Dubai FMT upholds DFSA’s largest fine on an individual: Abraaj founder ordered to pay $135 million

Nearly a year ago, the financial watchdog had imposed a $135 million fine – the largest fine ever imposed on an individual – against Arif Naqvi for his serious failings in respect of the Abraaj Group.  In addition, he was prohibited and restricted from performing any function in or from the Dubai International Financial Centre (DIFC).

The defendant, however, referred the DFSA’s findings in its Decision Notice for review by the Financial Markets Tribunal (FMT), an independent appeal tribunal. The FMT’s decision upholds the DFSA’s findings and rejects Arif Naqvi’s request.

Abraaj was fined nearly $300,000 by the DFSA in July 2019

Abraaj Investment Management Limited (AIML), a Cayman Islands-registered firm not authorized by the DFSA, was fined nearly $300,000 by the DFSA in July 2019.

Besides carrying out unauthorized operations in or from the DIFC, the firm was found to mislead and deceive investors residing in the jusrisdicion regulated by the DFSA.

The agency also found that Arif Naqvi was knowingly involved in misleading and deceiving investors over the misuse of their funds by AIML as he personally proposed, orchestrated, authorized, and executed actions that directly or indirectly misled or deceived the investors.

The DFSA enumerated Arif Naqvi’s unauthorized and/or unlawful actions as CEO of Abraaj, including:

• instructing the use of investor monies to fund the Abraaj Group’s working capital or other commitments;
• prioritising 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 USD 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;
• approving and personally drafting false and misleading statements to investors to cover up the misuse of their funds;
• approving the change of an Abraaj fund’s financial year end to avoid disclosing an approximately USD 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 arranging 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 was the face of the largest private equity firm in the region”

Naqvi also took interest free personal loans from Abraaj at a time when he knew that the firm was incurring significant interest costs on borrowings in order to meet its major liquidity problems.

According to the DFSA, on one occasion, he acknowledged that he was aware that a USD 1 million transfer to one of his personal companies for investment in shares needed to be made from an Abraaj fund. On another occasion, he approved a USD 7.5 million transfer of an Abraaj fund’s sale proceeds, to a company wholly owned by him, in order to fund his personal expenses.

Naqvi “was centrally involved in a sustained course of unauthorised Financial Service activities and misleading and deceptive conduct by AIML”, the tribunal ruled, while adding that the USD 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.”

Ian Johnston, Chief Executive of the DFSA, said: “Mr Naqvi was the face of the largest private equity firm in the region and the face of impact investing. 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.”