Saudi Arabia's indebted family conglomerate Algosaibi has filed a lawsuit in New York alleging $10 billion in loan irregularities involving billionaire Maan al-Sanea, the head of the Saad Group, the Financial Times reported on Friday.

In what would a dramatic escalation of the dispute, the case filed by Ahmad Hamad Algosaibi and Bros (AHAB) responds to an earlier complaint filed against it by Dubai-based bank Mashreq over irregular forex trades, the newspaper reported.

'We have not seen or been served with this claim, although it appears from press reports to be a repetition of claims previously presented extensively to the press and elsewhere and which are baseless,' said a London based spokesman on behalf of the Saad Group.

'If we are served with such a claim, we will respond to it vigourously through specialist counsel, confident in both the true facts and the judicial process.'

Regulators and bankers are grappling with the fallout from debt restructuring at Algosaibi and Saad Group, seen as the biggest blow to hit the Middle East since the start of the financial crisis.

In June, Algosaibi said it had discovered evidence of substantial financial irregularities within its financial services arm but did not offer any specific information.

The Saad-Algosaibi crisis has already had far-reaching consequences for the financial sector in the Gulf, home to the biggest economies of the Middle East.

Saad has been forced to sell off parts of its international investments, including a stake in UK construction company Berkeley Group. Sanea, a big stakeholder in bank HSBC, has had his personal accounts frozen by the Saudi Arabian Monetary Agency (SAMA), the country's central bank.

According to the FT, the court document alleges that Sanea, who is the chairman of the Saad group, is also a senior executive of AHAB's financial service division, the Money Exchange. Saad Group, however, has repeatedly said that it has no business links with AHAB.

Numerous Gulf Arab banks have said they face potential writedowns on loans made to the groups, and analysts at HSBC have estimated the total lending exposure of Saudi banks alone at $4-$7 billion.

In the UAE, at least five banks, including Mashreq, National Bank of Abu Dhabi and Abu Dhabi Commercial Bank, have exposure to the Saudi firms, according to banking sources or the banks themselves.-Reuters