Saudi Firm Aided Fraud Against 100 Banks, Judge Rules

(Bloomberg) -- A Saudi conglomerate was complicit in a multibillion-dollar fraud against 100 banks and therefore can’t collect damages from an entity linked to a former manager whom it tried to blame, a Cayman Islands court ruled.

The 1,348-page ruling issued 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.

Saudi Firm Aided Fraud Against 100 Banks, Judge Rules

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 and has denied any wrongdoing. 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 decision marks the latest turn in a global dispute dating to 2009 that has also been waged in New York and London courts. Cayman Islands Chief Justice Anthony Smellie called the alleged fraud “one of the largest Ponzi schemes in history” and said it involved nearly $330 billion that flowed through the firm since 1981. By comparison, Bernie Madoff’s Ponzi scheme was estimated to be a $65 billion fraud.

Thrown Out

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 against several companies within Al-Sanea’s Saad Group and a $5.9 billion counterclaim. A separate Cayman judgment against Al-Sanea as an individual remains in place, the judge said; an AHAB representative said that ruling required Al-Sanea to pay $2.5 billion.

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

‘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, Smellie said. “This type of Ponzi scheme had a much greater turnover than the scheme operated by Bernie Madoff,” the judge said, noting that 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.

“The losses involved are many billions of dollars. Revealing the truth has required a huge investigative, forensic and legal effort,” Steve Akers, a partner at Grant Thornton UK, said after the ruling. Akers represented liquidators for an affiliate of Al-Sanea’s company.

“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 $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 percent of creditors, Charlton said. A steering committee of its creditors is comprised of Standard Chartered Plc, Emirates NBD, BNP Paribas SA, Arab Banking Corp. and Fortress Investment Group, according to an AHAB statement.

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