The Mubarak sons’ insider trading case: The story of a LE2 billion deal

The sons of deposed President Hosni Mubarak were brought into police custody on Saturday, after the Cairo Criminal Court issued a detention order for them and several prominent Mubarak-era financial figures on insider stock trading charges.

Business tycoons Yasser al-Mallawany, Hassan Heikal and Ayman Ahmed Fathy Hussein Soliman, appeared in court on Saturday along with Alaa and Gamal Mubarak, in a trial session tied to accusations that they violated stock market and central bank regulations to make unlawful profits in the 2007 sale of Al Watany Bank to the National Bank of Kuwait (NBK). It is one of many corruption charges that the Mubarak family has faced.

At the close of the Saturday session, the Mubaraks and the three other men were transferred to Tora Prison, south of Cairo, and Judge Ahmed Abul Fotouh adjourned the trial to October 20.

On Sunday, lawyers representing Mallawany and the Mubarak sons submitted a request to the Cairo Court of Appeals to transfer the trial to another court in the same circuit. On Wednesday, the court postponed the examination of the request to Thursday.

The privately owned Al-Shorouk newspaper reports that Saturday’s adjournment came as Abul Fotouh ordered the special committee to revise its technical report on the case, after it was discussed preliminarily in Saturday’s session.

The timing of the decision to arrest the defendants, however, has confused a judicial source who spoke to Mada Masr on condition of anonymity. The source says the decision was “incomprehensible,” given the outstanding status of the technical report being drafted by a court-created special committee.

Formed by a decision from Central Bank of Egypt (CBE) Governor Tarek Amer, the committee is headed by Judge Yehia Dakroury and includes CBE board member Laila al-Khawaga, who is also the vice chairperson of the Financial Supervisory Authority and of the Egyptian Exchange. Members of the committee swore an oath before the Cairo Criminal Court in November 2017 and were directed to examine decisions that led to the sale of the bank. The committee’s objective is to review the Egyptian Commercial Registry, and the memorandum of association of Cairo-based investment bank EFG-Hermes and its affiliated private equity fund, Horus Private Equity Fund II, in addition to investment firm Naeem Capital and its private equity arm, Nile Investment Limited.

According to the judicial source, the committee submitted the report to the court at the beginning of July. In Saturday’s session, the court was meant to hand the findings over to “both disputing sides, defendants and prosecution, giving them time to further examine the report and prepare a response.” However, this process stalled early on in the discussions. Absent a final opinion from the court and with a Saturday session that saw no new developments, the source says there was no legal reason to issue a detention order.

The backstory to Saturday’s session is rooted in the lead up to the 2007 sale of 93.77 percent of Al Watany Bank stocks to the NBK for over US$900 million.

Information about the talks to finalize the sale was strategically leaked in 2005, according to Egyptian Initiative for Personal Rights (EIPR) researcher Osama Diab. With this information in hand, Horus Private Equity Fund II and Nile Investment Limited each bought 7 million shares in Al Watany Bank between March and June 2006. Former EFG-Hermes CEO Ahmed Fathy Hussein Soliman, along with his son, Ayman, allowed Mallawany, EFG-Hermes’ joint chief, and Ahmed Naeem Ahmed Badr, the managing director of Naeem Holding, to acquire the requisite number of shares in the bank to become board members of Al Watany Bank, thereby allowing them to have access to information to target sales to particular investors, a violation of Egypt’s capital market law and the central bank, banking sector and monetary system law.

According to Diab, a single stock in Al Watany Bank rose from LE21 in March 2006 to LE35 by the end of the same year. The surging stock price pushed other investors, individuals and companies — most of whom were close to decision-making circles in Egypt at the time — to buy shares in 2007. This included Heidi Rasekh, Alaa Mubarak’s wife. Diab explains that when the bank was sold to the NBK in 2007, one share was valued at LE77, which meant substantial profits for shareholders.

Investigations into corruption surrounding the sale first began in September 2011, after a number of lawyers filed lawsuits to former Public Prosecutor Abdel Meguid Mahmoud. In May 2012, Mahmoud referred nine defendants to the Cairo Criminal Court: Soliman — who has since died — and his son Ayman, along with Mallawany, Badr, former EFG-Hermes CEO Hassan Heikal, former EFG-Hermes board member Gamal Mubarak, former Bullion Company board member Alaa Mubarak, as well as former Al Watany Bank board members Amr Mohamed Ali al-Qadi and Hussein Lotfi al-Sherbini.

The nine defendants were charged with taking in illicit gains of more than LE2 billion.

The prosecution accused Gamal Mubarak of conspiring with public officials to form a profiteering ring, through which he unlawfully acquired LE493,628,646. He was also accused of planning to sell the state-owned Al Watany Bank to achieve financial gains, and to enable other individuals to acquire a stock in the bank through a Cyprus-based company that was registered in the British Virgin Islands in order to evade taxes and preserve the secrecy of the owners’ identities and financial transactions.

The prosecution also pointed out that the defendants had formed among themselves a bloc that acquired a controlling share of the bank. As such, they were able to control and sell it in accordance with their agreement, in violation of rules and procedures governing disclosure regulations in the stock exchange, which mandates that a listed company must announce all information that could affect share prices for shareholders.

As for Alaa Mubarak, the prosecution accused him of the same charges, stating that he illegally profited from the sale of Al Watany Bank, making LE12,253,442 based on the key information he received from the rest of the defendants.

Hadeer El-Mahdawy 

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