The embattled Abraaj Group, undergoing provisional liquidation in Cayman courts, has been issued hundreds of millions of dollars in fines by the Dubai Financial Services Authority.
Abraaj Investment Management Limited (AIML) faces fines of US$299.3 million, while Abraaj Capital Limited (ACLD) faces fines of $15.3 million, discounted from an initial fine of $21.8 million.
Of AIML’s nearly $300 million fine, $115.4 million stems from “unauthorised activity” related to its management fees from April 2007 to January 2018, according to a Dubai Financial Services Authority (DFSA) decision notice posted by OffshoreAlert.
The remaining $183.9 million relates to “misleading and deceptive conduct” carried out since 21 Aug. 2014, the DFSA notice stated.
ACLD’s fine stems from failure to maintain adequate capital resources and providing false reports on such resources, according to the DFSA.
The Abraaj Group, once the Middle East’s largest private equity firm with estimated assets of US$14 billion, had registered an office at Ugland House in George Town. No business was conducted from the Cayman Islands address, however.
“The registered office addresses of both AH [Abraaj Holdings] and AIML were in the Cayman Islands. These were mere paper offices; neither firm had physical premises or staff in the Cayman Islands,” the DFSA notice said.
Instead, the Abraaj entities operated from Dubai, where they were not licensed to carry out investment fund or asset management activities. Abraaj continued such activity in the Dubai International Financial Centre until the appointment of joint provisional liquidators on 18 June 2018.
AIML has never operated as an authorised firm in Dubai, according to the DFSA.
To meet cash shortfalls in Abraaj funds, the Dubai authority said AIML provided misleading financial information to investors and made untrue statements about the reasons for delays in investments and distributions.
“In order to ensure that the Abraaj Funds met their fund size targets, AH took large stakes in its own Funds. In addition to these commitments, the Abraaj Group would often cover for defaulting investors, while planning to find new investors to replace the defaulting investors’ share in the Fund. AH did not always have the monies to make good those required contributions to drawdown requests,” DFSA stated.
The Abraaj Group amassed a debt of around US$1 billion. Despite this, the Dubai regulator said, “Abraaj Group continued to spend lavishly on promoting new funds.”
Limited partners were deceived to believe that their cash remained within the agreed funds, rather than the reality that such cash had been transferred to meet shortfalls and fill in holes for other funds, the DFSA said.
Abraaj did this by temporarily depositing money in funds for year-end audits, using funds that were not part of the group for accounting consolidation purposes and refusing bank statements to limited partners, among other measures.
“In addition to concealing from investors and misleading them about the fact that monies from the Funds had not been used for the purposes for which they were intended, AIML used Fund assets as collateral for Abraaj Group borrowing,” DFSA said.
Meanwhile, Abraaj Capital Limited knowingly provided false information to auditors related to AIML and Abraaj Holdings, the Dubai authority stated.
While Abraaj Capital Limited had been licensed to carry out certain financial activities in Dubai, it was not authorised to manage collective investment funds in the jurisdiction.
Investigation into the Abraaj Group began after the Dubai authority received an anonymous complaint in January 2018 that the entity “was misusing investor funds to finance working capital and balance sheet leverage/commitments”.
In June 2018, AIML and Abraaj Holdings voluntarily declared bankruptcy and the Grand Court of the Cayman Islands ordered appointment of joint provisional liquidators.
Abraaj Capital Limited was placed in provisional liquidation by Dubai courts on 15 Aug. 2018.
At a Grand Court hearing in February, attorneys for the provisional liquidators said they were close to completing the sale of investment-management rights.
In April, Abraaj founder Arif Naqvi and managing partner Mustafa Abdel-Wadood were arrested by US authorities and charged with securities fraud, wire fraud and conspiracy.
An indictment states victims included US investors, retirement and pension funds, the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corporation.
AIML is also being sued in the Cayman Islands by Mark Skelton of London-based Duff & Phelps.
The suit, filed with the Grand Court in June, seeks to gain access to corporate records. It is not clear if the requested documents were produced within the 14 days established by the summons.