Introduction: Regulatory packages to protect the financial market
In a decisive move reflecting the commitment of Saudi Arabian regulatory authorities to enhancing transparency and protecting investor rights, the Capital Market Authority announced a final ruling by the Appeals Committee for Securities Disputes. The ruling found 11 board members and members of the audit committee of Middle East Healthcare Company (MEH), the parent company of Saudi German Healthcare Hospitals, guilty of serious violations of the Capital Market Law and the Market Conduct Regulations.
Details of financial irregularities and revenue inflation
The Capital Market Authority clarified that the core of the violation lies in the defendants' inflating of the company's revenues and presenting inaccurate and misleading financial data to shareholders and the public. The details of these violations involve recording undue revenues amounting to more than SAR 358 million. Interestingly, the board members and the audit committee were fully aware of the limited possibility of collecting these amounts, yet they proceeded to record them, creating a misleading and false impression of the company's true book value.
These violations spanned several consecutive financial periods, starting with the financial period ending December 31, 2018, and extending to the initial period ending September 30, 2021. This manipulation directly affected the fairness and transparency of the financial market and gave an inaccurate picture of the company's financial performance.
Sanctions imposed and a list of those convicted
Based on the severity of the violations, the ruling imposed hefty fines totaling over 18 million Saudi riyals on the convicted individuals. The penalties were not limited to fines; they also included barring the convicted individuals from working for any entity under the supervision of the Capital Market Authority for periods ranging from six months to a full year.
The list of convicted officials included: Sobhi Abdul Jalil Ibrahim Batterjee, Makarem Sobhi Abdul Jalil Batterjee, Sultan Sobhi Abdul Jalil Batterjee, Khaled Abdul Jalil Ibrahim Batterjee, Mohammed Abdul Rahman Mohammed Momenah, Ahmed Mohammed Khaled Abdul Razzaq Dehlavi, Ali Abdul Rahman Abdullah Al-Qwaiz, Amr Mohammed Khaled Khashoggi, Mohammed Mustafa Bin Mohammed Omar Bin Siddiq, Waleed Abdul Aziz Abbas Ahmed Saleh Kayal, and Salah Ahmed Ali Hafni.
General context: Strengthening corporate governance in the Saudi market
These decisions come within a significant historical and regulatory context for the Saudi economy. With the launch of Saudi Vision 2030, the Capital Market Authority (CMA) has set its sights on developing an advanced capital market characterized by the highest standards of governance and transparency. The Middle East Healthcare Company (Saudi German) is one of the largest companies operating in the healthcare sector in the Kingdom and the region, making this decision a strong message to all listed companies that manipulation of financial data will not go unpunished. Historically, global financial markets have experienced crises due to revenue inflation; therefore, proactive and decisive intervention prevents the recurrence of such crises and protects the national economy.
Expected impact and rights of affected investors
At the local and regional levels, this decision strengthens investor confidence in the Saudi stock market (Tadawul). It confirms the existence of a safe investment environment subject to strict oversight that protects capital from financial fraud. In a move aimed at redressing the damage, the Capital Market Authority (CMA) affirmed that this decision was made in coordination with relevant authorities and in light of the public prosecution's case. Most importantly, the CMA indicated that any shareholder or investor harmed by these violations has the right to file individual or collective claims for financial compensation before the Committee for the Resolution of Securities Disputes, after submitting a formal complaint to the CMA.
