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Sun 18 Oct 2009 05:00 AM

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What happens next?

Was Damas CEO Tawhid Abdullah's $165m unauthorised payments a case of mere ignorance?



Damas

CEO Tawhid Abdullah admitted responsibility for $165m in unauthorised payments, but a senior board member says his only crime was ignorance. Will that be enough for the DIFC authorities? Those who question Dubai’s credentials as an international financial centre will be watching closely.

For a clear cut case, it got murky very fast.

On Monday evening last week, Tawhid Abdullah, CEO and founder of the Middle East’s largest — and listed — jewellery retailer
Damas

, officially put his hands up to $165m of non-specified unauthorised payments and resigned. Trading of
Damas

shares on DIFX was temporarily suspended.

On Tuesday morning, a senior
Damas

board member told Arabian Business the unauthorised payments were all down to a simple oversight, or a series of simple oversights, and that certainly nothing had occurred to trouble the police. Abdullah’s personal lawyer said: “He resigned because he takes responsibility for the unauthorised payments.”

By Tuesday afternoon, Abdullah was telling Reuters he hadn’t done it. “The news about me making unauthorised transactions is not true,” he said.

But when Arabian Business finally caught up with him later that afternoon, to ask “did you do it or didn’t you?”, he told us to contact his lawyer again and said he would agree with whatever he said.

The lawyer’s phone was switched off.

But let’s go back to the start. Here’s the original, official, mea culpa, issued by
Damas

on Monday evening:

“The company today announces that it has accepted Mr Tawhid Abdullah’s resignation as managing director and CEO due to his disclosure to the board of what is understood to be unauthorised transactions conducted by him. The full extent of these transactions has not been ascertained at this time, but the company’s initial estimate is that these transactions could amount to approximately $165m.”

Certainly, such a statement implies a degree of certainty. It is fair to surmise that if you disclose to the board, and then to
Nasdaq

, that you have misappropriated $165m, that you did not do so lightly. Not lightly enough to change your story less than 24 hours later.

To put $165m dollars into context in terms of
Damas

, the company, which has stores in 18 countries, raised $270.6m when it listed in July last year, and net profits in the 15 months to March this year were some $61.9m. $165m is not, then, a relatively trifling sum for
Damas

.

The board member Arabian Business spoke to was quick to pour cold water on any notion that the money was lost. “It hasn’t gone missing,” he said, speaking on condition of anonymity. “It’s been used on different projects, without the prior approval of the Board, that’s the whole thing. So many projects, investments here and there.”

Asked if the money had been paid into Abdullah’s own accounts, he said: “Of course not. Of course not. No.” And would the police be investigating the circumstances surrounding the resignation? “Of course not. Come on. This is the misinterpretation. He is still around, doing all his jobs. It is basically, to be short and brief, ignorance of the international laws, that’s all. The
Nasdaq

law, and the DIFC law.”

The argument put forward by the board member was that Tawhid Abdullah was simply the victim of his own naivety; that he was still not used to operating within the strictures demanded of CEOs and board members of listed companies.
Damas

claims to have existed since 1907, and it listed in the summer of 2008. The family was finding the transition from a private company to a public one difficult to make, the board member said.

“It is all some technicalities… As I said, it is ignorance… It (
Damas

) hasn’t been public for a long time. We’ve just started being public for about a year and a half… It gets to the point where before you pick up the phone you have to do 1,2,3,4. When you say ‘hello’ to someone… it gets quite complicated.”

Will this story be enough for shareholders? After all, the money that has been spent without the approval of the board is their money. Dubai wants dearly to be taken seriously as an international financial centre, and the response of the emirate’s financial authorities to Abdullah’s admission and resignation will be watched keenly by potential investors. Would claiming ignorance of the rules be enough to escape censure?

On Tuesday, as the story unfolded,
Damas

’ share price slumped thirteen percent to 32 cents, its biggest drop since June 7. When the company was listed, shares were sold at a dollar each.

“It [the unauthorised payments] hasn’t gone to his account, that’s for sure. It has gone to some investments. Some other investments. Investments that could bring back revenues to the company itself. It is coming back, all the money is coming back in the next three or four months,” the board member said.

What a far cry all this seems from the happier times last year when
Damas

had just completed its listing. Back then a euphoric Tawhid Abdullah told Arabian Business about the company’s ambitious plans for the future, and about the enthusiasm he felt for moving his company away from being considered a family outfit.

“This [the listing] is a very healthy step the company has decided to take,” he said. “We’ll have a broader board of directors, with three independent directors joining us, who will bring with them many years of experience that we can all benefit from.

“I would recommend widening the board of directors to any other Gulf firm, because it is a step that moves you towards being more independent and achieving better corporate governance.”

He added: “There should be, in my opinion, more UAE companies moving from being a family business to a corporate structure. This would help the economy of the country. I think eventually local companies will say: ‘why didn’t we do that?’”

Damas

’ board of directors comprises some big names. As well as three Abdullah bothers — Tawfique (chairman), Tamjid (deputy managing director) and Tawhid —
Emaar

CEO Mohammed Ali Alabbar, World Jewellery Confederation president Dr Gaetano Cavalieri, Al Qudra real estate chairman Amer Abduljalil Al Fahim and CEO of investment group Amwal Al Khaleej Amma Al Khudairy — all sit on the board.

The Abdullah brothers own over 50 percent of the shares, and other major shareholders include the Al Fahim Group and Amwal Al Khaleej Commercial Investment Co.

Following Tawhid Abdullah’s resignation, Hisham Ashour was appointed CEO.

Damas

, which not only manufactures and sells its own jewellery but also that of other brands, for example Tiffanies & Co, and Links of London, is a rare example of a UAE homegrown retailer that has gone on to become an international concern with stores across the Middle East, Southeast Asia, Europe and North Africa.

Last summer, Tawhid was planning for major expansion in Saudi Arabia and India. “We aim to run 50 percent of our business in the UAE and 50 percent outside it,” he said.

Judging from the tone of several of the reader’s comments left beneath the story of Tawhid Abdullah’s resignation on Arabianbusiness.com, Tawhid made many friends as he built his empire.

A poster calling herself Elizabeth said: “Mr Tawhid is a very respectful business man and a great philanthropist. He works very hard, and is an extremely good person. I am sure he didn’t do anything wrong, it must be ignorance of code of conduct for listed companies.”

However, another poster, who called himself Baakies, said: “Ignorance of international and DIFC law is absolutely no excuse. This guy was supposed to be the CEO, not the tea boy.

I wonder if I will ever see the money returned to the company, and then to the share holders?

I bet not.”

Whether Dubai’s financial authorities fall on the side of Elizabeth or Baakies will determine Tawhid Abdullah’s future.

Dazzling growth

Damas

has its origins in the activities of Mohammed Tawfique Abdullah, the grandfather of the founding shareholders. Abdullah began designing, crafting and selling gold jewellery to retailers in Syria in the early 1900s. In 1955, the family business moved to the UAE when Tawfique Abdullah’s son, Mohammed Taher Abdullah, moved to Dubai and opened a goldsmith’s shop under the name Al Abdullah Jewellery Traders LLC (AAJT).

The first retail outlet of AAJT was opened in 1959 and the gold wholesale operations began in 1970. In the late 1970s, Taher Abdullah and his three sons, Tawfique, Tamjid and Tawhid, developed the Damas brand in order to promote and market AAJT’s products.

By the end of 1985, the group had expanded into several retail stores, and in 1988 the group launched its first branded jewellery line.

By 2000,
Damas

had established retail operations in Qatar, Bahrain, Oman and Jordan. In 2002, the group expanded its operations to Kuwait and Saudi Arabia, and by 2004, it had expanded to Egypt, Libya, Sudan, Italy and India.

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Mariam 10 years ago

I know that Damas has the strictest Accounting / Auditing system and $165million if said is due to ignorance then i think people saying this are less educated. The UAE government has to closely investigate into this as such businessmen defame UAE on theinternational scene.

Sami 10 years ago

It is fairly obvious that Tawhid Abdullah invested the money in the two Six Senses “Angsana” Hotel and Towers on SZR without Board approval. These two towers have been resold at a discount of 45% of cost to a developer that intends to turn them into apartments. Is fair to ask Damas CEO, how can he claim ignorance in such a case, when surely, his in house legal counsel and chief financial officer new about the transaction as it is impossible to execute without these two knowing about it Now, why have these two senior officials not point out to Tawhid proper “Corporate Governance” and necessary approvals required. I believe this is one big cock-up worthy of investigation by the highest level.

rossi 10 years ago

Hey,what's going on?No more news?I can't wait to know where these "unauthorised payment" went and to whom. Yoohooo