The longest and most expensive trial in Cayman Islands history concluded Thursday, as Chief Justice Anthony Smellie handed down an extensive judgment unraveling what he described as a “cauldron of fraud.”
It has taken almost two years and estimated costs of more than $100 million to resolve the complex feud involving one of Saudi Arabia’s biggest business empires. Chief Justice Smellie’s judgment on the case ran to a staggering 1,348 pages – longer than “War and Peace.”
He dismissed the claims of Saudi family conglomerate the Ahmad Hamad Algosaibi and Brothers, known as AHAB, that its collapse in 2009 was the consequence of a spectacular $6 billion fraud perpetrated from within.
AHAB claimed that Maan Al Sanea, who had married into the family and managed its financial businesses, had racked up billions of dollars of unauthorized debt, transferring some of the proceeds to his companies in the Cayman Islands.
The lawsuit was brought by the AHAB partners against multiple defendants, including the liquidators of Mr. Al Sanea’s Cayman Islands companies, in an effort to recoup that money.
Chief Justice Smellie ruled that Mr. Al Sanea, as director of the Money Exchange, a subsidiary of AHAB’s larger business, had indeed presented falsified accounts to banks in order to borrow large sums of money to keep the business afloat and to enrich himself personally.
However, the chief justice concluded that Mr. Al Sanea had done so with the authorization of the partners of AHAB, who were not only fully aware of his conduct but were the “primary architects” of the fraudulent practices.
“The AHAB partners knew of and authorized the fraudulent borrowing through the Money Exchange and financial businesses,” Chief Justice Smellie wrote in a summary of his judgment read out in Grand Court Thursday.
He characterized Mr. Al Sanea’s behavior as part of a pattern of fraudulent practices established by AHAB over several decades.
“There can be no doubt as to the gravity of the fraud perpetrated by AHAB,” he wrote.
“This was a fraud carried out, with increasing sophistication, from as early as 1981. The total sums borrowed pursuant to AHAB’s fraud numbered in the hundreds of billions of dollars. In short, this was an enormous, long-standing Ponzi scheme which defrauded more than a hundred banks.”
Lawyers for AHAB had claimed that Mr. Al Sanea was put in charge of one of the conglomerate’s financial services firms – the Money Exchange – and had used the company as a “machine to borrow money” for his own ends.
They claimed the family company partners were not aware of the fraud, which went on for nearly a decade, until the Money Exchange and other businesses operated by Mr. Al Sanea collapsed in 2009, causing AHAB to default on approximately $9 billion dollars of debt.
The chief justice accepted that Mr. Al Sanea had borrowed huge sums of money that had ultimately been redirected to his own business empire.
But, he said, this was done with the full knowledge of the AHAB partners. A meticulous record was kept by the Money Exchange of Mr. Al Sanea’s withdrawals which AHAB regarded as loans and expected to be repaid.
He wrote, “The AHAB partners were willing to allow the massive personal borrowing of Al Sanea from the Money Exchange to go unchecked because it was quid pro quo for his willingness also to use the Money Exchange to procure fraudulent borrowing for the AHAB partners themselves.”
He added that the Money Exchange had been a “criminal enterprise” from its inception to its collapse and that AHAB had received “enormous benefits” from its illegal borrowing. The total flow of cash through the Money Exchange was approximately US$330 billion, the judgment indicates.
Chief Justice Smellie said AHAB and Mr. Al Sanea were partners in the fraud.
“The inevitable conclusion is that there was no fraud perpetrated on AHAB,” he said. “The fraud was perpetrated by AHAB and Al Sanea acting in concert against the banks to obtain borrowing which would certainly not have been provided had the banks known the true position of the Money Exchange.”
Even if he had found that AHAB had been defrauded by Mr. Al Sanea, the chief justice said he would have been obliged to throw out the case because of the court’s policy that it will not enforce an illegal arrangement.
He also dismissed a counterclaim for $4.9 billion made by the liquidators of Mr. Al Sanea’s companies because they were based on accounting records he described as “unsafe and unreliable against the background and out of the cauldron of fraud that characterized the operation of the Money Exchange and the Financial Businesses.”
The trial itself, which began in July 2016 and lasted more than a year, involved more than 40 lawyers from at least seven firms and has been hailed as an example of the Cayman Islands’ ability to host even the most complex and serious cases. The final costs of the case have not been revealed, but the defendants’ costs alone are estimated to be at least US$82 million, based on the amounts being held in security by the courts.
Shelly White and Colette Wilkins, partners with Walkers Global, which represented nine of the 16 defendants, said in a statement that the case puts “beyond doubt the ability of the Grand Court of the Cayman Islands, its judiciary and lawyers in the jurisdiction to deal with the most complex and high-value cross-border litigation.”
In a press release immediately following the judgment, Simon Charlton, chief restructuring officer of AHAB, said it was considering an appeal.
“Obviously, the judgment is a very substantial document and, together with our lawyers, we are considering our next steps,” Mr. Charlton said.
There is an automatic right of appeal in Cayman. However, any appeal is unlikely to be heard until 2019.
Mr. Charlton added, “Unfortunately, the effect of the judgment is that none of the assets in Cayman can be paid to AHAB’s creditors.”