A Saudi ponzi scheme proven but perpetrator can’t be held accountable!

June 4, 2018 2:01 pm


A Saudi conglomerate can’t collect damages from a former manager it blamed for a multibillion-dollar fraud against 100 banks because the family-owned company was complicit in the scheme, a Cayman Islands court ruled, Bloomberg reported.

The 1,348-page ruling issued last Thursday strikes at the heart of a dramatic, decade-long family feud over Ahmad Hamad Algosaibi & Brothers Co, known as AHAB, whose 2009 default was among the largest of the global credit crisis.

AHAB, which has interests as varied as construction, shipping, and hospitality, claimed that Maan al-Sanea, who married into the family and managed AHAB’s finance business, had engaged in unauthorized borrowing in the name of the Algosaibis, forging signatures “on an industrial scale”.

Al-Sanea has said the Algosaibis were aware of what he was doing. The judge found that AHAB had “at all times been privy to and authorized Al Sanea’s activities” and that there was no evidence of forgery or bank document manipulation by him.

The dispute involved nearly $330 billion that flowed through the firm since 1981.

Related: A Saudi detainee, no one is talking about, to pay $billions before release

Court finding

The judge found that the alleged scheme was so complex that it couldn’t be unwound. He threw out the Algosaibi family’s  $4 billion claim and a $5.9 billion counterclaim by an al-Sanea company, reported Bloomberg.

“The dishonesty perpetrated by AHAB is impossible to unwind and no attempt is being made to do so,” he said, adding that “AHAB was an active participant in the fraud from inception to its unraveling in 2009.”

The Algosaibi family defaulted on about $9 billion of debt in 2009 during the financial crisis when its finance business, known as the Money Exchange, collapsed.

Al-Sanea’s Saad Group, a Saudi-based conglomerate, defaulted on another roughly $7 billion in debt. The companies have been locked in legal disputes ever since.

Read: Saudi Aramco has a major ‘Ace in the hole’ to maximize value of its IPO

Ponzi scheme

Over more than 20 years, loans taken by AHAB had to be repaid quickly and replaced by new ones, making the rate of deception unprecedented, according to the judge.

More than 12,500 loans were taken out from 2000 to 2009, by which time they were maturing at a rate of 20 a day.

“Obviously, the judgment is a very substantial document and, together with our lawyers, we are considering our next steps,” Simon Charlton, chief restructuring officer of AHAB, said of in a written statement.

There is an automatic right to appeal in the Cayman Islands, but any appeal probably won’t be heard before 2019, the statement said.

AHAB, which has an estimated US$6 billion in debt, intends to “make significant payments to creditors from its financial and real estate assets” under a plan that has the support of 71% of creditors,  Charlton said.

Read: Where do Saudi, Dubai rank in world’s top billionaires’ list?

Saudi’s end of the deal

Saudi Arabia has put the gears in motion to end a $22-billion debt dispute that investors are watching closely.

“Legal battles over the debts left by Saad Group and Ahmad Hamad al-Gosaibi & Bros Co (AHAB) have dragged on since the two family conglomerates collapsed in 2009, and the two groups have squabbled ever since over which of them is to blame for the meltdown,” said Reuters.

“There has been gradual progress in AHAB’s case with the company making a settlement offer which has the support of around two-thirds of investors, but there has been much less movement over Saad Group’s debts.”

This impatience forced Saudi authorities in October last year to detain Saad Group owner Maan al-Sanea, charging him with unpaid debt.

And since that time al-Sanea family have made legal step forward to end the dispute, the sources told Reuters.

Al-Sanea is also wanted in Bahrain where he has been sentenced to five years in jail in absentia for convictions including breaching central bank rules.

Read: Saudi Arabia is aiming at the moon, literally

Offers to settle

According to Reuters, AHAB and Saad Group owe money to more than 100 international banks including HSBC, BNP Paribas, and Citigroup, while Saad Group is also in debt to contractors including Germany’s Siemens AG and some 5000 former hospital staff.

Saad Group took its first big step to engage with creditors last year by hiring a financial consultancy, Reemas Group, to offer a proposed settlement covering $4 billion in debt, Reuters reported.

“This is a $20 billion-plus problem for Saudi Arabia and unless it’s handled well it will create a long-term legacy issue for some foreign investors,” one of the people familiar with the matter told Reuters.

Tags:

Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.



AMEinfo EXPERTS