The Dubai Financial Services Authority (DFSA) has issued its highest ever penalty to the collapsed buy-out firm, Abraaj, for deceiving investors and misappropriating funds.
Abraaj has been issued with a $315 million fine by the watchdog and could still face further penalties from legal action in the US likely to be taken by former investors.
The penalties were announced as the DFSA revealed the first findings from its enquiry into the collapse of Abraaj which began in March 2018.
It is yet another downward step in the fall from grace of what was once one of the world’s biggest buy-out firms with $14 billion in assets under management, but which has also been described as the “firm that wrecked private equity in the Middle East” in a recent Bloomberg report.
The troubles at Abraaj began in early 2018 when a row erupted between the firm and several key investors about the use of capital in its $1 billion healthcare fund. As investor confidence ebbed away so did the firm’s funds and it filed for provisional liquidation in June last year.
The Cayman-domiciled Abraaj Investment Management Limited has been fined $299 million for investor deception and misusing investors’ money to cover operational expenses, action which resulted in a shortfall of at least $180 million at the time of the fund’s collapse.
Meanwhile Dubai-based Abraaj Capital Limited was fined $15 million for failing its capital adequacy obligations and for deceiving the regulator.
The DFSA’s report also revealed further details about malpractice at Abraaj. Internal memos showed that in 2016, when facing a shortfall in one of its largest funds, the company prioritised payments “in order of noise makers and those that will come back, with the latest being legacy investors and passive voices”. Investors were then colour-coded as to how much “noise” they made.
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