Abraaj executives arrested on fraud charges

Assistant US Attorney Andrea Griswold announced the arrests of Naqvi and Mustafa Abdel-Wadood, Abraaj’s managing partner, at a New York court hearing, Reuters reported. Abdel-Wadood appeared in court and pleaded not guilty to securities fraud, wire fraud and conspiracy charges. Naqvi, who is charged with the same crimes, was detained in the UK. Prosecutors will seek extradition. A PR firm representing Naqvi said he maintained his innocence and expected to be cleared of any charges.

Prosecutors claim that Naqvi and Abdel-Wadood lied to investors about the performance of Abraaj's funds, inflating valuations by more than $500 million, the report said. They also accused the defendants of misappropriating funds, either to disguise liquidity shortfalls or for their personal benefit or that of their associates.

Middle East-headquartered Abraaj had $13.6 billion in assets under management and was active in Asia and other regions. Cracks appeared in the business in February of last year when it emerged that four LPs asked a consultant to audit an Abraaj healthcare fund because capital was drawn down and not deployed within the agreed timeframe.

Abraaj said it had not violated the terms of the limited partnership agreement, but investors quickly lost confidence in the firm. The business was restructured to assuage governance concerns – a move that saw Naqvi step back from the fund management side – and LPs were released from commitments to the latest flagship fund. However, Abraaj was facing a liquidity crunch and creditors began legal proceedings to recover unpaid debts. Last June, parent company Abraaj Holdings declared voluntary bankruptcy and entered liquidation proceedings.  

The Securities & Exchange Commission filed a separate complaint against Abraaj and Naqvi that relates to the healthcare fund. It claims that the two parties defrauded the $1 billion Abraaj Growth Markets Health Fund by misappropriating $230 million. They told investors the capital would be invested in healthcare businesses, but in fact used it “to cover cash shortfalls” within the fund management business and the parent company.

The complaint notes that the fund closed in July 2016 with commitments of $850 million. As of the third quarter of 2017, a total of $544 million had been called but only approximately $265 million had been invested. Meanwhile, Abraaj took $37.6 million in management fees and $2.5 million in expenses. The complaint describes a series of transfers from the fund to Abraaj-controlled bank accounts – starting from December 2016 – and it cites supporting emails between senior executives that suggest the firm was trying to plug holes in its balance sheet.

Abraaj and Naqvi are also accused of trying to conceal the misappropriation from LPs. The fund’s audited financial statements for the period ending June 2017 report a cash balance of $167 million comprising drawn capital that had yet to be invested. This was in fact part of a short-term $196 loan from an airline at which Naqvi was a director.

When LPs raised concerns in October 2017, they were told that the fund had $225.9 million available in its bank accounts. The actual sum was $13 million. Abraaj later told a consultant hired by these LPs that the misappropriated capital constituted “temporary investments” permitted under the limited partnership agreement. The complaint asserts they were not. In late 2017 and early 2018, the missing money – plus $13 million in interest payments – was returned to investors.

The failure to disclose the cash transfers and conflicts of interest they created, Abraaj and Naqvi “knowingly, recklessly, or negligently breached their fiduciary duties to the [healthcare fund], and deceived and defrauded the fund and its investors,” the complaint states.

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• Topics
• South Asia
• Southeast Asia
• MENA
• Regulation
• GPs
• The Abraaj Group