A Kuwaiti company suing the Carlyle Group over a US$25 million investment that went bad is now accusing the private equity firm of marketing the deal without a license as it seeks to have its case heard in Kuwaiti courts.
The latest claim by Kuwait’s National Industries Group (NIG) adds a new twist to its more than two-and-a-half year legal challenge to Carlyle, and could complicate the US company’s relationships with other wealthy Middle East investors.
NIG’s lawsuit focuses on a Carlyle investment fund that was one of the earliest casualties of the financial crisis when it collapsed in 2008. The fund has been the subject of multiple lawsuits against Washington-based Carlyle.
In a motion filed this month with a Delaware court hearing the case, NIG argues that the dispute should be heard in Kuwait because Carlyle lacked the legal basis to pitch the deal there in the first place.
Selling foreign securities or shares in investment funds in Kuwait requires a license from local authorities, according to a declaration by lawyer Ahmed Zakaria Abdel-Magied filed by NIG attorneys. He added that marketing such investments without a license makes the underlying deal invalid.
NIG said yesterday it is entitled to the return of its US$25 million investment under Kuwaiti law.
“Carlyle was more than happy to conduct its sales presentations in Kuwait and close its deals in Kuwait,” NIG general manager Ahmed Hassan said in a statement. “But now that the moment has come to deal with the ugly aftermath ... Carlyle would prefer to try its luck in Delaware.”
Carlyle has tried hard to woo clients in the oil-rich Gulf Arab states. It opened an office in the financial hub of Dubai in 2006 and its shareholders include Mubadala Development Co, an investment company owned by Abu Dhabi.
The Carlyle fund involved in the Kuwait case, known as Carlyle Capital Corp Ltd, went bust in March 2008. It used high levels of debt to invest in securities backed by bundles of home mortgages that had been given a seemingly safe “AAA” rating by credit rating agencies.
Carlyle did not immediately respond to a request for comment about the case yesterday. Its Dubai office said employees there were not authorized to speak to the media and referred requests for comment to its London office. There was no immediate response to messages left in London outside of business hours.
Carlyle has repeatedly said it will fight NIG’s suit.
“We believe these claims are without merit and intend to vigorously contest all such allegations and are currently unable to anticipate what impact they may have on us,” Carlyle said in its most recent quarterly report, filed on Aug. 14.