Dubai Ppty Tycoon Mulchandani Held; $123M Scam Alleged

source Zawya

DUBAI (Zawya Dow Jones)--Dubai's Public Prosecution is detaining Kabir Mulchandani, chairman of Dynasty Zarooni Real Estate, amid allegations he defrauded investors of up to 450 million U.A.E. dirhams ($123 million), according to lawyers for the investors, government officials and one of his business partners.

His detention is the latest in series of arrests in Dubai related to real estate and finance, but there's no evidence at present Mulchandani's arrest is related to any of the previous cases.

Mulchandani, who couldn't be reached for comment, has previously denied any wrongdoing.

Hilal Al Zarooni, Mulchandani's local partner in Dubai, said in a phone interview with Zawya Dow Jones "there is no evidence against the company. We sold everything legally."

Al Zarooni confirmed that Mulchandani is being held for questioning in Dubai, adding that he hasn't been contacted by authorities on the matter.

Ali Al Hashimi, an attorney for Global Advocates & Legal Consultants who are representing Dynasty Zarooni, also denied that there had been any wrongdoing on the part of his client in a phone interview.

Dubai police officials told Zawya Dow Jones Sunday that Mulchandani has been transferred from Jebel Ali police station to the custody of Dubai's Public Prosecution pending an investigation of his case.

According to law firm Al Shaali & Co., which is acting on behalf of the investors pursuing Mulchandani who have complained to the police, he is being questioned on two counts both subject to the Federal Penal Code and Dubai's property laws.

The first case relates to allegations that he conned a small group of wealthy investors into pledging large sums of money with the promise of a hefty monthly return.

The second case involves the selling of property at the AED2 billion Ebony and Ivory development in Dubai's Jumeirah Lake Towers district. According to Salem Al Shaali, the lawyer handling the case at Dubai-based Al Shaali & Co., Mulchandani took deposits for 20% of the property but failed to deliver the project.

A visit to the site of the project by Zawya Dow Jones confirmed that no work was underway. According to the lawyers, Mulchandani had shown investors other buildings under construction in Dubai an effort to convince them that the project was ongoing.

Jaydeep Anand, Dynasty Zarooni's chief operating officer, declined to comment on whether Mulchandani was being held when called by Zawya Dow Jones.

"I'm not the right person to comment on this," he said and referred the call to Rajesh Gupta, Dynasty's chief financial officer. Gupta didn't answer calls to his mobile.

Mulchandani was initially held by police earlier last week for an alleged liquor-related offense and bouncing a check for an undisclosed amount, which is an offense in the United Arab Emirates, an official at Dubai's Public Prosecution told Zawya Dow Jones on Tuesday.

He was later released on bail for AED46 million, but was re-arrested Thursday afternoon after further cases relating to the Ebony and Ivory development were brought against him by investors, according to Salem Al Shaali, a lawyer at Al Shaali & Co.

Al Shaali said Mulchandani's bail has now been raised to AED76 million.

Investors interviewed by Zawya Dow Jones who were involved with Mulchandani say they paid AED300,000 a month into the program for which Mulchandani promised a return of a million dirhams a month after the first six months in September.

The investors, who asked not be identified, said Mulchandani had promised to invest their funds in Dubai real estate projects but had failed to deliver any returns, or their initial capital.

According to the allegations being made by Al Shaali's clients Mulchandani got a group of 12 investors to pay AED30 million in deposits for another real estate project in Dubai, called Al Quorashi Tower. According to Al Shaali, the project never existed.

Earlier this year, Dubai's Real Estate Regulatory Authority, or Rera, cleared Dynasty Zarooni of any wrongdoing after two Indian publications ran reports that some investors had complained Mulchandani had misled them by showing one property and selling them another.

Officials at Rera were unavailable for comment when called.

Big Advertising Spend

Dynasty Zarooni was created in September 2007 with the merger of the Hilal Al Zarooni Group and the Bahamas-registered business consultancy firm Dynasty Enterprises Inc. The company had a net equity of 1.35 billion U.A.E. dirhams ($367.5 million) at the time of merging, according to Zawya.com data.

Dynasty Zarooni was the country's top spender in advertising during the first half of 2008, overtaking Emaar Properties PJSC (EMAAR.AI).

According to the Pan Arab Research Centre, the company's ad spend for the first six months of 2008 was estimated at $10.58 million (AED38.8m). Leaping from an almost non-existent advertising spend in 2007, the new advertising budget accounts for around 1.8% of the company's total business of AED21 billion.

Investors interviewed by Zawya Dow Jones said that Dynasty Zarooni's prominent advertising campaigns in Dubai, which showed pictures of the Ebony and Ivory real estate project under construction, had played a major factor in their decision to invest with Mulchandani.