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Private Equity Firm Abraaj Defrauded Investors, SEC Says

Abraaj founder Arif Naqvi allegedly took money from a private equity fund to help cover the firm’s cash shortfalls.

Abraaj Investment Management and its founder misappropriated money from a health care-focused private equity fund, according to charges from the Securities and Exchange Commission. 

Arif Naqvi, founder of the Dubai-based firm, took money from Abraaj Growth Markets Health Fund and commingled it with Abraaj Investment Management’s corporate funds to cover cash shortfalls, the SEC alleged in a complaint filed April 11 with the U.S. District Court for the Southern District of New York. More than $230 million was used for corporate expenses and other purposes unrelated to the health fund, according to the complaint.

“Abraaj Investment Management and Naqvi knowingly, recklessly, or negligently breached their fiduciary duties to the Abraaj Health Fund, and deceived and defrauded the fund and its investors,” the SEC alleged in the document. 

A spokesman for Naqvi said in an emailed statement that he “maintains his innocence, and he fully expects to be cleared of any charges.”

His firm completed fundraising for Abraaj Growth Markets Health Fund in 2016, attracting $850 million of commitments, according to the complaint. U.S. investors including charitable organizations contributed more than $100 million to the fund, expecting Abraaj to invest in health care-related businesses in emerging markets, the SEC said in an April 11 statement on the charges. 

Naqvi, a Pakistani national, misappropriated money from the fund from September 2016 through at least June 2018, according to the complaint. During this period, Abraaj Investment Management and its parent paid him “substantial sums,” according to the SEC.

“By October 2017, Abraaj Health Fund investors were raising concerns with Abraaj Investment Management about the whereabouts of their capital contributions,” the SEC said in the complaint. “They had contributed $544 million, but only approximately $265 million had actually been invested.”

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Around February 2018, Naqvi admitted to the head of investments at one U.S. investor that the fund’s capital was used for Abraaj Holdings’ and Abraaj Investment Management’s corporate purposes, according to the complaint.

In one example detailed by the SEC, Abraaj Investment Management transferred $140 million from the fund to bank accounts for Abraaj Holdings and itself in December 2016. The next month, Abraaj’s managing director of finance informed Naqvi by email that the holding company would have a cash shortfall of $85 million by the end of March 2017, despite the transfers from the fund.

Abraaj and Naqvi also took steps to hide their misappropriations from investors, according to the SEC, which is seeking monetary penalties for the defendants and disgorgement for their ill-gotten gains. Abraaj Investment Management filed for bankruptcy in the Grand Court of the Cayman Islands in June 2018, according to the complaint.

Naqvi has been “working tirelessly” to maximize returns for Abraaj’s creditors, according to his spokesman.

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