Saad chief accused of Ponzi scheme

Source: The National

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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.”

$30m UAE claim again Saudi Saad group unit

Source: Reuters
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Abu Dhabi Commercial Bank, the UAE's third largest lender by assets, has filed a $30m debt claim against a unit of troubled Saudi conglomerate Saad Group, sources said.
The claim is the first against the troubled group by ADCB and more claims are likely to follow, the bank sources told Reuters late on Thursday.
ADCB, which has significant exposure to the group, filed the claim on Wednesday in London's High Court against Saad Trading, Contracting & Financial Services Company, part of the Saad Group that is owned by Maan Al Sanea, the Saudi billionaire.
"It is a $30m debt claim and relates to a foreign exchange deal and had to be done under United Kingdom law," the source familiar with the matter said, declining to be named due to "confidentiality issues".
"This is our first claim, there could be others." ADCB confirmed it has sued a unit of the Saad group but declined to provide details.
"This claim is part of a number of actions taken by the bank to protect its interests vis-à-vis its exposures to the Saad Group," Simon Copleston, ADCB's general counsel and board secretary said, without elaborating.
Banks in the region have been coping with the fallout from debt restructuring at two family-owned Saudi conglomerates - Saad and Ahmad Hamad Algosaibi & Bros (AHAB) - in the biggest financial fiasco to hit the Middle East in the economic crisis.
The two groups' problems came to light in late May when the Saudi central bank froze the accounts of Al-Sanea. UAE's Mashreqbank is suing the Algosaibi group in a New York court. Several regional and international banks including Citigroup, BNP-Paribas are exposed to the two conglomerates. In July, the UAE central bank directed banks to take provisions of 50 to 75 percent of their exposure to the troubled groups over two years.

Al Sanea/AHAB: 'The fall out from a falling out'

This piece from The Economist 17th July 09. There is also an earlier article on 9th July 09 which provides much background on the current events involving the Saad Group and AHAB in Saudi Arabia.
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A respected business family claims it has fallen victim to a spectacular swindle.
Of the merchant families that dominate Saudi capitalism, few are as respected as the Gosaibis, a "blue-chip" clan which could borrow on the strength of its name alone. It was, therefore, a shock when in May parts of the family conglomerate, Ahmad Hamad Algosaibi & Brothers Company (AHAB), defaulted, prompting lawsuits in various countries. But on July 15th the shock turned to astonishment. In documents filed in New York's state Supreme Court and seen by The Economist, AHAB claims that it has been the victim of a "massive fraud" orchestrated for years by Maan al-Sanea, a Saudi billionaire who is married to a daughter of one of AHABs founders. The company says Mr Sanea "misappropriated" around $10 billion in the alleged swindle.
Mr Sanea has his own business, the Saad Group, a vast investment company once reckoned to hold over $30 billion of assets worldwide, including the second biggest stake in HSBC. He also used to work for the Gosaibis and, besides having married into their family, he freely admits he has "long had personal relations with the partners of AHAB". But he insists that the business ties between his Saad group and AHAB are now on an "arm's length commercial basis."However, AHAB claims that Mr Sanea was until very recently a "senior executive" of its financial-services arm, the Money Exchange, which chiefly handles remittances by workers inside and outside Saudi Arabia. It says Mr Sanea made use of this position to borrow from banks "using forged or falsified documents". He then "diverted the funds received to his own use."
AHAB has made these allegations in response to a lawsuit filed against it in New York by Mashreqbank, a lender based in the United Arab Emirates which was one of the first banks to admit openly to having an exposure to AHAB. Mashreqbank is going to court over a foreign-exchange deal on which it claims AHAB defaulted. It wired $150m to an AHAB account on April 28th and says it was due to receive 564.3m Saudi riyals a week later in return. But AHAB failed to pay. In its court document of July 15th AHAB responds that it knew nothing about this currency deal until the New York court sought to attach its assets over Mashreqbank's claim.
Having looked into the matter further, AHAB now says the transaction was one of many organised by Mr Sanea with "a variety of financial institutions in the United States, the Middle East, and elsewhere", while keeping them off the books to conceal them from AHAB's partners and directors. It says that Mashreqbank alone entered into 52 such deals, totalling $4.7 billion, between January 1st 2008 and May 1st 2009.
AHAB claims that having these huge amounts of cash constantly sloshing around in the Money Exchange's accounts allowed Mr Sanea to siphon off some of it by, among other things, writing fraudulent cheques, and transferring cash to people, companies and accounts that he "controlled directly or indirectly". It says Mr Sanea told AHAB employees not to record the transactions in the company's books and in July 2006, it alleges, he sent a memo to senior employees of the Money Exchange telling them to withhold any messages intended for the board of directors and "to deliver those communications to him instead". AHAB says Mr Sanea's manoeuvres allowed him "to continue looting AHAB and to conceal the massive scope of his thievery from AHAB and its Board".
AHAB does not accuse Mashreqbank or the other banks that engaged in the currency deals of knowingly participating in the fraud it alleges. However it does claim that in the $150m transaction at the centre of the court case, Mashreqbank stood to enjoy a "grossly inflated profit margin". And it argues that the transaction "had no legitimate commercial purpose which would have been obvious to both parties in the transaction." It says almost all the other transactions involving Mashreqbank likewise gave it a substantial profit. Mashreqbank's spokesman said on Friday that it felt unable to comment on the matter until it had consulted its lawyers.
A spokesman for Mr Sanea's Saad group, asked to comment on AHAB's accusations, said, "We have not seen or been served with this claim, although it appears from press reports to be a repetition of claims previously presented extensively to the press and elsewhere and which are baseless. If we are served with such a claim, we will respond to it vigorously through specialist counsel, confident in both the true facts and the judicial process." Last week when The Economist put similar allegations to Mr Sanea's lawyers, they described them as "scurrilous and utterly untrue".
Although their scale is spectacular, the nature of the allegations will not come as a complete surprise to some bankers in the Middle East. The Gosaibis had previously said that they had found evidence of "substantial financial irregularities" in their financial-services arm. And in a confidential creditors' meeting in Bahrain on June 24th the group disclosed the scale of the problem, according to sources familiar with the matter. They say it left creditors in little doubt about whom it suspected as the author of its misfortunes.
But to make this complaint in black and white, in a New York court document, is an extraordinary twist. Family businesses in the Gulf traditionally settle their disagreements behind closed doors, judging that "the preservation of the family reputation is of paramount importance," as a banker in the region puts it.
In this case, more is at stake. The Algosaibi group owes more than $9 billion to more than 120 banks all over the world. The uncertainty over its finances is making some of them wonder if it is worth lending to Saudi Arabia at all. The group's creditors had hoped that the Saudi monarchy would step in to broker a truce between Mr Sanea and his aggrieved in-laws. Instead, an internecine family feud in a normally secretive kingdom will now be pursued in the open through the American courts. Like Ahab's harpoon in "Moby Dick", the allegations that AHAB has fired off may drag Saudi Arabia's financial reputation into the vortex.

Al Sanea/AHAB: A $10bn Saudi lawsuit

From Zawya 19 July 09
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Saudi Arabia has been rocked by a lawsuit charging one of the country's wealthiest businessmen, Maan al-Sanea, with stealing 10 billion dollars from his wife's family over four years.
Newspapers on Saturday splashed reports that the prominent Algosaibi business group had filed a lawsuit in a New York court accusing billionaire Sanea of skimming transfers from a workers remittance unit over four years.
In the biggest scandal to erupt publicly in the Gulf in the wake of the global financial meltdown, Sanea was accused of using inflated spreads on short-term foreign exchange transactions from the unit to swindle Ahmed Hamad Algosaibi Brothers Co, or AHAB, according to documents filed in New York's state supreme court.
By constantly rolling over the transactions, Sanea was able to hide them and amass a fortune before the arrangement apparently collapsed earlier this year, according to the charges.
"AHAB presently estimates that al-Sanea misappropriated approximately 10 billion dollars as a result of his frauds," the group charged.
The charges broke open a dispute between the two groups and numerous regional and international banks that had simmered behind the scenes for two months.
Mashreq Bank, one of the United Arab Emirates' largest, is cited as a "relevant person" in the case.
The charges were filed on July 15 in a "third party complaint" against Sanea and his Bahrain-based Awal bank in response to Mashreq's suit early July against AHAB for 150 million dollars allegedly owed in a foreign exchange deal.
At the center of the scandal are AHAB and Sanea's Saad group, closely-linked diversified businesses based in the eastern Saudi industrial city of Al-Khobar.
Sanea, who is married to the daughter of one of AHAB's founders, was head of the AHAB unit from where the suspect deals originated, the Money Exchange, which normally processes foreign workers' remittances.
According to AHAB's suit, since 2005 Sanea arranged billions of dollars in foreign exchange deals carrying "extortionate rates" with other banks through the unit.
Mashreq, it said, was one of the main partners in the deals, which were hidden from AHAB's management.
"For four years, literally billions of dollars sluiced back and forth between Mashreq and AHAB, all highly unusual transactions on non-commercial terms," the allegations say.
"These transactions could not have served any legitimate commercial purpose."
Mashreq was not contactable on Saturday, which was a holiday in the United Arab Emirates.