Al Sanea court case on hold in Caymans

Cayman Islands chief justice says panel in Saudi Arabia should first determine the allegations against the man accused of running a massive Ponzi scheme.

A Cayman Islands judge has put a multibillion-dollar fraud claim against Maan al Sanea on hold until authorities in Saudi Arabia reach a decision on the main allegations against the financier. The ruling is a blow to the al Gosaibi family, which has accused Mr al Sanea of running an immense Ponzi scheme.

Ahmad Hamad Al Gosaibi and Brothers lodged a fraud claim against Mr al Sanea and his Saad Group in the Cayman Islands last July. Divisions of the Saad Group are incorporated in Cayman. In its lawsuit, the family-owned Al Gosaibi conglomerate accused Mr al Sanea of committing one of the Gulf's biggest frauds. A judge later froze as much as US$9.2 billion (Dh33.79bn) of Saad Group assets in the island country. Mr al Sanea denies the allegations.

Chief Justice Anthony Smellie ruled that although Mr al Sanea was properly included in the Cayman lawsuit, "Saudi Arabia may be an available forum, and if so, would be the more appropriate forum for the trial of the underlying allegations of fraud raised personally against him". Shortly after the Saad and Al Gosaibi groups began to default on financial obligations last summer, sending tremors through regional banks that had lent them billions of dollars, authorities in Saudi Arabia created a committee to investigate the matter. Chief Justice Smellie wrote in his ruling that the precise mandate of the Saudi committee was unclear but that the panel ought to be given time to make decisions before the case was sent to trial in Cayman.

If it became clear that the Saudi courts would not accept jurisdiction in the dispute, Al Gosaibi "would then have a very clear basis for then reverting to this jurisdiction for want of access to 'substantial justice' in Saudi Arabia", the judge ruled. He upheld the $9.2bn asset freeze while the stay is in effect. The Saad Group cheered the decision, calling Saudi Arabia "the correct forum for the principal issues in this dispute to be resolved". The Al Gosaibi group said the court had asked it to "explore whether a subset of the issues involving Mr al Sanea's [alleged] fraud could be tried in Saudi Arabia", adding that it was "considering the scope of this direction". The company pledged to continue to work towards a resolution of the dispute through legal channels and otherwise.

The battle pitting the Al Gosaibi group against the Saad Group and Mr al Sanea has spread across the globe. Banks have sued the groups in New York, London, Cayman Islands, Bahrain, the UAE and other countries as Al Gosaibi pursues its fraud claims. UAE banks, including Mashreq-bank, Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank and Emirates NBD, account for a significant portion of the estimated $20bn the groups owe.

The dispute has already led banks to make big provisions for loans they made to the two groups. It has also sent ripples through a conservative Saudi business community unused to public disputes of such magnitude. According to the judge's description of Al Gosaibi's claims, Mr al Sanea allegedly siphoned money from Al Gosaibi while in charge of its remittances arm, the Money Exchange. Mr al Sanea was accused of using the unit to secure loans from banks with the forged signatures of partners in the Al Gosaibi business, later transferring the proceeds to Awal Bank. Awal is a Bahraini banking subsidiary of the Saad Group that is being administered by the central bank of Bahrain.

The Money Exchange, according to the judge's summary of Al Gosaibi's claims, allegedly "came to operate effectively as an investment bank and through which Mr al Sanea was able to borrow and then misappropriate amounts in the order of magnitude of $9.2bn". Of that amount, it is alleged, $5.2bn was used to fund Saad Group divisions incorporated in Cayman. The alleged Ponzi scheme operated "without the knowledge or authority of the Al Gosaibi partners", the lawsuit claims. It is further alleged that the scheme needed "more and more loans to repay existing loans until the scheme collapsed under the sheer burden of having to service the debt of $9.2bn".