April 14, 2006
Adnan Khashoggi Charged by SEC with Securities Fraud
Saudi financier Adnan Khashoggi and Ramy El-Batrawi,
former CEO of telemarketing firm GenesisIntermedia,
Inc. (GENI), were charged with securities fraud by the
SEC in a civil complaint (here) filed in U.S. District
Court in Los Angeles.  Khashoggi is best-known as the
arms dealer in the Iran-Contra scandal in the 1980s,
and he and El-Batrawi were controlling shareholders of
GENI before its collapse in 2001.  They are accused of
manipulating the stock price and misappropriating over
$130 million in transactions that led to the collapse
of several brokerage firms, resulting in the largest
bailout in the history of SIPC.  According to the
SEC's Litigation Release (here):
According to the complaint, Ramy El-Batrawi, GENI's
Chief Executive Officer at the time, and Adnan
Khashoggi, with the assistance of Richard J.
Evangelista, Wayne Breedon, and Kenneth P. D'Angelo (a
stock loan broker previously charged by the SEC and
criminal authorities), developed a manipulation scheme
by which they could profit from lending GENI shares
(rather than selling them). The complaint alleges that
El-Batrawi and Khashoggi, through an offshore entity
called Ultimate Holdings, loaned approximately 15
million shares of GENI stock to Evangelista's employer
at the time, Native Nations Securities, a New Jersey
broker-dealer, and more than a dozen other
broker-dealers in exchange for cash based upon the
market value of the shares.
According to the complaint, Ultimate Holdings loaned
stock through Native Nations (and other
broker-dealers) to Breedon's employer at the time,
Deutsche Bank Securities Limited in Canada, and
received the current market value of the stock in
cash. As GENI's stock price fluctuated, the loaned
stock was marked-to-market by the broker-dealers.
Ultimate Holdings received additional cash when GENI's
price increased, and was obligated to return cash when
the stock price dropped. By lending the shares in this
manner, El-Batrawi and Khashoggi raised approximately
$130 million without giving up control of the stock or
depressing the market price for the stock.
The manipulation caused GENI's stock price to increase
approximately 1,400%, from a low of $1.67 per share
(split adjusted) on September 1, 1999 to a high of $25
per share on June 29, 2001. After the scheme collapsed
in September 2001, GENI's stock price plunged to
pennies per share. El-Batrawi and Ultimate Holdings
then defaulted on their obligations to repay the
approximately $130 million they had obtained from the
stock loans, which caused several of the
broker-dealers in the stock loan chain to go bankrupt.