One of the three Middle Eastern investors who bought control of Washington's First American banks last spring has been placed under house arrest in Abu Dhabi and accused of involvement in an alleged scheme to defraud the ruler of that country of $100 million.
Abdullah Darwaish, financial adviser to the royal family of Abu Dhabi, was removed from that post amid an investigation of fraudulent transactions in the financial affairs of Sheik Zayed Nayan, ruler of Abu Dhabi and president of the United Arab Emirates, according to documents filed in a New York state lawsuit.
Darwaish and two associates last April bought control of Financial General Bankshares Inc., the $2.6 billion holding company that owns the First American Banks here and several others elsewhere. Darwaish purchased stock in Financial General as guardian for Prince Mohammed, a minor son of Sheik Zayed.
The prince recently turned 21 and decided to remove Darwaish as his representative to Financial General, said Robert Altman, the Washington attorney who handled the purchase of the bank for the Middle Eastern group.
Confirming the investigation of Darwaish's handling of the sheik's finances, Altman said the events in Abu Dhabi "will not affect the operations of Financial General in any way."
No formal charges are known to have been filed against him, but Darwaish now is being "restrained by government authorities in Abu Dhabi," says an affidavit filed last week in a New York state lawsuit stemming from the alleged fraud in the sheik's finances.
Documents filed in that case indicate Darwaish's troubles in Abu Dhabi were known weeks and perhaps months before he and his partners bought control of Financial General, but were never disclosed to bank officials, stockholders or regulatory agencies.
Neither the Securities and Exchange Commission, which regulates corporate acquisitions, nor the Federal Reserve Board, which has authority over bank holding companies, has been informed of Darwaish's troubles in Abu Dhabi, sources at the two agencies said.
Besides the royal family of Abu Dhabi, the owners of the First American Banks are Sheik Kamal Adham, former chief of intelligence for the government of Saudi Arabia, and Faisal Saud Fulaij, former chairman of Kuwait's national airline.
Though they own virtually all the stock in the holding company, the Middle Eastern investors are not directly involved in the management of the Financial General banks. Their stock is controlled by several prominent Americans, led by Washington lawyer Clark Clifford, who became chairman of Financial General earlier this year, and Altman, a partner in the firm of Clifford and Warnke.
The lawsuit alleges that Sheik Zayed lost between $90 million and $100 million on investments in copper, gold and U.S. government bonds made by Darwaish and other aides.
The lawsuit does not involve Financial General directly, but revelations resulting from the case raise questions about who controls the Washington banking company and whether federal regulators can oversee adequately the actions of foreign bank owners.
During the four years it took the Middle Eastern investors to win the permission of federal regulators to buy Financial General, a central issue was whether regulators in Washington could police the actions of investors halfway around the world.
When the Middle Eastern investors made their formal public offer to buy Financial General in March, the group identified Darwaish as "chairman of the Department of Personal Affairs of Abu Dhabi"--the person who managed the personal fortunes of the country's royal family.
But two months earlier--in mid-January--London lawyers representing Sheik Zayed sent telexes and letters to several firms in the United States and other countries notifying them that Darwaish had been replaced and no longer had authority to act on the investments of the royal family.
In those letters, which have been filed in New York, the London law firm of Linklaters and Paines said it had "been retained to represent the president of the United Arab Emirates, his highness Sheik Zayed bin Sultan al Nahayan, the ruler of Abu Dhabi, in connection with apparently fraudulent transactions which may exceed $100 million entered into by a company incorporated in Panama, Financiera Avenida S.A., and certain individuals including Abdullah Darwaish."
Financiera Avenida is identified in the lawsuit as a Panama company set up by Darwaish to invest Sheik Zayed's riches, which flow from vast oil reserves beneath his tiny desert sheikdom. The London lawyers notified firms that had done business with Avenida that Darwaish and others previously managing the firm "were removed from office and replaced" by three British attorneys at an Avenida board meeting Jan. 11.
"From this time forward, no transaction on behalf of Avenida may be undertaken except under instruction of one of the aforementioned attorneys," the letter warned, asking the firms to provide details of any transactions with the sheik's Panamanian company.
The letter is included in the $36 million defamation suit brought in New York against the London law firm by Randall A. Kreiling and Lasidi S.A., a Swiss investment company headed by Kreiling that did business with Avenida and Darwaish.
Kreiling, an American citizen living in Switzerland, was formerly married to a daughter of Texas oilman Lamar Hunt, who owns the Kansas City Chiefs professional football team.
In his legal action, Kreiling contends that Sheik Zayed's lawyers damaged his reputation by linking his firm to allegedly fraudulent transactions. Defendants in that case are the London law firm and three of its members, Financiera Avenida, and Ghanim Faris Mazrouri.
Mazrouri is identified in the petition as the person appointed to succeed Darwaish as chairman of the Department of Personal Affairs for the Abu Dhabi royal family.
The defendants in the Kreiling case responded by filing a counterclaim seeking $96 million plus interest, 17,200 ounces of gold and other relief, accusing Kreiling of mismanaging the sheik's money.