After building Damas International into a jewellery retail powerhouse, the Abdullah brothers yesterday lost control of the company their grandfather founded more than 100 years ago. The actions that led to the Dubai Financial Services Authority banning Tawfique, Tawhid and Tamjid Abdullah from running their own retail company ranged from small purchases, such as using Damas funds to pay for petrol, to spending company cash on major property investments including a shopping mall in Turkey.
And there were many transactions: about 2,200 debits from company accounts from the time Damas was publicly listed in July 2008 until October 27 last year, according to documents produced by the DFSA. "It was the Abdullah Brothers' practice to use the bank account(s) of Damas LLC as a cash reserve for which drawings were made for their personal use, and for the use of the Abdullah brothers' companies," read the DFSA documents, which were released yesterday.
The transactions included a loan to Dubai Investment Group and two other parties to buy Damas shares and ensure the success of the retailer's initial public offering (IPO). Other deals included the company's purchase of land in Sharjah, in which the brothers did not fully disclose their own stake. There was no limit to the amount the brothers could withdraw and it was no secret, the DFSA said. The practice was known to the Damas finance department, its internal and external auditor and the board of directors, it said.
It was not limited to cash, as Tawhid had withdrawn more than 1,940kg of gold to repay a debt. Taking funds from the company coffers was common practice when it was run as a family business, the DFSA said, but after the company went public in July 2008, the brothers had a legal obligation to change this behaviour. They did not. On October 8, when Tawhid Abdullah disclosed that he had withdrawn about Dh600 million (US$163.3m) in 18 months for personal business, he stepped down from his post as chief executive.
The brothers later entered into a formal agreement with Damas International to pay back the amount of the deals. But based on its investigation, the DFSA decided more punitive action needed to be taken. Tawfique, the chairman of Damas and the eldest of the three brothers, has been banned from acting as a director or officer at Damas, or any other company in the Dubai International Financial Centre for 10 years.
Tawhid and Tamjid, the deputy managing director, have been banned from any management role at Damas or any other DIFC company, for five years. The three brothers have been fined a total of Dh11,010,000 for violating DFSA regulations, and must pay Dh1,101,000 within 180 days. The remaining amount has been suspended provided they co-operate with the rest of DFSA's recommendations, which also includes the resignation of the entire board of directors.
"You should not use money from the company for personal use, unless you fully disclose and have agreements from the shareholders that you can," said Paul Koster, the chief executive of the DFSA. "That obviously was not done properly." Mr Koster said that although the DFSA did not have criminal jurisdiction, the authority had referred its findings to the Dubai Public Prosecution and Dubai Police. Damas would not answer questions about the DFSA actions, but said it was working closely with the authority.
"The company undertakes to apply the learnings from these historical incidents, and wishes to assure its shareholders and employees that the company is currently focused on ensuring its long-term stability and growth, based on a sound, strategic business plan," it said in a statement to NASDAQ Dubai. Among the most contentious transactions was a series of deals with Dubai Ventures. On July 1 2008, Tawhid learnt that Damas's IPO would not be fully subscribed. He contacted investors at Dubai Investment Group, the DFSA said.
A day later, an order for a total of 100,000,000 shares in the Damas IPO was placed by Dubai Investment Group, Dubai Ventures, a unit of Dubai Holding, and Dubai Financial, each paying about a third of the total of about $100m. Without these orders, Damas would not have been able to list on NASDAQ Dubai, the DFSA said. Later that month, about $80m of Damas funds was transferred to Dubai Investment Group through Tawhid's personal accounts. By August 18 2008, Tawhid Abdullah agreed to personally lend $100m to Dubai Ventures.
The original $80m in funds was included in this loan and the money was to be paid back by August last year. But on August 18 last year, Damas signed an agreement to convert the loan into an investment in the fund. Damas later learnt that the investment was worth just Dh73.5m, and consisted only of Damas shares. This non-performing loan weighed heavily on Damas's books and later forced the company to seek a debt standstill and restructure the firm to stay in business.
Another problematic deal was the purchase of land in Sharjah. On March 25 last year, Tawhid suggested to the board of directors it should buy land in the emirate for between Dh70m and Dh90m. The directors were told buying the land and building would enable Damas to create a residential property, and investment opportunity, for some of its key employees. But Tawhid did not inform the board that the land was owned by Damas Real Estate, and that company funds had already been used to develop the site.
The brothers are restricted from having a managerial or executive role in the company but may serve as advisers, Mr Koster said. "I think the company now can move on to its business model, where they have been successful," he said. "I think it's a good company. I'm not saying this as a regulator but in general it is a company that has a very strong position in its business segment. So I hope with this now behind them, they can move on to the next phase and forget this unfortunate episode."