The Dubai Financial Services Authority (DFSA) ordered jeweller Damas International to dismiss its board and pay penalties after an enquiry found irregularities involving cash and gold, in a move aimed at boosting transparency.
The DFSA yesterday said an investigation revealed that the company's board did not exercise appropriate governance after key executives drew down reserves without approval.
The Abdullah brothers – Tawhid, Tamjid and Tawfique – now forced to resign as directors of the Damas Group, repeatedly violated DFSA laws by withdrawing Damas funds for their personal use on many occasions, without disclosing them or seeking approval of the board, the DFSA said.
All this was done by Tawhid Abdullah, who earlier resigned as the managing director and who used to take most of the decisions for the company.
The two other brothers – Tamjid, who heads the diamond division and retail network, and Tawfique, strategic head – knew about the happenings, but failed to disclose any of them to the board, according to the DFSA. It said the practice existed from the time Damas was a family business up to the initial public offering and listing of Damas International Limited on July 8, 2008. The practice was known to the company's finance department as well as internal and external auditors, said the authority.
In the latest turn of events, the brothers have been asked to resign as directors of Damas and its subsidiaries before April 19, and asked to pay back Dh365 million and 1,940 kg gold, which would be worth around $71m at market prices. The repayment is to be made over a timeframe set by Damas. Also, the brothers must pay Dh11m as financial penalty and Dh158,000 as investigation cost, as per agreements set out in an Enforceable Undertaking signed by the three brothers.
According to the DFSA findings, the accounting practice adopted by the Damas finance department was that the withdrawals made by the brothers would be debited to ledger accounts maintained for the brothers and the Abdullah brothers' companies. About 25 such ledger accounts were maintained under various names. Despite this, the finance department was spared from an order to resign.
Stephen Glynn, Director and Head of Enforcement, DFSA, told Emirates Business: "The DFSA has no jurisdiction over those employees. It only has jurisdiction over DIL, the company listed on Nasdaq Dubai, and over the board of directors."
Certain conducts by the brothers that constitute a violation of DFSA rules are:
- Withdrawing $80m (Dh293.8m) to fund the purchase of shares in Damas IPO. Tawhid used the money to purchase shares in the Damas IPO by Dubai Investment Group, thereby allowing the minimum float requirement of the DIFX to be met and consequently the listing of Damas on the DIFX (Nasdaq Dubai).
- A proposal to the board to buy a Sharjah property worth Dh85m without notifying it that the funds used to develop the property belonged to Damas Group. (With inputs from agencies)
Future course of action
As for the future of Damas International Limited (DIL) on Nasdaq Dubai, the company can seek a voluntary delisting or the exchange itself could delist the company, Stephen Glynn, Director and Head of Enforcement, DFSA, said.
"With the Enforceable Undertaking in place, there will be good corporate governance with a new board. Hopefully, the company will be well managed in future and will be in very good commercial operations," he said.
Nasdaq Dubai has suspended DIL from trading following a request from the company. The suspension was effective from yesterday, according to a statement from the exchange. "The securities will remain suspended, pending the release of an announcement and request for reinstatement by the company," Nasdaq Dubai said.
Damas shares were last traded on Thursday at $0.170. Listed on Nasdaq Dubai in July 2008, Damas shares on the bourse were in continuous downward movement from September 2008. The stock recorded its trading high of $1.06 on July 10, 2008, and low of $0.15 on December 17, 2009. As on March 18, the foreign stake stood at 41.73 per cent as against the permitted level of 49 per cent. Recently, the Damas board appointed some new members. Sanjay Kalsi was appointed as interim acting CEO from his previous position as Chief Financial Officer. Dinish Dhanak was appointed as interim acting Chief Financial Officer from his previous position as deputy CFO. (With reporting from Sreenivasa Rao Dasari)
Damas International Limited (DIL) issued a statement yesterday that the company has entered into an Enforceable Undertaking dated March 21, under the Dubai Financial Services Authority. The company stated that it intends to fully comply with the terms of the undertaking.
In line with the undertaking, the company said it has received the resignations of the members of the board of directors, which will become effective following the company's Extraordinary General Meeting, which will be called for shortly.