The Financial Markets Tribunal upheld the DFSA’s actions against Abraaj’s founder, Mr Arif Naqvi, including a USD 135 million fine
As publicised in the Dubai Financial Services Authority’s (DFSA) media release on 27 January 2022, the DFSA on the same day published its Decision Notice against Mr Arif Naqvi, Abraaj’s founder and former CEO, for his serious failings in respect of the Abraaj Group. Mr Naqvi was fined USD 135,566,183 (AED 497,866,807) and also prohibited and restricted from performing any function in or from the Dubai International Financial Centre (DIFC). Mr Naqvi referred the DFSA’s findings in its Decision Notice for review by the Financial Markets Tribunal (FMT), an independent appeal tribunal.
On 12 December 2022, the FMT issued its decision which upheld the DFSA’s findings and rejected Mr Naqvi’s FMT reference. Therefore, the DFSA’s findings, as set out in its Decision Notice dated August 2021, are final.
In July 2019, the DFSA imposed a fine of USD 299,300,000 on Abraaj Investment Management Limited (AIML), a Cayman Islands-registered firm not authorised by the DFSA. The fine imposed on AIML was based on its misconduct of misleading or deceiving investors and carrying on unauthorised Financial Service activities in or from the DIFC.
In the Decision Notice against Mr Naqvi, the DFSA found that Mr Naqvi was knowingly involved in misleading and deceiving investors over the misuse of their funds by AIML as he personally proposed, orchestrated, authorised, and executed actions that directly or indirectly misled or deceived the investors. In particular, Mr Naqvi:
• instructed the use of investor monies to fund the Abraaj Group’s working capital or other commitments;
• 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”;
• was central to the cover-up of an approximately USD 400 million 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;
• approved and personally drafted false and misleading statements to investors to cover up the misuse of their funds;
• approved the change of an Abraaj fund’s financial year end to avoid disclosing an approximately USD 201 million 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 limited partners of the fund; and
• personally arranged to borrow USD 350 million from an individual in an attempt to make the Abraaj Group appear solvent and appease the demands of investors.
Further, Mr 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 Abraaj Group was incurring significant interest costs on borrowings in order to meet its major liquidity problems; his personal loans included monies taken from the Abraaj funds at a time when the funds did not have sufficient cash to make critical payments. On one occasion Mr Naqvi acknowledged that he was aware that a USD 1 million transfer to one of his personal companies for investment in shares needed to be made from an Abraaj fund. On another occasion, Mr Naqvi approved a USD 7.5 million transfer of an Abraaj fund’s sale proceeds, to a company wholly owned by him, in order to fund his personal expenses.
Mr Naqvi was also knowingly and directly involved in AIML carrying out unauthorised Financial Service activities in or from the DIFC over a prolonged period of almost 11 years, through, among other things, his role as the head of the Abraaj Group’s Global Investment Committee and his actions in managing the Abraaj funds.
Overall, and as set out in the FMT’s decision, Mr Naqvi “was centrally involved in a sustained course of unauthorised Financial Service activities and misleading and deceptive conduct by AIML”.
The FMT also considered that the USD 135 million “penalty is 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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