DFSA action against Abraaj founder and former COO referred to tribunal

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DFSA action against Abraaj founder and former COO referred to tribunal

The Dubai Financial Services Authority (DFSA) said on 27 January that Arif Masood Naqvi (Naqvi) and Waqar Siddique (Siddique) had been referred to the Financial Markets Tribunal for serious failings in respect of the Abraaj Group.

In its decision notice, the DFSA explained that it had imposed a financial penalty of $135,566,183 (AED 497,866,807) on Naqvi and $1,150,000 (AED 4,223,375) on Siddique. Naqvi and Siddique are also prohibited and restricted from performing any function in or from the DIFC.

The regulator said Naqvi and Siddique dispute the DFSA's findings and have referred the Decision Notices to the Financial Markets Tribunal (FMT), where the parties will present their respective cases. The DFSA's decisions are therefore provisional and reflect the DFSA's belief as to what occurred and how it considers their conduct should be characterised.

They had "both applied to the FMT for orders to prevent the DFSA from publishing the Decision Notices and to have the FMT hearings held in private."

The regulator further said that in January 2022, the FMT determined that the DFSA could publish the Decision Notices and that the FMT hearings will be public.

"The FMT stayed the operation of the financial penalties until the conclusion of the FMT proceedings but the prohibition and restrictions on Mr Naqvi and Mr Siddique from performing any function in or from the DIFC remain in effect. Mr Naqvi had previously applied to the DIFC Courts in June 2021 for permission to commence judicial review of the DFSA's decision to take action against him. That application also failed, so the DFSA proceeded to issue Mr Naqvi with the Decision Notice, which he then referred to the FMT."

Naqvi founded the Abraaj Group in 2002. Under his leadership, it grew to become the largest Private Equity firm in the region, with an estimated $14 billion assets under management. Naqvi was the largest shareholder, the CEO and Executive Vice Chairman of the Abraaj Group.

Naqvi was the face and personality of the Abraaj Group, building his profile and reputation around the world on the purported success of the Group's impact investing strategy. He was by far the single most influential person within the Abraaj Group and the ultimate decision maker on material or disputed matters.

The Decision Notice stated that Mr Naqvi was knowingly involved in misleading investors over the misuse of their funds by Abraaj Investment Limited (AIML), a Cayman Islands-registered firm not authorised by the DFSA.

In particular, the DFSA found that Mr Naqvi personally proposed, orchestrated, authorised, and executed actions that directly or indirectly misled and deceived the investors as he:

  • Instructed the use of investor monies to fund the Abraaj Group's working capital and other commitments;
  • Ranked investors according to the likelihood they would complain or challenge and withheld sale proceeds and reports from those investors who were less likely to do so;
  • Approved and personally drafted false and misleading statements to investors to cover up the misuse of their funds. Mr Naqvi also attempted to appeal to more senior members of staff at the investors' organisations to quash their queries;
  • Was central to the cover-up of a USD 400 million shortfall across two funds by temporarily borrowing monies for the purpose of producing bank balance confirmations and financial statements to mislead auditors and investors;
  • Approved the change of a fund's financial year end to avoid disclosing a USD 200m shortfall; 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.

Naqvi instructed and encouraged other members of Abraaj senior management to mislead and deceive the investors and stakeholders of the Funds.

Naqvi was also knowingly involved in AIML carrying out unauthorised Financial Service activities in or from the DIFC, through his role as the head of the AIML Global Investment Committee and his actions in managing the Abraaj Funds.

The significant fine imposed on Mr Naqvi reflects the seriousness of these offences and is based on Mr Naqvi's earnings from the Abraaj Group.

The DFSA found that Siddique was knowingly involved in breaches by AIML and Abraaj Capital Limited (ACLD), a DFSA-Authorised Firm.

Siddique was a member of the Abraaj Group's senior management team from September 2005 until June 2018. During that period,  Siddique held a number of roles at the Abraaj Group, including the role of the COO (from 1 February 2011 until February 2012) and the Head of Finance and Operations (from January 2017 until his resignation in 2018). Mr Siddique was also an Authorised Individual as ACLD's Licensed Director. In those roles, Siddique was knowingly involved in certain AIML and ACLD breaches.

Siddique was knowingly involved in AIML misleading and deceiving investors over the use of their monies with the Abraaj Funds. In particular, Siddique was aware that approximately $400m was taken from two Abraaj Funds and used as working capital for the Abraaj Group or to fund other investment commitments. In order to conceal such shortfalls, Siddique was involved in deceiving auditors and investors as to the actual cash balance in the Funds' bank accounts, including being a signatory to loan agreements used to produce misleading bank balance confirmations and misleading financial statements.

Siddique was knowingly involved in ACLD's contraventions of not maintaining its Capital Requirements as he authorised the majority of temporary cash transfers at quarterly reporting period ends over a five-year period. Siddique also signed two financial returns sent to the DFSA which falsely declared that ACLD was in compliance with its Capital Requirements. In doing so, Siddique also failed to act with integrity in carrying out his Licensed Function at ACLD.