Bad boy Adnan Khashoggi, the
Saudi arms dealer who negotiated the arms sales to Iran in the Iran-Contra
affair, has finally been brought to justice by the ever-vigilant SEC.
Let me give you some background:
Having started his career as an honest businessman, brokering arms deals in the Middle East for Lockheed Martin, Raytheon, and Northrop-Grumman, and investing in diamond mining in the Central African Empire, Khashoggi became the world's richest man in the 1980s. (It was his yacht below that was used in the James Bond film Never Say Never Again.)
However, business wasn't always good. His Triad Holding Company, for example, went bankrupt after he was indicted for using it to channel money for the Iran-Contra deal. Fortunately, he made his $4 million bail thanks to his friend, Peter Munk, chairman of Barrick Gold. Barrick Gold, which was founded by Khashoggi in the first place, is also deep into illegal government activity. He still held onto his Barrick Gold shares though -- despite them being held as collateral for the arms deal.
Business was good for a while, having helped out his good friend Imelda Marcos hide her gold and assets -- legally according to the verdict.
Having got off that one, Khashoggi started another business, called GenesisIntermedia, a telemarketing company. This was during the .com boom.
The stock was the best performer in 2000 despite losses of more than $17 million on just $229,000 revenue.
However, it wasn't the best performing
stock for no reason. And this is where
Khashoggi began breaking the law. Didn't
see that coming did you?
A well known financial commentator, Courtney Smith, helped push this stock on CNBC, Bloomberg, and elsewhere, for a tiny $1.1 million fee.
Having pushed the stock from $1 a share all the way up to $17, Khashoggi paid off some brokers to borrow his stock and lend it to Deutsche Bank Canada to the tune of $130 million. (Yup, the very same company with internet revenues of less than half a million.)
Under this scheme, Deutsche borrows the stock and pays Khashoggi the value of the shares. Or, to put it another way, Khashoggi gets the cash for his shares without having to sell them and give away his game.
After 9/11 his stock crashed and he owed Deutsche Bank Canada and other brokerages $130 million. Naturally, GenesisIntermedia went belly up and Khashoggi made out like a Saudi oil tycoon. Deutsche Bank and a few securities companies were left holding the baby. Khashoggi made the $130 million disappear -- cleverly done considering the FBI was watching every international bank transfer at the time!
Now what Khashoggi did was illegal. As were the actions of the Deutsche Bank
employee who circumvented the safeguards, other principals of the company, and
Courtney Smith. The SEC went after them
with the speed of an oak tree.
This month, however, the SEC finally
brought them to justice.
As a result of this fraud, Richard Evangelista, who enabled the $130 million stock lending fraud was fined a hefty $40,000 in settlements and penalties.
But Khashoggi didn't get away anywhere near as lightly as that.
Nope, the arms broker, in a settlement with the SEC, agreed to a five year officer and director ban in return for the SEC dropping all charges, fines, and penalties.
And
you think that's stiff? The SEC managed
to get even more from him than that.
Khashoggi even
had to agree to an order preventing future violations. Take that!
Now it's illegal and, and... you promise not to do it again too. So there!
Cheers,
Peter