Dubai World’s trouble paying its debt obligations may not be too surprising when you consider some of the dubious investments it has entered into over the past few years. A case in point is Dubai World’s ill-fated voyage into the business of building and selling submarines for recreational use.
In September, Dubai World filed a lawsuit in federal court in Florida against one of its former executives, claiming Herve Jaubert caused more than $30 million in losses for the Middle Eastern-based company. Dubai World claims Jaubert used a Florida-based company he controls to “overcharge” Dubai World for submarines Jaubert either couldn’t manufacture or didn’t work.
Dubai World says it entered into a deal with Jaubert on the basis of his claims that “he had designed submarines that were ready for production” and he was a “naval engineer who was an expert in submarine design.” On the basis of those claims, Dubai World formed a company called Exomos in 2003 to oversee the manufacture and sale of “luxury recreational submarines” and tapped Jaubert as the CEO of the new business.
But Dubai World, in court papers, says it subsequently learned that Jaubert did not have the expertise he claimed. The complaint alleges that a number of the submarines and submarine parts Exomos purchased from a company allegedly controlled by Jaubert either didn’t work, or were sold at inflated prices.
One submarine, for instance, “caught on fire and was damaged.”
The Dubai World lawsuit is just the latest twist in an unusual story involving claims of fraud and false imprisonment. Jaubert, who now resides in Florida, has charged he was forced to flee from Dubai in 2007 over the matter and that Dubai World has maligned his character.
It will be up for the courts to sort this all out. But none of this speaks well of Dubai World’s due diligence before going into a speculative ventures.