restrictions on Mr Naqvi and Mr Siddique from performing any function in or from the DIFC remain in effect,” the DFSA said.
The regulator said Mr Naqvi had previously applied to the DIFC Courts in June 2021 for permission to commence judicial review of the DFSA’s decision to take action against him. The request was denied and the DFSA issued Mr Naqvi with the Decision Notice, which he then referred to the tribunal.
The DFSA's Decision Notice states Mr Naqvi “was knowingly involved in misleading investors over the misuse of their funds by Abraaj Investment Limited (AIML), a Cayman Islands-registered firm not authorised by the DFSA".
The notice also says that the DFSA found that Mr Naqvi “personally proposed, orchestrated, authorised, and executed actions that directly or indirectly misled and deceived the investors as he instructed the use of investor monies to fund the Abraaj Group’s working capital and other commitments; ranked investors according to the likelihood they would complain or challenge and withheld sale proceeds and reports from those investors who were less likely to do so; approved and personally drafted false and misleading statements to investors to cover up the misuse of their funds".
It says “Mr Naqvi also attempted to appeal to more senior members of staff at the investors’ organisations to quash their queries [and] was central to the cover-up of a $400m shortfall across two funds by temporarily borrowing monies for the purpose of producing bank balance confirmations and financial statements to mislead auditors and investors".
Mr Naqvi also “approved the change of a fund’s financial year end to avoid disclosing a $200m shortfall; and personally arranged to borrow $350m from an individual in an attempt to make the Abraaj Group appear solvent and appease the demands of investors”, according to the DFSA notice.
Mr Naqvi, who is in the UK facing extradition to the US, where he faces a trial for fraud and money laundering, “instructed and encouraged other members of Abraaj senior management to mislead and deceive the investors and stakeholders of the funds”, it said.
He was also knowingly involved in AIML carrying out unauthorised financial service activities in or from the DIFC, through his role as the head of the AIML Global Investment Committee and his actions in managing the Abraaj Funds, according to the regulator.
Mr Naqvi's fine reflects “the seriousness of these offences” and is based on his earnings from the Abraaj Group, the regulator said.
The DFSA also found that Mr Siddique was "knowingly involved in breaches by AIML and Abraaj Capital Limited (ACLD), a DFSA-authorised firm".
Mr Siddique was a member of the Abraaj Group’s senior management team and held a number of roles, including the posts of chief operating officer and head of finance and operations.
He was also an authorised individual as ACLD’s licensed director.
"In those roles, Mr Siddique was knowingly involved in certain AIML and ACLD breaches," the DFSA said.
The regulator said Mr Siddique was "knowingly involved in AIML misleading and deceiving investors" over the use of their money with the Abraaj funds and was aware that about $400m was taken from two Abraaj funds and used as working capital for the Abraaj Group or to fund other investment commitments.
"In order to conceal such shortfalls, Mr Siddique was involved in deceiving auditors and investors as to the actual cash balance in the funds’ bank accounts, including being a signatory to loan agreements used to produce misleading bank balance confirmations and misleading financial statements," the DFSA said.
It also said that Mr Siddique was "knowingly involved in ACLD’s contraventions of not maintaining its capital requirements" and that he authorised the majority of temporary cash transfers at quarterly reporting period ends over a five-year period.
Mr Siddique, the regulator said, also signed two financial returns sent to it, which "falsely declared" that ACLD was in compliance with its capital requirements.
"In doing so, Mr Siddique also failed to act with integrity in carrying out his licensed function at ACLD," the DFSA said.
Last November, the DFSA fined former Abraaj managing partner Mustafa Abdel-Wadood $1.9m for breaching its rules and deceiving investors. It also banned him from conducting any financial services-related business in or from the DIFC.
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.
He is the only accused 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.