Damas ruling sends powerful message

Abu Dhabi : The regulator of the Dubai International Financial Centre yesterday fined Damas and its majority owners more than Dh13.5 million and ordered the dismissal of its board.

The Dubai Financial Services Authority (DFSA) found the majority owners of the Middle East's largest jeweller by number of stores guilty of making "unauthorised transactions" and other serious corporate governance violations.

According to a DFSA statement, just Dh1.5 million of the fine is payable in the near term while the rest will be suspended as long as the company meets its remedial obligations.

Damas's majority owners — the Abdullah brothers Tamjid, Tawfiq and Tawhid — were also ordered to pay back Dh365 million to the company plus the value of 1.94 million grams of gold for tapping company accounts for personal use.

"This action will remind directors of public companies that they owe a duty to the company and their shareholders, which supersedes any duty they have to their private interests," DFSA Chief Executive Paul Koster said in a statement.

Personal use

Damas had been under investigation since October, when Tawhid Abdullah told the board he had withdrawn Dh600 million in the previous 18 months for personal use, according to the DFSA report.

The investigation found that none of the 2,200 withdrawals by the Abdullah brothers from July 2008 to October 2009 had prior consent from the board or shareholders, although board members knew the withdrawals were taking place.

The brothers used the money "to pay for minor items, such as fuel, to large investments in real estate, equities and commercial business enterprises," according to the DFSA statement.

"The Damas case illustrates many of the corporate governance shortcomings that have become all too familiar during the global financial crisis," said Nasser Al Saidi, executive director of Hawkamah, a regional corporate governance initiative.

"The DIFC public authorities, by not only penalising the company, but also its directors, have sent a very powerful message to the market. This is an important signal as market perceptions, including economic fundamentals, determine where capital will flow," Al Saidi added in a statement following the release of DFSA's findings.

Damas did not respond to Gulf News requests for comment at the time of going to press.

In December 2009, Damas announced that it will undergo restructuring, including closing and relocating some of its 450 outlets in the region, after reporting a Dh714.9 million loss for the six months ending September.

Damas shares, listed on Nasdaq Dubai, have lost more than 75 per cent of their value since the beginning of 2009. The stock was suspended from trading yesterday pending the release of the investigation findings. It closed at $0.17 on Thursday.

According to the ruling handed down by DFSA, the Abdullah brothers are banned from holding board seats in Damas or any other DIFC company for 10 years, while the rest of the company's board will be subjected to a two-year ban.