Arif Naqvi, the founder and ex-chief executive officer of Abraaj group.
Arif Naqvi, the founder and ex-chief executive officer of Abraaj group remains under house arrest in London Image Credit: Supplied

Dubai: KPMG LLP was sued for at least $600 million over its role in the insolvency of Dubai private-equity firm Abraaj Group, the latest in a string of complaints of sloppy auditing made against the Big Four firm.

The claimants, two units of Abraaj now in liquidation, allege that KPMG accountants “failed to maintain independence and an appropriate attitude of professional skepticism,” and breached their duty of care when auditing the private-equity firm, according to court documents filed in Dubai on November 3.

If KPMG and its local Lower Gulf subsidiary had complied with their duties then “irregularities” relating to the firm’s financial statements would’ve been identified sooner, the claimants said.

The allegations are the latest to hit one of the Big Four accountancy firms over poor auditing work. In July, the Malaysian government, 1MDB and their units filed a lawsuit seeking more than $5.6 billion from 44 KPMG Malaysia partners for their role in auditing the state investment fund.

Audit troubles

Other Big Four firms have also been embroiled in scandal. Ernst & Young faces accusations it “actively concealed” a six-year fraud from investors over its auditing for hospital operator NMC Health.

A representative for KPMG Lower Gulf didn’t have any immediate comment.

Abraaj, which managed some $14 billion at its peak, collapsed into insolvency in 2018 after being accused of misusing investor funds. The firm’s founder and chief executive officer Arif Naqvi is alleged to have stolen more than $250 million by US prosecutors. He denies any wrongdoing.

Naqvi, the firm’s founder and CEO, remains under house arrest in London and faces a maximum sentence of up to 291 years in jail if is extradited to the US and convicted . At least one other former employee has pleaded guilty to conspiracy charges.

During the period KPMG audited the Abraaj funds, the firm is alleged by US prosecutors and regulators to have committed multiple acts of racketeering and securities-fraud, leading to the world’s largest-ever private-equity insolvency.

KPMG was Abraaj’s auditor for six years, while Abraaj’s chief financial officer Ashish Dave worked as a partner at KPMG between his two stints as CFO. He was recently hit with a $1.7 million fine by the Dubai Financial Services Authority for his involvement in the scandal.

Abraaj, which was founded in 2002, was the Middle East’s biggest private equity fund and one of the world’s most influential emerging-market investors, with stakes in health care, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey.
Abraaj managed more than 40 private equity funds and assets of more than $14 billion until it crumbled in the biggest failure for a private equity firm.
Problems began in February 2018 with allegations that money in Abraaj’s health fund had been misused. Arif Naqvi, founder and ex-CEO of Abraaj denied wrongdoing and blamed unforeseen political and regulatory hurdles for a delay in deploying the money.
After Abraaj defaulted on loans, Kuwait’s Public Institution for Social Security and a fund linked to Sharjah-based Crescent Group’s Hamid Jafar moved to force the company into a court-supervised restructuring.
Abraaj Investment Management Ltd., which managed the private equity funds, and its parent, Abraaj Holdings Ltd, filed for provisional liquidation in the Cayman Islands, where they are registered.
In the liquidation process several irregularities including mismanagement and misappropriation of funds were discovered. Dubai’s financial regulator DFSA fined Abraaj $315 million for deceiving investors and misappropriating their funds.