Court rules Saudi firm complicit in ponzi scheme ‘worse than Madoff’

Cayman Islands chief justice Anthony Smellie described the AHAB dispute as “one of the largest Ponzi schemes in history”



Saad Group owner Maan al-Sanea

A court in the Cayman Islands has dismissed Saudi conglomerate Ahmad Hamad Algosaibi & Brothers'(AHAB) claim against the Saad Group of companies relating to a multi-billion-dollar fraud because it was complicit in the scheme.

The court issued a 1,348-page ruling on Thursday in response to claims by AHAB that Saad Group founder Maan al-Sanea, who married into the family business in 1980 and managed its financial assets, engaged in unauthorised borrowing “on an industrial scale”, Bloomberg reported.

Al-Sanea argued the business was aware of his actions and authorised them prior to its default on $9bn of debt in 2009.

AHAB’s default was among the largest of the global credit crisis and forms part of what is often described as Saudi Arabia’s longest-running debt dispute.

There have been signs of the progress this year with banks in the UAE and Saudi Arabia moving towards settlement plans relating to both AHAB and al-Sanea himself, who was detained by authorities in October due to the $7bn of debt owed by Saad Group, which also defaulted.

Combined the two companies are estimated to owe $22bn to more than 100 international banks, contractors and thousands of staff.

Read: Saudi Arabia steps up efforts to end $22bn debt dispute

Read: First Saudi Arabian-linked banks join al-Gosaibi debt settlement plan

An auction of vehicles and other assets owned by the former billionaire in Al Khobar, where he is being held in prison, began in March with the proceeds going towards repaying about SAR18bn ($4.8bn) owed to creditors.

Read: Thousands attend auction of vehicles owned by Saudi tycoon al-Sanea

Cayman Islands chief justice Anthony Smellie described the AHAB case as “one of the largest ponzi schemes in history” involving nearly $330bn that flowed through the firm since 1981.

He found that the scheme was so complex it could not be unwound and ruled out AHAB’s $4bn claim and a $5.9bn counterclaim by Saad Group, which included a $4.49bn promissory note purportedly issued by AHAB to Saad Group unit Singularis.

A previous $2.5bn judgement obtained by AHAB against al-Sanea personally in 2012 remains in place.

“The dishonesty perpetrated by AHAB is impossible to unwind and no attempt is being made to do so,” he said, according to Bloomberg.

“AHAB was an active participant in the fraud from inception to its unraveling in 2009.”

He went on to describe how the scheme had a “much greater turnover than the scheme operated by Bernie Madoff”, the disgraced US financier who committed the largest fraud in history worth an estimated $65bn.

AHAB took out more than 12,500 loans between 2000 and 2009, by which time they were maturing at a rate of 20 a day, according to Smellie.

“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 who represented liquidators for an affiliate of al-Sanea’s company, said after the ruling.

AHAB’s chief restructuring officer Simon Charlton said the company was considering its next steps.

“Unfortunately, the effect of the judgment is that none of the assets in Cayman can be paid to AHAB’s creditors,” he said.

“It is important though that the counterclaims were defeated and also that the judgment against al-Sanea stands.”

He added that there is an automatic right of appeal in the Cayman Islands but this is unlikely to be heard until 2019.

The firm said it had reached a deal to make significant payments to creditors from its financial and real estate assets under plans supported by 71 per cent of creditors.

AHAB is also pursuing claims against Al Sanea in courts in Saudi Arabia and said it would continue to enforce the 2012 judgement against him.