Mustafa Abdel-Wadood, one of six Abraaj Group senior executives facing securities fraud and racketeering charges, has pleaded guilty and agreed to co-operate with a US probe on the fallen emerging markets firm’s activities, sister publication Private Equity International reported.
Abdel-Wadood, 49, admitted to seven counts of racketeering and fraud charges at a hearing at the US district court for the Southern District of New York last Friday. Dressed in a dark blue suit, he was accompanied by his wife and several family members to the courthouse.
Reading from a prepared statement, a visibly nervous and emotional Abdel-Wadood said that by 2014 Abraaj was facing severe liquidity issues and cash shortfalls were a monthly reality.
“At the direction of Arif Naqvi, Abraaj’s founder and CEO, numerous steps were taken to close the gap,” Abdel-Wadood said. These steps included holding back distributions and drawing down funds for working capital instead of investments, he said.
Abdel-Wadood said he also lied to investors about Abraaj’s financial health and overstated Abraaj’s track record, including letting potential investors believe that several investments were more successful than they were.
“To that end, I approved valuations that I knew were inflated, and at Naqvi’s urging, I resisted the attempts by others in the firm to mark down those valuations,” he said. “My commitment to Abraaj compromised the integrity of my judgment, and I ended up drifting from who I really am. For that I am ashamed,” he added, fighting back tears.
Abdel-Wadood insisted there was no formal agreement among Abraaj’s leaders to commit illegal acts. He accused Naqvi of misconduct.
“Some of us pushed back,” he said. “Too often, however, we capitulated.”
Abraaj was thrust into the spotlight in February last year after four limited partners in its 2013-vintage Global Healthcare fund hired an auditor to examine the alleged misuse of funds from the vehicle. The firm underwent provisional liquidation by a Cayman Islands court last summer.
Naqvi has denied all wrongdoing. Following his case management hearing at London’s Westminster Magistrates’ Court on 26 June, a spokesman for Naqvi released this statement: “Mr Naqvi continues to maintain his innocence, and he fully expects to be cleared of any charges. He has repeatedly stated his commitment to be a positive force in resolving this situation for all stakeholders.”
Naqvi is awaiting his extradition trial to the US from the UK, which has been scheduled for February. Last Wednesday, Naqvi’s lawyer told Westminster Magistrates’ Court that US prosecutors’ charges against Abraaj and Naqvi are politically motivated.
Magistrate Judge Gabriel Gorenstein asked Abdel-Wadood if the false statements were materially important to the people they were made to. He replied yes, adding that valuation and financial health were important for the investors.
The sentencing for all counts could be 125 years of prison time, or three years of supervised release, or a fine of $250,000 and above, and a special assessment charge of $1,000, Judge Gorenstein told Abdel-Wadood.
Abdel-Wadood, who joined Abraaj in 2006, pleaded guilty to charges related to Abraaj’s $2 billion 2011-vintage APEF IV fund and its most recent APEF VI fund, which was seeking $6 billion. He was a managing partner responsible for overseeing Abraaj’s investments.
The former executive will be allowed movement in Manhattan from 7pm to midnight while still under house arrest. He must continue wearing his tracking device, a source familiar with Abdel-Wadood told PEI.
The date for the hearing is set for 27 December.