By Rania El Gamal
KUWAIT, July 26 (Reuters) - The apparent suicide of a Kuwaiti broker, sued for fraud by U.S. regulators in a case linked to Kuwait's rulers and its top investment firm, shines an unwelcome light on the weak regulatory environment in the Gulf Arab state.
Kuwaiti Hazem Khalid Al-Braikan, 37, who had been at the centre of a financial scandal that erupted last week, was found dead on Sunday, days after being sued by the U.S. Securities and Exchange Commission over suspicious stock trades.
His sudden death sent shockwaves through the financial sector in the world's biggest oil-exporting region, already hard hit by the global crisis and facing concerns about transparency.
For Kuwait, the scandal comes as it attempts to attract investors and diversify its economy away from oil and establish itself as a financial sector, like Gulf neighbors Dubai and Bahrain.
But despite its enormous wealth, it has made little progress as many of its plans - including a proposed financial regulator - have been stalled by a protracted row between the cabinet and parliament.
"This is perhaps a reminder of why Kuwait should have a regulatory environment. It should have a stock market authority like Saudi Arabia, UAE, Bahrain and Oman to regulate the industry," said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments in Dubai.
"The structure of legislations in Kuwait needs to be revised. It can't be a financial hub without that."
QUESTIONING DEALINGS
Kuwait is home to the Arab world's second largest bourse, but has no financial regulator and lax rules, by international standards, on what companies must tell the stock market.
A minimum of corporate data has to be released and some companies leak market-moving news or even release their results first in the local press, late at night or over the weekend, to the dismay of investors.
Kuwaiti newspapers are full of unsourced reports on a daily basis, accurate or false, but officials rarely respond to requests for confirmations.
In recent weeks, local newspapers have said Kuwaiti banks have more than $1 billion in loans to troubled Saudi conglomerates Saad and Algosaibi.
The central bank, which is responsible for overseeing the sector, has repeatedly declined to comment.
Much like its neighboring Gulf states, many of Kuwait's biggest firms are controlled by a handful of men who are members of, or linked to, the ruling al-Sabah family. Braikan was the chief executive of Al Raya Investment, which is 10 percent owned by Citigroup Inc and chaired by a senior member of the al-Sabah family.
The SEC's lawsuit last week also named Kuwait's KIPCO Asset Management Co (KAMCO) and a Bahrain-based bank, United Gulf Bank , accusing them of benefiting from illegal trades.
Both companies are part of Kuwait Projects Co (KIPCO), a major investment firm which has stakes in 50 companies, operates in 21 countries and is headed by the son of the country's ruler. KIPCO is also a major investor in Al Raya.
"This company (KIPCO) has always been famous for handling the money of very important people and so when something like this happens, it makes one question all the dealing that has gone through the company," said a Kuwait-based analyst who asked not be identified.
KIPCO, seen as one of the more transparent firms in a very opaque market, is among the few that give an annual earnings outlook and hold regular conferences for foreign investors.
"This incident will shed the light on the need for tougher legislation for bourse trading and leaked media reports in Kuwait," said a Kuwait-based banker.
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(Editing by John Stonestreet)