The latest bad news for the former emerging markets investor came Tuesday when the Dubai Financial Services Authority fined Abraaj about $315 million for misleading investors, misusing funds to pay off executives and expenses, and carrying out other unauthorized financial activities. The penalty marked the largest fine in the regulatory body's history.
The allegations come after the DFSA wrapped up a roughly 18-month investigation into the former Dubai-based investor. The firm filed for provisional liquidation in the Cayman Islands in June 2018, after LPs including the Bill and Melinda Gates Foundation and Bank of America complained of fund mismanagement.
US prosecutors have since indicted six former Abraaj executives on fraud and racketeering charges, including founder Arif Naqvi, who is out on £15 million (about $18.2 million) bail in the UK while awaiting possible extradition to the US. Fellow Abraaj executive Mustafa Abdel-Wadood, who led the firm's private equity arm, has pleaded guilty.
The DFSA findings reveal more about the improprieties, including specifics about how Abraaj allegedly deceived investors through Cayman Islands-registered affiliate Abraaj Investment Management Limited (AIML) and Dubai-based Abraaj Capital Limited (ACLD).
With AIML, the alleged tricks included borrowing money prior to financial reporting deadlines to inflate bank balances, shifting the reporting period for funds to hide shortfalls, deflecting demands for updated fund information and lying about delays in making distributions of exits proceeds for investors. All of that financial maneuvering was apparently necessary to pull off the alleged fraud. The fund had a combined shortfall of at least $180 million when it entered provisional liquidation, regulators claim.
With ACLD, Abraaj allegedly failed to maintain adequate capital resources, deceived the DFSA about its compliance with regulations and knew about its affiliate's unauthorized financial dealings. In addition, internal correspondence revealed by the DFSA showed that Abraaj management knew about its unauthorized financial dealings as far back as 2009 but failed to address it.
In total, ACLD allegedly violated regulatory law by failing to meet minimum standards for fair dealing, failed to ensure its affairs were managed effectively and wasn't transparent or cooperative with the DFSA.
"The size of these fines reflects the seriousness with which the DFSA views AIML's and ACLD’s contraventions," DFSA chief executive Bryan Stirewalt said in a press release. "Senior management rode roughshod over their compliance function and the misconduct and deceit were pervasive and persistent. We will pursue the persons or entities who perpetrated this activity, including those who allowed this to happen through major corporate governance breaches, to the full extent of our powers."
The DFSA will continue to investigate those involved with the alleged offenses, though it's unclear how the firm, which once managed about $14 billion, would actually pay the fine. Abraaj is still under provisional liquidation in the Cayman Islands, with PwC trying to sell off its individual funds and businesses piece by piece.
Earlier this month, UK-based emerging markets investor Actis bought two Abraaj private equity funds totaling almost $2.6 billion. In May, TPG Capital assumed control of the $1 billion healthcare fund that originally drew the attention of LPs to the firm's allegedly nefarious dealings. And Thomas Barrack's Colony Capital has agreed to purchase the firm's Latin American operations.
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