In the latest chapter in the lengthening saga of the collapsed private equity firm Abraaj Group, on August 12 Bloomberg reported that a court in Sharjah, United Arab Emirates (UAE) sentenced Arif Naqvi, Abraaj’s Chief Executive and founder, in absentia to three years’ imprisonment. The sentencing occurred in a case relating to low-cost air carrier Air Arabia.
In June 2018, after Abraaj had filed for provisional liquidation in the Cayman Islands, Air Arabia disclosed that “it had an exposure of $336 million to Abraaj through funds and short-term loans.” That exposure – the largest of any publicly-listed UAE companies — reportedly stemmed from Abraaj’s borrowing money from Air Arabia, on whose board Naqvi had sat at the time. Abraaj, however, then used the funds to cover shortfalls in one of the Abraaj funds and mislead investors, according to federal prosecutors in the United States. In July 2018, arbitration proceedings concerning Abraaj and Air Arabia took place.
In January 2019, Air Arabia, which had already filed claims in the Abraaj liquidations, filed a misdemeanor case against Naqvi in a Sharjah court, reportedly making Air Arabia the first publicly-traded firm to initiate legal proceedings against Abraaj. Subsequently, Air Arabia reported a full-year loss of $166 million “after booking impairments to cover its $336 million exposure to Abraaj.”
Note: UAE authorities are unlikely to obtain custody of Naqvi for the foreseeable future. Naqvi is currently in the United Kingdom, challenging his extradition to the United States. If extradited and convicted in the United States, Naqvi could face a sentence of decades of imprisonment, given the massive amount of the alleged fraud, as well as substantial civil penalties and disgorgement of ill-gotten gains in civil litigation that the Securities and Exchange Commission has filed.