Abraaj Group has been fined $315 million across two business units for deceiving investors and the regulator by the Dubai Financial Services Authority (DFSA).
The regulator, which oversees the Dubai International Financial Centre (DIFC) has imposed the larger penalty of $299.3 million on Abraaj Investment Management Limited (AIML) for wrongdoing.
This includes carrying out unauthorised activities in the DIFC and misusing investors’ funds.
Abraaj Capital, the only Dubai-based entity of Abraaj owned by AIML, has been hit with about $15.3 million.
AIML was created to manage the Abraaj funds in 2018, following the firm’s restructuring. The restructuring was brought on by allegations of misuse of LP capital linked to Abraaj Growth Markets Health Fund (AGHF), closed at $1 billion in 2016.
Abraaj split its business into two separate entities – a fund management businesses, and a holding company.
This included wider firm restructuring which also saw Naqvi moved from being chief executive officer of the funds management business to being head of Abraaj Holdings.
The DFSA investigation, which commenced at the start of 2018, has found that AIML carried out unauthorised financial services, including fund management, within and from the DIFC.
AIML actively misled and deceived investors in Abraaj funds over an extended period, according to DFSA. The firm misused investors’ monies to meet its own operating expenses, which included payments to entities connected to some members of AIML staff, and to meet ever-increasing cash shortfalls.
The firm concealed this by providing misleading financial information to investors and making false statements about the use of money drawn down from investors and distributions, DFSA added.
According to the DFSA investigation, methods used by AIML to deceive investors include borrowing money just prior to financial reporting dates to produce temporary bank balances. AIML also changed the reporting period for a fund to disguise shortfalls.
Other methods include deflecting demands from various parties to provide updated financial information and bank statements and lying about delays in making distributions of exit proceeds to investors.
As a result of these activities, at the time AIML entered into liquidation, two funds managed by AIML had a combined shortfall of at least $180 million, according to DFSA.
With regard to Abraaj Capital, the DFSA investigation found that the firm failed to maintain adequate capital resources. The firm also deceived the DFSA about its compliance with various rules, including capital adequacy requirements and was knowingly concerned in AIML’s unauthorised financial services activities.
Internal correspondence showed that Abraaj group’s compliance function raised concerns about the firm carrying on unauthorised financial services within the DIFC, as early as 2009, DFSA added. However, Abraaj Capital’s senior management ignored this.
This comes just after Abraaj’s ex-managing partner Mustafa Abdel-Wadood pleaded guilty to charges of conspiracy in a US court earlier in 2019, according to a Bloomberg report.
Mustafa Abdel-Wadood admitted to lying to investors across the globe in an attempt to hide losses at Abraaj and raise more money, according to Bloomberg.
He is reportedly on house-arrest with a $10 million bond, according to Bloomberg.
Others facing charges include former Abraaj Holdings chief executive officer, Arif Naqvi who was recently granted bail in in the UK, as he awaits possible extradition to the US.
In the US, the Securities and Exchange Commission (SEC) charged Naqvi and AIML, with misappropriating funds from US investors.
The SEC alleges that Naqvi and AIML misused LP capital linked to the AGHF vehicle.
According to SEC, Naqvi misappropriated over $230 million between September 2016 and June 2018. He also stands accused of commingling the assets with corporate funds of AIML and its parent company, Abraaj Holdings.
SEC charges Naqvi and AIML with violating the antifraud provisions of Sections 206(1), 206(2) and 204 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
The regulator is seeking permanent injunctions, disgorgement plus interest, and penalties.