In September 2017, Arif Naqvi was speaking in New York, trying to raise a billion to get a new fund.
As head of the private equity firm The Abraaj Group, Naqvi was a pioneer in the field of impact investment, which sought to make money for investors while doing good for the world. He spent the week rubbing shoulders with some of the richest and most powerful people in the world, including Bill Gates, Bill Clinton and then-Goldman Sachs CEO Lloyd Blankfein.
But as he sought to impress the drivers and promoters of the world, one of his employees was about to cut it all down, writing Simon Clark and Will Louch in his new book, “The Key Man: The True Story of How The Global Elite was Duped by a capitalist fairy tale ”(Harper Business), now.
It turned out that Naqvi had allegedly taken $ 780 million from his funds, of which $ 385 million has not yet been accounted for. He now faces a potential 291-year prison term. And all because “while Arif was in New York, the employee broke ranks and sent an anonymous email to investors. . . [warning] about years of infractions in Abraaj ”. It was a bomb that caused the “biggest collapse of a private equity firm in history.”
But how did a man turn a story around that allowed him to break some of the smartest investors in the world?
Naqvi was born in 1960 in Karachi, Pakistan, where he attended the city’s highly selective primary school. He later attended the London School of Economics.
In 2003, he established Abraaj after raising $ 118 million, much of it from “Middle Eastern governments, royals, and traders,” and announced his intention to invest in ways that would help conquer world poverty.
In April 2010, he was invited by President Barack Obama, along with 250 other Muslim business leaders, to a presidential summit on entrepreneurship. There, Naqvi delivered a speech on the importance of impact investment and how a billion children would need training and jobs in the coming decades.
“It can only happen,” Naqvi said at the meeting, “through entrepreneurship.”
Two months later, the U.S. government invested $ 150 million in Abraaj.
Naqvi put his money where his mouth was, to a point.
After taking control of its local power company, Karachi Electric, in 2008, Naqvi made electricity more reliable and cost-effective for the company. But it also reduced the workforce by 6,000 employees, causing riots.
Meanwhile, it distracted the West with massive charitable subsidies.
“Arif donated millions of dollars to universities around the world, including Johns Hopkins University in the United States, and the London School of Economics, which appointed a chair according to Abraaj,” the authors write. “Following in the footsteps of multimillion-dollar philanthropists like Bill and Melinda Gates, Arif created a $ 100 million charity called the Aman Foundation to improve care and health in Pakistan.”
But Naqvi also enjoyed the big life, flying with “a private Gulfstream jet with a custom tail number (M-ABRJ) and sailing on yachts to meet new investors who could help increase his fortune.”
In 2007, Naqvi had moved to “a new palatine mansion in the luxurious and gated Emirates Hills district of Dubai… Known as the Beverly Hills of Dubai.”
He was a regular at Davos and similar conferences, where he befriended Gates, who was the guest of honor at a dinner at Naqvi’s home in 2012.
“Bill and Arif had a lot to discuss,” the authors write. “They agreed that their charitable foundations would work together on a family planning program in Pakistan. Arif seemed to be precisely who Bill was looking for. He was rich and concerned about the poor.”
Naqvi received a $ 100 million investment from the Gates Foundation to allegedly invest in hospitals and clinics in emerging markets. This investment, in the new Abraaj Growth Markets health fund, helped Naqvi attract $ 900 million more from other investors.
“It’s a significant co-investment partnership,” Gates said of the deal. “It’s also an example of the kind of smart partnerships that offer huge promises for the future.”
In fact, Naqvi had already started misusing the money with a “secret treasury department” that not even most of its employees knew about, the authors write.
“Abraaj was really made up of a tangled network of more than three hundred companies based primarily in tax havens around the world.”
Regulators, forced to keep millions of dollars in a bank account for emergencies, used to be almost empty, the authors write.
“Just before the end of each quarter, when Abraaj Capital had to report to the regulator, Arif and his colleagues transferred money to the account to make it appear to contain the required amount. A few days [later], they emptied the account again “.
They are manipulated beyond anything you’ve seen in a background and are easy to discover. Don’t believe what your partners send you.
an anonymous email that dropped the Naqvi scheme
Abraham’s employees also often attacked a fund to pay dividends on others in “a type of crude fraud known as the Ponzi scheme,” the authors write.
On January 9, 2014, around the time, Naqvi served alongside Richard Branson as the main attractions of an Oxford forum on social entrepreneurship – a manager in his finance department wrote to him that “we will have a $ 100 million deficit on Jan. 15. ”
Naqvi “had to choose between telling the truth to investors and lenders and pretending that everything went according to plan. He chose the path of deception,” the authors write.
In 2015, Naqvi “was paid $ 53.75 million” and also “retained revenue of $ 154 million [a] the sale of shares to spend as he saw fit and deprived his investors of their profit, ”the authors write.
Shortly afterwards, a Gates Foundation fund manager, Andrew Farnum, began to suspect. Although The Abraaj Group showed no movement over previous investments, the organization was still asking Gates for hundreds of millions of dollars in additional investment.
In September 2017, Farnum wrote an email asking for the location of Gates ’current funds and how they were invested, as well as a timeline for upcoming investments.
“Andrew’s tone was polite, but the implications of his questions were disastrous,” the authors write. “He was asking Abraaj to prove that he was not misusing the money of one of the richest men in the world.”
While Abraaj sent vague guarantees and old bank statements, Farnum insisted on more details.
A week later, Abraaj’s anonymous employee sent the incriminating email to the fund’s investors, revealing the organization’s negotiations.
“Do your due diligence and ask the right questions. You will be amazed at what you discover, ”said the e-mail.
“The areas you need to focus on are like unrealized earnings valuations – they’re manipulated beyond everything you’ve seen in the background and easy to discover. You don’t believe what your partners send you… believe what they tell you and check it out. Protect yourself. ”
Immediately, the walls fell.
“Investors no longer trusted Abraaj and wanted to return their money. The problem was that Abraaj did not have them “, write the authors.
The Gates Foundation hired a forensic accounting team to investigate Abraaj’s books. Throughout all this, Naqvi was still meeting with potential investors, trying to raise $ 6 billion for a new fund.
At this time, Naqvi appeared in a televised debate on global health care in Davos with Gates.
“Bill moved uncomfortably in the seat and grabbed his lips,” the authors write. “Whenever Arif tried to make eye contact or make him talk, Bill looked the other way.”
In October 2018, the authors published an article exposing Abraaj’s alleged misdeeds in The Wall Street Journal.
“At least $ 660 million of the investors’ money was transferred without their knowledge to Abraaj’s hidden bank accounts, ”the authors reported. “By then, more than $ 200 million had flowed from these accounts to Arif and people close to him.”
Finally, U.S. prosecutors accused Naqvi of running a criminal organization. He was arrested on 10 April 2019 at Heathrow Airport in London and has been ordered to be extradited so that he can be tried in New York for fraud.
Despite the paper’s trail, Naqvi has “maintained his innocence” as he remains under house arrest in London while awaiting a decision on his appeal. His company name has been removed from the LSE chair.
Meanwhile, its shocking story serves as a cautionary tale for wealthy but gullible investors who want to solve global poverty.
The poor, the authors write, would have “benefited more if Arif had taken his millions to the top of a tall Karachi building and thrown them into the sky, letting the wind scatter dollar bills through the city.”