UPDATE 2-Algosaibi sues al-Sanea in US for fraud

* Lawsuit in Saudi dispute

* Purported loan irregularities of $10 billion (Adds details of lawsuit and background of case)

NEW YORK, July 17 (Reuters) - Saudi Arabia's indebted family conglomerate Algosaibi sued Maan al-Sanea, the billionaire head of the Saad Group, for fraud in a case involving allegations of $10 billion in loan irregularities, according to court documents.

The lawsuit filed in New York State Supreme Court on Wednesday by Ahmad Hamad Algosaibi and Bros (AHAB) is part of running dispute and responds to an earlier complaint filed against AHAB by Dubai-based bank Mashreq MASB.DU over irregular forex trades.

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

The Algosaibi lawsuit filed on July 15 and seen on Friday says that Mashreq sued it for $150 million that it does not owe. It said that if the conglomerate does owe the money then it is because Maan al-Sanea created the liability through fraud.

"AHAB learned that its former employee, Maan Al Sanea organized a fraud in which he, among other things, entered into certain transactions in order to engineer the receipt of funds into accounts in the name of AHAB, which he then diverted to his own use," the court document said.

Maan al-Sanea is alleged to have siphoned about $10 billion out of the Algosaibi family company into his own business.

Saad Group, however, has repeatedly said that it has no business links with AHAB.