Sunday 03, June 2018 by Jessica Combes

AHAB guilty of Ponzi scheme, defrauding international banks

 

The Grand Court of the Cayman Islands has found a Saudi Arabian family and a Kuwaiti-born businessman guilty of defrauding banks out of around $126 billion over more than two decades

Correction - The previous version of this story said that the claim against Al Sanea stands and was not dismissed. The claim against the SAAD group of companies in liquidation, was dismissed. 

 

The AwalCos formed part of the business empire of prominent Saudi businessman Maan Al Sanea and their liquidations followed one of the biggest corporate collapses of the 2008-09 Global Financial Crisis—and the largest in Saudi Arabian financial history, that of the Ahmad Hamad Algosaibi & Brothers Company, known as “AHAB”.

The ruling in Ahmad Hamad Algosaibi & Brothers Company v Saad Investment Company Limited and Others means that the balance of hundreds of millions of dollars can be freed up from the estates of the liquidated Awalcos and ultimately returned to creditors.

In an unusual twist for a fraud trial, the decision also raised serious concerns as to the integrity of the business practices of the Algosaibi family—one of Saudi Arabia’s wealthiest families—in the period from 1980 onwards during which together with Al Sanea they have been found to have been complicit in a $330 billion Ponzi scheme defrauding international lending banks.

“This conclusion vindicates the defendants’ position after a 129-day trial, the longest running trial in Cayman Islands history, and we are delighted at the outcome for our clients which will allow many millions of dollars to be returned to creditors. At a total value of $9.2billion claimed, the sums at issue during the trial made it one of the biggest ever recorded, and the case is one of the most intricate pieces of litigation that we have ever been involved in – by virtue of the technical and financial complexity; sheer volume of documents in many different formats and multiple languages; geographical span; and the number of parties and legal practitioners involved in different countries globally,” said Stewart Hey, partner at Charles Russell Speechlys.

The Grand Court held that the Algosaibi brought dishonest claims of fraud based on allegedly forged documents, only for documents to come to light which established that members of the family had themselves engaged in highly complex financial malpractice, defrauding local and international financial institutions out of billions of dollars over a period of thirty years, whilst seeking to project themselves as the victims.

Chief Justice Anthony Smellie QC, in dismissing the claims against Charles Russell Speechlys’ clients, held that, “The evidence reveals that the Money Exchange … has been used to perpetrate one of the largest Ponzi Schemes in history…  The fraud was perpetrated by AHAB and Al Sanea acting in concert against the banks, to obtain borrowing which would certainly not have been provided had the banks known the true financial position of the Money Exchange…  AHAB has concealed its active role in the fraud on the lending banks since 2009.  It has refused to make a clean breast and presented a dishonest case until the conclusion.”

Chief Justice Smellie further dismissed a $4 billion claim by AHAB against al-Sanea for alleged fraud involving an AHAB business unit called the Money Exchange, saying it was “from its very inception, a criminal enterprise. It remained so throughout its existence.” The Chief Justice found that AHAB knew of and authorised the fraud carried out by al-Sanea, and he also dismissed a $5.9 billion counterclaim by Saad.

AHAB has an automatic right to appeal and has said in a statement that it was considering its legal options, but that any appeal was unlikely to be heard until 2019.

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