The Securities and Exchange Commission on Thursday filed a civil lawsuit in federal court against defunct private equity firm Abraaj Investment Management and Abraaj founder and CEO Arif Naqvi for fraud and the alleged misappropriation of more than $230 million from Abraaj's health-care fund.
Also, Mr. Naqvi and former managing partner Mustafa Abdel-Wadood were arrested on U.S. charges of defrauding investors, with one defendant nabbed after arriving in New York with his wife and son to look at colleges. Mr. Naqvi was arrested Wednesday in the U.K. and is awaiting possible extradition to the U.S. Mr. Abdel-Wadood was apprehended Thursday in New York and remains in a federal lockup.
Abraaj Investment Management and Naqvi allegedly falsely reported to the Abraaj Growth Markets Health Fund and its investors that their money would be invested in health care-related businesses in emerging markets. Instead, the SEC's complaint, filed in U.S. District Court in New York, alleges the money was used to cover cash shortfalls at Abraaj Investment Management and its parent company, Abraaj Holdings Ltd., a separate company largely owned by Mr. Naqvi.
The SEC is asking the federal court to enjoin Abraaj and Mr. Naqvi from violating federal securities laws in the future, disgorgement of all ill-gotten gains, with prejudgment interest and civil monetary penalties.
Investors in the Abraaj Growth Markets Health Fund include CDC Group, Bill and Melinda Gates Foundation, health-care operators Philips and Medtronic, as well as the African Development Bank and France's Proparco, according to a statement on the CDC Group's website.
Mr. Naqvi could not be reached for comment. Abraaj Group is in provisional liquidation in the Cayman Islands.
On the criminal charges, Mr. Abdel-Wadood pleaded not guilty and is due back in court on April 18. He was arrested at his hotel while in New York to shop for colleges for his son. His lawyer Benjamin Brafman declined to comment after court. A lawyer for Mr. Naqvi in Dubai didn't immediately return an email seeking comment on the charges.
Abraaj, which managed almost $14 billion, was forced into liquidation in June after a group of investors commissioned an audit to investigate the alleged mismanagement of money in its health-care fund.
Messrs. Naqvi and Abdel-Wadood are charged with inflating the value of the Dubai-based firm's holdings and stealing hundreds of millions of dollars. Prosecutors say that from 2014 to 2018 they and others not identified in the court papers worked to artificially inflate the value of Abraaj's emerging market investments by more than $500 million. The firm used money earmarked for investments to meet its own operating expenses without telling investors, prosecutors said.
Mr. Naqvi is also charged with stealing investors' money for himself and his inner circle, including Mr. Abdel-Wadood, a resident of Dubai. The two are accused of conspiracy, wire fraud and securities fraud.
Bloomberg contributed to this story.