UPDATE 2-Algosaibi sues al-Sanea in US for fraud

* Lawsuit in Saudi dispute

* Purported loan irregularities of $10 billion (Adds details of lawsuit and background of case)

NEW YORK, July 17 (Reuters) - Saudi Arabia's indebted family conglomerate Algosaibi sued Maan al-Sanea, the billionaire head of the Saad Group, for fraud in a case involving allegations of $10 billion in loan irregularities, according to court documents.

The lawsuit filed in New York State Supreme Court on Wednesday by Ahmad Hamad Algosaibi and Bros (AHAB) is part of running dispute and responds to an earlier complaint filed against AHAB by Dubai-based bank Mashreq MASB.DU over irregular forex trades.

Regulators and bankers are grappling with the fallout from debt restructuring at Algosaibi and Saad Group [SAADG.UL], seen as the biggest blow to hit the Middle East since the start of the financial crisis.

The Algosaibi lawsuit filed on July 15 and seen on Friday says that Mashreq sued it for $150 million that it does not owe. It said that if the conglomerate does owe the money then it is because Maan al-Sanea created the liability through fraud.

"AHAB learned that its former employee, Maan Al Sanea organized a fraud in which he, among other things, entered into certain transactions in order to engineer the receipt of funds into accounts in the name of AHAB, which he then diverted to his own use," the court document said.

Maan al-Sanea is alleged to have siphoned about $10 billion out of the Algosaibi family company into his own business.

Saad Group, however, has repeatedly said that it has no business links with AHAB.

A representative of Algosaibi declined comment and a London-based spokesman for the Saad group said the company had not been served with the claim.

"It appears from press reports to be a repetition of claims previously presented extensively to the press and elsewhere and which are baseless," the spokesman said.

"If we are served with such a claim, we will respond to it vigorously through specialist counsel, confident in both the true facts and the judicial process."

In June, Algosaibi said it had discovered evidence of substantial financial irregularities within its financial services arm but did not offer any specific information. [ID:nLB275857]

The Saad-Algosaibi crisis has already had far-reaching consequences for the financial sector in the Gulf, home to the biggest economies of the Middle East.

Saad has been forced to sell off parts of its international investments, including a stake in UK construction company Berkeley Group (BKGH.L).

Sanea, a big stakeholder in bank HSBC (HSBA.L), has had his personal accounts frozen by the Saudi Arabian Monetary Agency (SAMA), the country's central bank.

Numerous Gulf Arab banks have said they face potential writedowns on loans made to the groups, and analysts at HSBC have estimated the total lending exposure of Saudi banks alone at $4-$7 billion [ID:nL8448580].

In the UAE, at least five banks, including Mashreq, National Bank of Abu Dhabi NBAD.AD and Abu Dhabi Commercial Bank ADCB.AD, have exposure to the Saudi firms, according to banking sources or the banks themselves.

The case is Mashreqbank PSC against Ahmed Hamad Al Gosaibi and Brothers Company 601650/2009 in New York State Supreme Court. (Reporting by Grant McCool, editing by Matt Daily)