With a record penalty for the Persian Gulf of $315m and the largest collapse the DFSA have ever dealt with, Abraaj Group have been found guilty of deceiving investors and carrying out unauthorised activities.
Abraaj Group were the largest private equity firm in the Middle-East with $14b in assets prior to their collapse. Investors included The Bill & Melinda Gates foundation, Bank of America Corp, The U.S Governments Overseas Private Investment Corp and UK Government agencies.
Abraaj were found to be misusing investors funds to pay expenses and send money to some of its executives. Additionally, they provided misleading financial information to hide this activity.
With such large-scale investors, you do wonder how they were able to get away with this. Investigations found that Abraaj;
Abraaj had a complex structure with hundreds of companies and funds incorporated in jurisdictions around the world making the company very hard to regulate.
Ironically Mr. Naqvi the former CEO, sent documents to other Abraaj executives claiming; “Our choice was to operate in a regulated environment” and “Abraaj has adopted a holistic framework that embraces corporate governance, regulation and compliance.”
Abraaj had “offices” in the Cayman Islands very much like a lot of major organisations. The DFSA said that this unit wasn’t authorised to operate in Dubai.
The Abraaj Investment Management Ltd company based in the Cayman Islands was slapped with a $299.3m fine.
Further research unsurprisingly found that these offices were mere paper offices and no physical offices or staff were in the Cayman Islands.
This fund was used as a cloak to transfer money to other funds. Example; In 2015 when stakes were sold in Payment Company Network International for $330m, instead of proceeds being sent to investors, Abraaj transferred the money to the Abraaj Investment Management bank account. From there they transferred the money to a company owned by an unnamed Senior Abraaj Executive.
In short, the firm is now insolvent, and its creditors and investors are negotiating how to repay its debts.
But its never as simple as that;
Once lenders stopped contributing, all was revealed and Abraaj collapsed. For a lengthy period, main revenues could not cover operating costs. Abraaj borrowed to plug the holes and now owes Creditors over $1b.
Right up to the last Naqvi insisted everything was okay. Weeks before the collapse he was in Davos sitting on a panel with Bill Gates where he tried to convince multiple members of the Gulf business elite to provide Abraaj tens of millions of dollars in short term loans.
Abraaj’s failings have destroyed investor confidence in private equity companies from emerging markets.
Since Abraaj’s unravelling, private equity firms in the six Arab nations of the Gulf Cooperation Council have raised almost no money.
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