Algosaibi sues Mashreq for role in 'massive fraud'

Saudi group, Ahmad Hamad Algosaibi & Bros, accused Saad Group Chairman, Ma'an Al Sanea, of a $10 billion (Dh36.73 billon) fraud and stated that Mashreq Bank PJSC had helped Al Sanea.

The suit Mashreqbank PSC versus Yousuf Ahmad Hamad Algosaibi, 602171/2009, has been filed in New York State Supreme Court (Manhattan).

Algosaibi has alleged that Al Sanea "organised a massive fraud", through transactions of which he was the broker at the Money Exchange, a financial wing of the Algosaibi group. In the 31-page complaint, it has been alleged that Al Sanea diverted the loan from Mashreq Bank, in the UAE, "in favor of companies under his control."

The law suit was filed by Algosaibi after being sued by Mashreq for the failure of $75 million currency exchange in May. Meanwhile, last month, Mashreq, as a counter claim, asked the New York state judge to freeze the $222 million worth of assets of Algosaibi and other defendants.

However, Justice Richard Lowe, New York State Supreme Court Justice, did not agree to the request of the bank to immediately freeze the assets of the defendants. In a statement, Mashreq said: "It is our firm opinion that the charges are completely without merit, outrageous in the extreme and really nothing more than an attempt by Algosaibi to divert attention away from their own responsibility in failing to perform on their obligations."

Meanwhile, regional and international banks, which include Commerzbank AG and Deutsche Bank AG, are also suing Saad Group companies or the Algosaibi group for their rush for the assets after the alleged fraud.

About $15.7 billion were borrowed by the units of the Saudi family from more than 80 regional and international banks, which includes Paris-based BNP Paribas SA, New York-based Citigroup and Arab Bank Plc located in Amman, Jordan.

These family groups are restructuring their debts, and the administration of the two Bahraini banks, belonging to the groups, is now under the Bahraini Central bank. This debt restructuring of two Saudi family groups, Ahmad Hamad Algosaibi & Bros and Saad Group, is going to stop the lending by the bank to the reputed one's without proper checks.

The Central banks, all over the Gulf region, have advised the banks on how to handle the situation. Central Bank has also issued instructions that in the UAE, banks must write off 75 per cent of their risks connected with the Saad Group by the next year end. The Economist Intelligence Unit said: "The defaults in June by two large Saudi family-owned conglomerates have generated some concern among banks about lending to Gulf family firms, and may herald the end of the unofficial practice of 'name lending' - lending to influential business families largely on the basis of their name."