"Whatever you do, do it well," said Walter Disney. And no one does it better than Dubai. I'm talking about the Dh1.15 billion knockout punch, a.k.a. punitive financial penalties, that Dubai's financial regulatory agency has imposed on two Abraaj Group companies for "deceiving investors and the regulator". The penalties on Abraaj Investment Management Limited (AIML) and Abraaj Capital Limited (ACLD) come a little over a year after the Dubai-based global private equity company was forced into liquidation over fund mismanagement.
Having commenced its investigations in January 2018, it took the Dubai Financial Services Authority (DFSA) about a year-and-a-half to conclude the complex investigations that spanned multiple jurisdictions. "The size of these fines reflects the seriousness with which the DFSA views AIML's and ACLD's contraventions," said Bryan Stirewalt, CEO of the DFSA. "The DFSA has taken this action to penalise ACLD and AIML, deter others and protect investors," the regulator said in a statement. However, some feel that the penalties are too harsh for the beleaguered firm and it may not be able to pay them at all.
That's great, actually. Because the punitive penalty sends a loud-and-clear message that compliance is non-negotiable and those who attempt to game the system will be dealt with severely. The magnitude and severity of the fine will serve as a reminder to and a deterrent for others who may be harbouring similar ideas. "We will pursue the persons or entities who perpetrated this activity, including those who allowed this to happen through major corporate governance breaches, to the full extent of our powers," the DFSA CEO said in the statement outlining the penalty.
The DFSA's findings show how the company took its investors for a ride while deploying a smoke and mirrors tactic for global regulators. Among the key methods unearthed by the DFSA are how the Abraaj Group arms were "borrowing money just prior to financial reporting dates to produce temporary bank balances at a level expected by the investors" and how they were "changing the reporting period for a fund to disguise shortfalls". They deflected investor demands for updated financial statements and lied about delays in distribution of exit proceeds, the DFSA found out.
Founded in Dubai by Arif Naqvi with a $3-million seed capital in 2002, private equity company Abraaj quickly grew to become a darling of 'impact investors' - those who seek social and environmental returns and not just financial. The suave and well-connected Naqvi seemed to have had the Midas touch - Abraaj's assets under management hit $13.6-bilion at its peak before things began to unravel for the now-collapsed company. It was in late 2017 when a section of its impact investors started getting worried about their investments not being ploughed promptly or in the desired vehicles through Abraaj's $1-billion healthcare fund. One thing led to another and Abraaj is now defunct, and its senior officials - including Naqvi and managing partner Mustafa Abdel-Wadood - are out on bail.
Naqvi was the biggest name in the region's private equity industry, which has received a huge setback with the collapse of Abraaj. But with the penalties that the DFSA has imposed and the learnings that everyone else - including institutional investors - have taken from this unfortunate episode, it's time to move on, rebuild investor confidence, and aim for perfection. No one does it better than Dubai.
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