The Dubai Financial Services Authority (DFSA) has interviewed the firm’s founder, Arif Naqvi, and other senior executives in the past few months as part of the probe, the sources said.
The DFSA declined to comment. Abraaj said in a statement discussions between it and the regulator were “ongoing.”
“The DFSA is kept apprised of developments in the overall Abraaj Group and has our full co-operation on all relevant matters,” Abraaj said.
“While we do not comment on confidential discussions with our regulators, we are highly focused on strengthening our corporate governance and internal controls.”
A third source said Abraaj co-chief executives Omar Lodhi and Selcuk Yorgancioglu were among those questioned by the regulator.
There was no immediate comment from Naqvi or his legal representative. There was also no immediate comment from Lodhi. Yorgancioglu referred a Reuters request for comment to Abraaj.
The investigation heaps more pressure on Abraaj which is trying to sell its investment management business to Colony Capital following a dispute with some of its investors over the use of money in a $1 billion healthcare fund.
This erupted late last year, when investors including the Bill & Melinda Gates Foundation and the International Finance Corp made allegations that Abraaj mishandled their money in the healthcare fund. Abraaj has denied misusing the funds.
The allegations triggered a solvency crisis at the fund, the biggest buyout fund in Middle East and North Africa.
After halting fund raising activities and shaking up management, Abraaj last month filed for provisional liquidation in the Cayman Islands as it seeks an agreement with creditors and is selling parts of its businesses.
Summary findings of a review by Deloitte, appointed by Abraaj to audit its operations, said that a cash shortage at the firm led it to dip into investor funds.
Deloitte said on June 4 there was no evidence of embezzlement or misappropriation, but highlighted a lack of “adequate governance” and “overall weakness” at Abraaj.
In a statement on June 21, the DFSA had said it would be “discussing various matters with the Joint Provisional Liquidators of Abraaj Holdings and Abraaj Investment Management Limited and would continue to work toward safeguarding the interests of investors.”
DFSA has the power to fine or ban individuals from working in financial services within the Dubai International Financial Centre (DIFC) and has in the past imposed penalties for rule breaches. For companies, that can lead to a fine or even a suspension from operating in the center.
Abraaj has a regulated entity, Abraaj Capital, in the DIFC.
In its statement, Abraaj said it was premature to speculate on actions that the regulator may or may not consider.
“We believe these are decisions best communicated by the regulator in the fullness of time and early speculation is unhelpful to the process,” the statement said.
The affair has raised concerns in the finance industry that Dubai’s reputation as a major financial center could suffer.
Dubai’s main stock market index <.DFMGI> is down 15 percent so far this year, making it one of the worst performing in the region. The market has been partly affected by the Abraaj situation as well as weakness in the property sector.
“It is easy to fault regulators and auditors in retrospect,” said Richard Segal, senior analyst at Manulife Asset Management, adding that it was not easy to detect mismanagement.
“One might also argue that the investor oversight that brought these issues into the open might prove to be timely.”
