Sunday, Mar 21, 2010

(Adds Damas comment)

DUBAI (Zawya Dow Jones)--The founders of Damas International Ltd. (DAMAS.DIF), the Gulf region's largest jewelry retailer, were Sunday fined and banned from directorships with any company in the Dubai International Financial Centre after the emirate's financial markets watchdog found they had committed a series of "unauthorized transactions".

Dubai's Financial Services Authority fined Dubai-based Damas, and its founders and majority shareholders, Tawhid, Tawfiq and Tamjid Abdullah, $3.72 million and ordered the brothers to repay $99.4 million plus the value of approximately 1.9 million grams of gold after it found they had withdrawn Damas funds for their own personal use without disclosing it to the board.

That amount of gold was worth $62.8 million at the end of September 2009, the DFSA said.

"Damas and the board have accepted the DFSA's position regarding their corporate governance failures and agreed to implement a range of corporate governance measures and controls," the DFSA said in an emailed statement.

The regulator also suspended the brothers from directorships with any company in the Dubai International Financial Centre for 10 years and ordered Damas to appoint a new board of directors and auditors from April 1.

Damas was ordered to pay a $700,000 financial penalty, $100,000 of which should be paid within 30 days. The balance is suspended, but payable upon a failure by Damas to comply with the actions ordered by the DFSA. The Abdullah brothers, meanwhile, were fined $3 million, $300,000 of which is payable within 180 days. The remainder will be paid if they fail to comply with the DFSA's orders.

Trading in Damas shares on the Nasdaq Dubai was suspended Sunday morning pending an announcement. They last traded down 8.1% at $0.17 Thursday. Since news of the unauthorized transactions broke last October, Damas shares have fallen more than 50%.

When contacted by Zawya Dow Jones Sunday, Tawhid Abdullah said he wasn't aware of the DFSA action.

TO FULLY COMPLY

In a statement Sunday evening on Nasdaq Dubai, Damas said it intends "to comply fully" with the terms of the DFSA undertaking.

"Damas International Limited continues to work closely with the Dubai Financial Services Authority to ensure that the company upholds the highest standards of corporate governance," a Damas spokesperson said in the statement.

"The company undertakes to apply the learnings from these historical incidents, and wishes to assure its shareholders and employees that the Company is currently focused on ensuring its long-term stability and growth, based on a sound, strategic business plan," the spokesperson said.

The fine is the largest imposed by the DFSA and sends a strong signal that the authorities are getting tough on insider trading and other abuses in financial markets.

In 2008, it fined Shuaa Capital, the U.A.E.'s largest investment bank, AED3.5 million for manipulating the price of DP World's shares and then obstructing an investigation into the case.

"Maintaining international governance standards and internal systems and controls as well as ensuring investor confidence is fundamental to the integrity of the market in the DIFC," DFSA Chief Executive Paul Koster said in the statement Sunday.

Damas said in November that it reached a deal with the Abdullah brothers to repay $165 million within 18 months after Tawhid Abdullah resigned as chief executive over alleged "unauthorized transactions." PricewaterhouseCoopers, or PWC, was later appointed as an independent auditor to examine the transactions.

Damas, a family-controlled jewelry firm with origins that date back to 1907, is one of the Gulf region's largest. The company raised $270 million in an initial public offering on the Dubai International Financial Exchange in July 2008. The exchange was the predecessor of Nasdaq Dubai. Damas is currently in discussions with its banks regarding the renewal, restructuring of facilities and securing funding to carry on operations.

In December, the company posted a net loss of 714.9 million U.A.E. dirhams ($195 million) in the six months ended Sept. 30 without providing any comparable figures.

-By Stefania Bianchi, Dow Jones Newswires; +971 4 4461685; stefania.bianchi@dowjones.com

(Summer Said in Dubai contributed to this article.)

Copyright (c) 2010 Dow Jones & Co.

(END) Dow Jones Newswires

21-03-10 1416GMT