Dubai’s financial regulator has upheld a $135.6m fine against former Abraaj Group founder and CEO Arif Naqvi for his “serious failings” in respect of the collapsed investment house.
Naqvi disputed the findings when the fine was levied in January last year, leading himself and the Dubai Financial Services Authority to present cases to the country’s Financial Market Tribunal.
Naqvi founded the Abraaj Group in 2002, and saw the firm rise to manage about $14bn of assets focused on the emerging markets.
The firm collapsed in 2018 facing claims its Growth Markets Health Fund had been mismanaged by failing to invest the capital in the construction of hospitals and clinics – claims the firm denied.
The DFSA’s decision notice said Naqvi was knowingly involved in misleading investors, including drafting false and misleading statements to investors to cover up the misuse of their funds.
DFSA’s ruling also bans Naqvi from the Dubai International Financial Centre.
The financial regulator said Naqvi personally contributed to the liquidity problems at the Abraaj Group by taking interest free personal loans from it at a time when he knew that the firm was incurring significant interest costs on borrowings in order to meet its major liquidity problems
It said Naqvi had instructed the use of investor monies to fund the Abraaj Group’s working capital or other commitments and prioritised the distribution of Abraaj fund sale proceeds and update reports to “noise makers and those who will come back, with the latest being legacy investors and passive voices”.
It added that he was central to the cover-up of a roughly $400m shortfall across two Abraaj funds by temporarily borrowing monies for the purpose of producing bank balance confirmations and financial statements to mislead auditors and investors, and approved and personally drafted false and misleading statements to investors to cover up the misuse of their funds.
According to DFSA Naqvi also approved the change of an Abraaj fund’s financial year end to avoid disclosing a roughly $201m shortfall, and agreed that the justification of aligning the Abraaj fund year end with the other Abraaj funds would be “selleable [sic] and compelling” to the fund’s LPs.
He also personally arranged to borrow $350m from an individual in an attempt to make the Abraaj Group appear solvent and appease the demands of investors, DFSA said.
A statement from the Dubai Financial Market Tribunal said the $135m penalty was “unusually high but the remuneration that Mr Naqvi received was high amidst conduct that was exceptionally serious and the cause of what appears to have been unprecedented harm to the entire community of the DIFC.”
Ian Johnston, chief executive of the DFSA, said, “Mr Naqvi was the face of the largest private equity firm in the region and the face of impact investing.
“He was in a position of trust and influence and investors relied on him to ensure that the Abraaj Group’s affairs were managed effectively and responsibly.
“While Mr Naqvi preached about transparency and responsibility, he did not apply those principles in practice.
“The DFSA’s action against him, which was upheld by the FMT, is important in recognising the nature, scale and seriousness of Mr Naqvi’s misconduct which ultimately led to the collapse of the Abraaj Group.”
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