The Dubai Financial Services Authority (DFSA) is investigating allegations of mismanagement at embattled Dubai-based private equity firm Abraaj, which is on the verge of financial collapse after a scandal over its use of investor money, two sources said on Wednesday.
The DFSA has interviewed the firm's founder, Arif Naqvi, and other senior executives in the past few months as part of the probe, the sources told Reuters.
The regulator declined to comment. Abraaj said in a statement seen by The National that discussions between it and the regulator were "ongoing".
"The DFSA is kept apprised of developments in the overall Abraaj Group and has our full co-operation on all relevant matters," the statement said.
"While we do not comment on confidential discussions with our regulators, we are highly focused on strengthening our corporate governance and internal controls ... as we seek to secure a beneficial outcome for our creditors, investors and stakeholders."
The firm said it was too early to speculate on what the regulator might do.
"We believe these are decisions best communicated by the regulator in the fullness of time."
A third source told Reuters Abraaj co-chief executives Omar Lodhi and Selcuk Yorgancioglu were among those questioned by the regulator.
There was no immediate comment from Mr Naqvi or his legal representative. There was also no immediate comment from Lodhi. Mr Yorgancioglu referred a request for comment to Abraaj.
The investigation heaps more pressure on Abraaj ,which is trying to sell its investment management business to Colony Capital following a dispute with some of its investors over the use of money in a $1 billion healthcare fund.
This erupted late last year, when investors including the Bill & Melinda Gates Foundation and the International Finance Corp made allegations that Abraaj mishandled their money in the healthcare fund. Abraaj has denied misusing the funds.
The allegations triggered a solvency crisis at the fund, once the biggest buyout fund in Middle East and North Africa.
Meanwhile, a Sharjah court on Monday adjourned until July 5 a judgment against Mr Naqvi in a criminal case for issuing a cheque without sufficient funds.
The prosecution asked the court for Mr Naqvi to receive the maximum sentence possible in this case of three years in jail.
The case relates to a Dh177.1 million cheque jointly signed by Mr Naqvi and Abraaj executive Rafique Lakhani, and issued to Hamid Jafar, another founding shareholder in Abraaj.
After halting fundraising activities and shaking up management, Abraaj last month filed for provisional liquidation in the Cayman Islands as it seeks an agreement with creditors and is selling parts of its businesses.
Summary findings of a review by Deloitte, appointed by Abraaj to audit its operations, said that a cash shortage at the firm led it to dip into investor funds.
Deloitte said on June 4 there was no evidence of embezzlement or misappropriation, but highlighted a lack of "adequate governance" and "overall weakness" at Abraaj.
DFSA has the power to fine or ban individuals from working in financial services within the Dubai International Financial Centre (DIFC) and has in the past imposed penalties for rule breaches. For companies, that can lead to a fine or even a suspension from operating in the centre.
Abraaj has a regulated entity, Abraaj Capital, in the DIFC.
"It is easy to fault regulators and auditors in retrospect," said Richard Segal, senior analyst at Manulife Asset Management, adding that it was not easy to detect mismanagement.
“One might also argue that the investor oversight that brought these issues into the open might prove to be timely."