* Bank found to have mis-sold $200 mln of investment
* Ordered to pay compensation; family claiming over $26.5
* Sarasin says considering appeal
* Ruling may set precedent for similar cases
* Marks development of Dubai's DIFC as financial
(Adds Sarasin statement, analysis, quotes from lawyer and
By Matt Smith
DUBAI, Aug 21 Switzerland's Bank Sarasin
mis-sold $200 million of investment products to Kuwait's
prominent Khorafi family, a court at Dubai's financial centre
found on Thursday in a ruling that could set a precedent for
similar disputes in the region.
The Dubai International Financial Centre's (DIFC) Court of
First Instance ordered Sarasin to pay compensation in what may
be one of the biggest awards in the 10-year history of the DIFC,
which is growing in importance as a financial jurisdiction.
The verdict could also set a precedent in future disputes
between cash-rich Middle Eastern investors and the Western
financial institutions which channel much of the region's wealth
into overseas markets.
The court's judgement did not set a figure for the
compensation to be paid to the Khorafis, but the family has been
asking for more than $26.5 million in court. Sarasin has 14 days
to appeal, court officials said.
Sarasin and its Middle Eastern subsidiary Sarasin-Alpen (ME)
Ltd sold unsuitable real estate-related investments to Khorafi
family members in 2007 and 2008, deputy chief justice John
Bank Sarasin, which had denied that it broke any regulation
or failed to meet any obligation, said in an emailed statement
to Reuters: "We and Bank Sarasin-Alpen (ME) Ltd are currently
considering the judgement and our options, including an appeal."
In their suit, originally brought several years ago, Rafed
Abdel Mohsen Bader al Khorafi, his wife and his mother alleged
that Sarasin failed to give them enough advice and warn them of
risks in the complex investments.
They said they borrowed money from Al Ahli Bank of Kuwait
to invest in real estate-related products through
Sarasin, which lent the wealthy family additional amounts.
According to court documents, the Khorafis said they were
told they would "never lose money" and that the risk of their
investments not appreciating in value was "negligible", which
they described as "hopelessly over-optimistic".
As the global financial crisis erupted in late 2008,
dragging down real-estate prices around the world, Sarasin asked
the Khorafis for extra collateral to back their loans and
eventually liquidated their investments at a loss.
"It is said he (Khorafi) overreached himself and his schemes
fell apart when markets crashed and that he has no one to blame
but himself," Chadwick wrote in his judgement.
"I do not take that view. I am satisfied that the present is
a clear case of financial mis-selling (of) unsuitable
investments to an unsophisticated investor and to his equally
unsophisticated wife and mother."
In 2013, Bank Sarasin merged with another Swiss bank to form
the J. Safra Sarasin group, according to the group's website.
In the wake of the global financial crisis, some other
Middle Eastern investors have tried to win some of their lost
money back from Western institutions.
In February this year, a U.S. appeals court rejected an
attempt by the Abu Dhabi Investment Authority (ADIA) to void an
arbitration victory by Citigroup in a dispute over a $7.5
billion investment in the bank.
ADIA had said Citigroup fraudulently induced its investment,
in part by issuing preferred shares to other investors that
diluted its stake. Citigroup denies wrongdoing.
Goldman Sachs and Libya's sovereign wealth fund are
set to meet in a London court over Libyan allegations that the
bank exploited a position of trust by encouraging the fund to
invest over $1 billion in trades that ended up worthless.
Goldman denies wrongdoing, and a hearing has been scheduled for
Bushra Ahmed, a barrister at KBH Kaanuun, the law firm
representing the Khorafis, said on Thursday: "Lawyers across the
world will be looking at this judgement, to what he (Chadwick)
said, his reasoning and how he's come to the conclusions he
(Writing by Andrew Torchia; Editing by Pravin Char)