Dubai Court orders KPMG to pay investors $231m over Abraaj fund audit

KPMG Lower Gulf says it has appealed against the decision to a higher court

KPMG says it has 'strong grounds to contest this decision'. Reuters

A Dubai court has ordered KPMG Lower Gulf to pay more than $231 million to a group of investors who claim to have lost money because of the poor quality of an audit by the firm on a fund they invested in, the Financial Times reported.

The judgment, which was issued last month, found that KPMG had broken international auditing regulations by approving financial records of an infrastructure fund that was managed by the failed private equity company Abraaj Group, the FT reported on Saturday, citing a court ruling.

“The court has concluded from the papers, documents and the report of the appointed expert committee that it is confident that the auditing company had committed many violations when it audited the financial statements of the investment fund,” it quoted the ruling as saying.

Last year, the Dubai Financial Services Authority fined KPMG LLP $1.5 million and former audit principal Milind Navalkar $500,000 for failing to follow international standards during audits of Abraaj Capital Limited (ACLD), an Abraaj Group entity, for a number of years up to October 2017.

In a statement to The National, KPMG Lower Gulf said it has appealed against the judgment to the Court of Cassation, the highest body in Dubai’s judicial system.

“We believe we have strong grounds to contest this decision … we remain dedicated to our clients and continue to serve our communities here in the Lower Gulf,” the company said.

The DFSA has found that “senior management of Abraaj intentionally sought to mislead or deceive KPMG, the regulator, and investors over a period of years”, KPMG said.

“The DFSA has previously imposed significant fines on Abraaj entities and the senior management of Abraaj in their individual capacities.”

The DFSA did not immediately respond to The National’s request for comment.

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 company 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 $1 billion healthcare fund.

The investigation intensified 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.

In its decision issued in 2021, the DFSA said KPMG considered the Abraaj Group to be one of its most valued clients, classifying it as a “global priority” client and referring to it as “one of our crown jewel clients” when discussing it with other KPMG member firms.

The DFSA has maintained that had KPMG performed its audit of ACLD to the expected standard, it probably would have identified that for more than five years, ACLD’s financial statements did not conform to accounting rules, and that the unit had failed to maintain adequate capital resources and was concealing the true state of its finances from the audit firm.