Maan al Sanea, the head of the embattled Saad Group of Saudi Arabia, “operated one of the largest Ponzi schemes in history”, according to documents filed in a New York court.
“He fraudulently arranged for the borrowing of billions of dollars from dozens of banks, steadily increasing the loan levels year-by-year,” the filings allege. It is the latest legal broadside from the al Gosaibi family, which is locked in a bitter dispute with Mr al Sanea over what it claims is a US$10 billion (Dh36.73bn) fraud.
A Ponzi scheme is a type of fraud in which investors are paid out of illusory profits which are actually fresh money injected into the business by new investors. The most famous example is the $68bn fraud by the disgraced US financier Bernard Madoff.
The claim, which Mr al Sanea has denied, came amid a flurry of legal action in New York late last week. The al Gosaibis made fresh allegations against Mashreqbank of Dubai in the ongoing battle between them over $400 million in disputed foreign exchange transactions.
The al Gosaibis filed documents that they said supported their claim that Mashreq was aware of the fraud they said was perpetrated on them by Mr al Sanea and that the bank aided and abetted Mr al Sanea’s conduct. Mashreq has rejected these claims.
Lawyers for Ahman Hamad Al Gosaibi and Brothers claimed to have unearthed fresh evidence of long-term collusion between Mr al Sanea and Mashreq. According to documents submitted by Al Gosaibi, in June 1999, Adel al Mannai, an officer of Mashreq in Bahrain, wrote to Mr al Sanea advising him that Mashreq “would like to start a relationship with the group and will contact you on my next visit to Al Khobar the Saudi city which is HQ that is home to both the Saad Group and Al Gosaibi to discuss in more detail areas of co-operation”.
The filings cast doubt on the nature of foreign exchange transactions between Mashreq and Al Gosaibi. These were, in fact, “short-term loans”, Al Gosaibi alleges, rather than genuine foreign exchange transactions, and were not based on genuine remittance business.“The volume of forex transactions $4.97bn exceeded the volume of the remittance business $66.75bn by 75 times. The remittance business had nothing to do with the scheme, nor could Mashreq have thought that remitting money to foreign workers could remotely have approached the scale of these transactions,” said Al Gosaibi’s lawyers, the US firm of Baach Robinson and Lewis.
The filings also contain further allegations that Mr al Sanea committed forgery with Mashreq’s knowledge: “When Al Sanea directed employees to refuse to provide a notarised signature on loan documents, because the chairman of the Al Gosaibi company was comatose and could not sign, Mashreq agreed to waive the rules.”
In a statement, Mashreq responded: “The central facts in this case remain that the defendant, the Al Gosaibis, by failing to complete foreign exchange transactions totalling approximately $150 million, is in default of agreements with Mashreq, and we look forward to presenting our case to the court.
“As for Al Gosaibi’s allegations that its own organisation was riven with massive fraud and forgery, Mashreq saw no evidence of this, and at all times acted in good faith in dealing as a counterparty with Al Gosaibi. In making these claims, Al Gosaibi is trying to avoid its lawful obligations to Mashreq and the more than 100 other international financial institutions to which Al Gosaibi is now in default.”
In separate legal moves in New York, Mr al Sanea’s lawyers filed documents accusing Al Gosaibi of “forum shopping” – bringing actions in multiple jurisdictions around the world. They also disputed the jurisdiction of the New York courts as the appropriate arenas for the legal actions and argued that Saudi Arabia would be the best place to litigate the dispute.
Ian Edge, the director of the Centre for Islamic and Middle Eastern Law at the University of London’s School of African and Oriental Studies, said: “In my opinion, Saudi Arabia is the most appropriate forum – probably the only appropriate forum – for the settlement of this dispute. It maintains an effective judicial system that is fully capable of adjudicating commercial disputes.”
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