An independent appeals tribunal has upheld action taken by the Dubai Financial Services Authority against Arif Naqvi, the founder of defunct private equity company Abraaj Group, which was the largest fine ever imposed on an individual by the regulator.
The DFSA fined Mr Naqvi more than $135 million in January 2022 and banned him from conducting business in the Dubai International Financial Centre over “serious failings” in respect to the company and its misconduct.
Mr Naqvi had referred the DFSA’s findings for review by the Financial Markets Tribunal (FMT), which rejected his appeal on December 12, rendering DFSA’s findings from August 2021 as final, the regulator said on Tuesday.
The tribunal found that Mr Naqvi “was centrally involved in a sustained course of unauthorised financial service activities and misleading and deceptive conduct by Abraaj Investment Management Limited (AIML)”, according to the statement.
AIML was a Cayman Islands-registered firm not authorised by the DFSA. In July 2019, the DFSA imposed a fine of more than $299 million on AIML for conducting unauthorised activities in or from the DIFC and misusing investors’ monies.
The tribunal also considered that the $135 million penalty against Mr Naqvi was “unusually high but the remuneration … [he] received was high amidst conduct that was exceptionally serious and the cause of what appears to have been unprecedented harm to the entire community of the DIFC”.
The Abraaj Group, which was founded in 2002 and claimed to manage about $14 billion 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 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 its $1bn healthcare fund.
That probe 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, as well as other US authorities.
The DFSA found that Mr Naqvi was knowingly involved in misleading and deceiving investors over the misuse of their funds by AIML and had “personally proposed, orchestrated, authorised and executed actions that directly or indirectly misled or deceived the investors”, the regulator said.
Mr Naqvi, according to the DFSA, “instructed the use of investor monies to fund the Abraaj Group’s working capital or other commitments; prioritised the distribution of Abraaj fund sale proceeds and update reports to “noise makers and those who will come back, with the latest being legacy investors and passive voices”.
He was also “central to the cover-up of” a shortfall of about $400 million at two Abraaj funds by temporarily borrowing monies to produce bank balance confirmations and financial statements to mislead auditors and investors, the regulator said.
Mr Naqvi also approved and personally drafted false and misleading statements to investors to cover up the misuse of their funds, the DFSA said.
He approved the change of an Abraaj fund’s financial year-end to avoid disclosing a shortfall of about $201 million and agreed that the justification of aligning the Abraaj fund year-end with that of other Abraaj funds would be “selleable [sic] and compelling” to the limited partners of the fund, the regulator said.
The DFSA found that Mr Naqvi personally arranged to borrow $350 million from one person in an attempt to make the Abraaj Group appear solvent and appease the demands of investors.
“While Mr Naqvi preached about transparency and responsibility, he did not apply those principles in practice,” said DFSA chief executive Ian Johnston.
“The DFSA’s action against him, which was upheld by the FMT, is important in recognising the nature, scale and seriousness of Mr Naqvi’s misconduct, which ultimately led to the collapse of the Abraaj Group.
“Mr Naqvi was the face of the largest private equity firm in the region and the face of impact investing.
“He was in a position of trust and influence and investors relied on him to ensure that the Abraaj Group’s affairs were managed effectively and responsibly.”
Mr Naqvi was a regular attendee of the World Economic Forum in Davos.