Dubai: Arif Naqvi, the founder and ex-CEO of Abraaj Group, will have to pay the record fine of $135.56 million (Dh497.86 million) imposed by the Dubai Financial Services Authority earlier.
This follows the decision by the Financial Markets Tribunal to uphold the findings of DFSA against Naqvi, for a series of actions during his time as chief of Abraaj, not least using investor funds as working capital requirements.
This is the largest fine ever imposed on an individual by the DFSA.
At one time, Abraaj under Naqvi was one of the most high-profile private equity firms, first within the region and then expanding its reach worldwide. It was Abraaj's association with the Bill & Melinda Gates Foundation that exposed the financial wrongdoings carried out over an extended period.
This triggered investigations in various jurisdictions, including by DFSA. And whose verdict will now come into play after the FMT clearance.
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The FMT did consider the $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.”
The FMT came into play after Naqvi referred the DFSA verdict to the Tribunal. Apart from the fine, Naqvi has been prohibited from any function in or from the DIFC.
It was December 12 last that the FMT issued its decision, which upheld the DFSA’s findings and rejected Naqvi’s FMT reference. The DFSA findings, set out August 2021, are thus final.
“Mr. Naqvi was the face of the largest private equity firm in the region and the face of impact investing,” said Ian Johnston, Chief Executive of DFSA. “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.”
Acts of gross misconduct
In July 2019, DFSA imposed $299.3 million fine on Abraaj Investment Management Ltd. (AIML), a Cayman Islands-registered firm not authorised by DFSA. The fine was based on misconduct in misleading/deceiving investors and carrying on unauthorised financial service activities in or from the DIFC.
In the Decision Notice, the DFSA found 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 addition, Naqvi also:
- Instructed the use of investor monies to fund 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 $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 $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 $350 million from an individual in an attempt to make the Abraaj Group appear solvent and appease the demands of investors.