Deep Capture Chapter 1Edit
Zuhair Karam is an alias. I have chosen not to use his real name for now because he has begun to cooperate with our investigation. However, I intend to publish the names of all the other people affiliated with his brokerage, along with details about their backgrounds and activities. In addition, I will, in upcoming chapters, provide complete data and information to support the allegation that Tuco contributed to the financial crisis. That data and information can only be understood, however, in light of other information that I must present first.
I did not know if Zuhair Karam was violent, but I telephoned him because I thought his biography was interesting. For example, it was interesting that soon after making a home in Illinois, Zuhair Karam obtained finance to publish a semi-famous work of jihadi propaganda, and soon thereafter, became (without any relevant experience) a proprietary day trader of equities and derivatives at a small, unregistered brokerage in Chicago called Tuco Trading.
Most of the other people who operated through Tuco Trading also had interesting biographies. Among them (just to name a few) were a Russian Mafia figure who is knowledgeable about a brutal gangland-style murder in New Jersey; the top lieutenants of a Russian Mafia kingpin and oligarch who have been accused by U.S. officials of having ties to the Russian government’s intelligence apparatus; and an Iranian fellow whose family has high-level ties to Palestinian Islamic Jihad, and the terrorist-sponsoring Revolutionary Guard in Tehran.
Meanwhile, Zuhair’s little brokerage, Tuco Trading, maintained partnerships with several other brokerages, all of which had close business relationships with people of similarly colorful backgrounds. Among them were multiple associates of La Cosa Nostra; numerous traders with ties to the Russian Mafia; and a jihadi who not only was Al Qaeda’s most important financier, but also operated a secret bomb factory in a Chicago warehouse district before the U.S. government named him a “Specially Designated Global Terrorist”.
Many top employees of these partner brokerages were similarly colorful. They included a fellow who once worked for a man who commands a private army in Lebanon; another guy who had participated in an ill-fated scheme to topple the government of Afghanistan in league with heroin-smuggling warlord who worked closely with Iran; and an Iranian trader whose family was, for much of the 1990s, flying cargo planes filled with gem stones from a remote Illinois runway, in partnership with a money launderer tied to Hezbollah, the jihadi outfit that receives support and direction from the regime in Tehran.
Aside from the amazing backgrounds of this cast of characters, it was also interesting that Tuco Trading was closed by an “Emergency Order” of the SEC on March 9, 2008 — just a few days before the March 13 collapse of Bear Stearns. Not that the SEC had any idea what was happening at Tuco; the Commission seemed primarily concerned that the brokerage was massively exceeding margin limits. What the SEC seems to have missed (though a report by Tuco’s bankruptcy receiver made it clear) was that in the month before it was shut down, this tiny, unregistered brokerage transacted trading equal to more than 20 percent of the volume of the largest brokerage on the planet. Moreover, data and other evidence obtained by Deep Capture suggests that most of this massive deluge was aimed at manipulating the stock prices of America’s largest financial institutions, including Bear Stearns.
In other words, there is good reason to believe that Zuhair’s strange, little brokerage with all of its odd connections, contributed to the 2008 financial cataclysm that nearly brought the United States to its knees.
As for Zuhair Karam – well, I didn’t know enough about him, but I knew a little. For example, I knew that he was born in Lebanon, and had recently spent some time in South Africa, where he had told people that he was a recovering drug addict. There is some doubt as to the accuracy of that claim. Some say Zuhair never touched drugs. But there is no doubt that he was doing something in South Africa when he came to be attached to an Islamic cleric named Sadathullah Khan, who tells the media that he is “moderate” – a term that, of course, has different connotations depending on your perspective.
From the perspective of Osama bin Laden, Sadathullah Khan might be moderate. Some people, though, say that Sadathullah Khan is an extremist. Certainly, he has close ties to an outfit called the Supreme Council of Global Jihad, which espouses violence. And one of Sadathullah Khan’s closest associates is a cleric named Zakir Naik, who has preached that “Every Muslim should be a terrorist.”
When he talks to the Western press, Zakir Naik, says he is not fond of Al Qaeda, but in a video made for his followers, he said, “If Osama bin Laden is fighting the enemies of Islam, I am for him…If he is terrorizing America the terrorist, the biggest terrorist, I am with him.” Backing his words with actions, Imam Naik served as the mentor to Najibullah Zazi, an Al Qaeda operative who was arrested in 2009 shortly before carrying out a plan to plant explosives in the New York City subway system.
Imam Naik was banned from entering the United Kingdom after he was deemed to be immoderate, but the United States still grants him visas (he hasn’t blown up anything yet) and it is just a matter of time before he will return to Chicago, where he once gave what he calls “my most famous speech” at a gathering organized by an outfit linked to the Bridgeview Mosque, a house of worship in Bridgeview, a middle-class neighborhood on Chicago’s south side.
When he returns to Chicago, Imam Naik will likely meet Zuhair Karam, who, in addition to his work as a financial operator, has been fairly prominent among the small band of jihadis who congregate at the Bridgeview Mosque, where Zuhair’s relative helps run day-to-day operations. The Bridgeview Mosque, it should be said, serves thousands of ordinary people, most of whom probably harbor no politics other than a desire for peace. But there was a time not long ago when the mosque’s imam regularly gave fiery sermons urging jihadi freedom fighters to take up arms.
The sermons were toned down after the FBI began investigating, but it is still widely assumed by terrorism experts that the Bridgeview Mosque’s top officials (including Zuhair’s relative) are members of the Muslim Brotherhood, an outfit whose leaders in the West have provided material support (including money, personnel, and sometimes weapons) to Al Qaeda. Since the Muslim Brotherhood is a secretive organization, there is no way to confirm with absolute certainty that the Bridgeview Mosque’s directors are, indeed, members, but there are plenty of reasons to suspect that they are.
One reason is that the Bridgeview Mosque has been among the chief benefactors of jihadi groups closely tied to the Muslim Brotherhood. For example, according to the Chicago Tribune and others, the mosque was one of the most important funders of Palestinian Islamic Jihad, an outfit that was spawned by the Muslim Brotherhood and also takes directions from the regime in Iran. Zuhair Karam and his relatives are close family friends of Sami al-Arian, who was the U.S. leader of Palestinian Islamic Jihad until his 2003 indictment on terrorism charges. As Rachel Ehrenfeld, the director of the American Center for Democracy first reported, FBI investigators suspect that Sami al-Arian provided support to the Al Qaeda hijackers who carried out the 9-11 attacks on the World Trade Center and the Pentagon.
The Bridgeview Mosque was also one of the principal supporters of the Holy Land Foundation, which was indicted on terrorism charges in 2007 after prosecutors demonstrated that it was the principal U.S. front for Hamas, another Muslim Brotherhood creation that receives support from Iran. The mosque’s directors, meanwhile, help administer investment funds worth billions of dollars controlled by the North American Islamic Trust, an investment bank that has been tied to the Muslim Brotherhood and was named as an unindicted co-conspirator in the government’s case against the Holy Land Foundation.
The Bridgeview Mosque and the Muslim Brotherhood were also involved with a “charity” called The Benevolence International Foundation, which was actually an Al Qaeda front, founded by Osama bin Laden’s brother-in-law. According to federal prosecutors, Benevolence was “involved in terrorist activities” and had contacts with “persons trying to obtain chemical and nuclear weapons on behalf of Al Qaeda.”
More to the point of this story, Mark Flessner, a former U.S. prosecutor who was at the front lines of the government’s “war on terrorism”, says that the Bridgeview Mosque is a “gold mine of information about terrorist finance.” So, obviously, I wanted to know more about Zuhair Karam’s little brokerage, Tuco Trading. Not only because of its ties to jihadis, but also because of its ties to La Cosa Nostra and, more importantly, to Russian Mafia figures who have become quite politicized and are eminently hostile to the United States.
Unfortunately, when I called Zuhair for the first time in September of 2010, our conversation did not go well. Zuhair began by demanding to know how I had come to possess his telephone number. I told him, quite honestly, that I had found his phone number in the White Pages, but he refused to believe me. When I explained that I had some questions about the little brokerage where he had worked, he insisted that he didn’t know anything about the brokerage, and he said that he did not know anyone else who worked there.
After some additional prodding, Zuhair began to plead. He said, “Look, man, I’m just one of the little guys.” I said, “Yes, I know, but let’s meet anyway, I can tell you more about this investigation.” Zuhair seemed already to know about some investigation. He said, “Shit, man, I thought this was over.” Which seemed strange to me because the only investigation I knew about was the investigation that I was conducting. But I wanted to be helpful, so I said, “Let’s meet, I can tell you more about it.”
Zuhair paused. He seemed to be figuring it all out. Finally, he said, “You’re not a journalist, that’s for sure, man, tell me who you are…Are you an Arabian?” No, I am not an “Arabian” – that’s what I told Zuhair Karam. I said there’s this investigation, I have information. I told Zuhair I could come down to the mosque to meet him. And I said I’d also like to meet Zuhair’s father, Haaz Karam, who helped run the mosque.
Zuhair said, “He’s not my father.” So I said, “Sorry, your relative.” And Zuhair said, “Yeah, so…what is this? Man, the FBI — you say you’re a journalist, why do you know about the investigation? That just isn’t right…the FBI…man, I’m telling you, I’m just one of the little guys…the FBI…the FBI can come, let them come, they know where I live, let them come, let them try – see if I care.”
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In his 2010 report to Congress, Admiral Dennis Blair, who was then the U.S. director of national intelligence, outlined one of the biggest threats to America’s economic well-being and national security. He began by noting that a number of organized crime outfits are closely intertwined with the intelligence services and government leaders of some countries (such as Russia) that are considered to be adversaries of the United States. He then stated that “the nexus between international criminal organizations [the Mafia] and terrorist groups [including Al Qaeda]…presents continuing dangers.”
In the same breath, the national intelligence director warned that organized criminal outfits [the Mafia] are “undermining free markets,” and “almost certainly will increase [their] penetration of legitimate financial and commercial markets, threatening U.S. economic interests and raising the risk of significant damage to the global financial system.”
Let me stress the implications of what the national intelligence director was saying. He was saying that the Mafia (and, by inference, the jihadi groups and rogue states that maintain ties to the Mafia) have the capability to disrupt the financial markets and harm the American economy. The only question is: have they already done so?
While America’s media and financial regulators seem largely uninterested in that question, some in the national security community are devoting a lot of attention to it. A 110 page report commissioned by the Department of Defense Irregular Warfare Support Program even goes so far as to state that there is a reasonably high likelihood that the economic cataclysm of 2008 was worsened by politically motivated “financial terrorists intent on wiping out the American financial system.”
The report (a copy of which can be found at DeepCapture.com) states with good reason that the weapons most likely to be used by prospective financial terrorists are so-called “naked” short selling and other forms of short-side market manipulation.
Short selling is a perfectly legitimate practice. It involves traders borrowing shares and then selling them, hoping the price will drop so that they can repurchase the shares at a discount, return them to the lender, and pocket the difference.
In “naked” short sales, traders do not borrow or purchase stock before they sell it. They simply sell what they do not have – phantom stock. You probably can imagine how easy it is for someone to suppress the price of a security if they are able to swamp a market with artificial supply.
Of course, by definition, if people are selling a phony supply of a security, then they cannot be delivering what they are selling. Regulators and Wall Street folks call this “failure to deliver.”
There are, in fact, a variety of methods that can be deployed to create “failures to deliver.” There are technical differences among the methods, but all share this one basic idea: generate “failures to deliver” that act as phony supply to drive down a security’s price. Because “naked short selling” is the most famous of these methods, and because the differences among it and the other methods are generally so technical as to interest only experts, I intend to refer to this whole class of methods as “naked short selling”, or even more generally, “market manipulation.”
As the report commissioned by the Defense Department correctly points out, foreign governments or terrorist groups wishing to manipulate the markets would not have to do the dirty work themselves. They would need only to invest in one among the multitude of American hedge funds that have ties to organized crime and that have demonstrated that they are willing to deploy financial weapons of mass destruction for fun and profit.
Under one scenario described in the Defense Department report, “a terror group could direct investments to a feeder hedge fund. The feeder fund would locate a Cayman Islands based hedge fund on their behalf that was predisposed to sell short financial shares. With sufficient new money, the hedge fund would expand its short selling activity (naked and traditional) and trade through dark pools or with sponsored access. At the same time, the same terror group might invest heavily in [credit default swaps] of the targeted short sales…”
Experts painted similar scenarios in testimony before a September 2010 informal meeting of the House Committee on Homeland Security. These experts were unanimous in their opinion that a hostile foreign entity could crash the U.S. financial markets. And to do so, it would most likely engage in manipulative trading through one of several shady brokerages that offer platforms – such as dark pools or so-called “sponsored access” – that enable miscreant financial operators to trade in anonymity.
Partly because such trading platforms exist, and for several other reasons (see Patrick Byrne’s Deep Capture story, “A Peace Sign to Wall Street”), SEC data reflects only a fraction of the naked short selling that occurs in the markets. But even the SEC’s partial data show that an average of 2 billion shares “failed to deliver” nearly every day in the months and weeks leading up to the 2008 market meltdown. Those shares, as I have explained, “failed to deliver” because they were phantom shares – artificial volume that drove down stock prices.
The SEC’s incomplete data also shows that more than 13 million shares of Bear Stearns sold short during the week before that bank’s demise in March 2008 failed to deliver. Soon after Bear Stearns collapsed, the CEOs of Morgan Stanley, Merrill Lynch, Lehman Brothers, and other major financial institutions began complaining to the SEC that naked short sellers had caused the demise of Bear Stearns and were now targeting their own banks.
We need to take seriously the complaints of the Wall Street CEOs because they were intimately familiar with the crime of naked short selling. Many of their own brokerages had engaged in it. When people are raising hell about a crime that has previously lined their pockets, it is reasonable to assume that they have some idea what they are talking about.
Moreover, the Wall Street CEOs continued to demand that the SEC take action against the market manipulators even after their high-paying hedge fund clients (some of whom might themselves have been naked short sellers, others of whom were merely inclined to object to stronger regulation of any sort) asked the CEOs to stop their campaign. When the CEOs continued to complain about the naked short selling, many of their big hedge fund clients began to pull their business in protest. It goes without saying that Wall Street CEOs do not sacrifice large chunks of their profits to speak out against crimes that do not exist.
On July 15, 2008, the SEC responded to the Wall Street CEOs by issuing an “Emergency Order” that temporarily protected 19 of the nation’s largest financial institutions from naked short selling. The banks’ stock prices immediately soared in value, and it looked like a major crisis had perhaps been averted.
Amazingly, though, the SEC lifted its “Emergency Order” just weeks later, on August 12. The next day, the naked short sellers resumed their attacks. The SEC’s own data (which, again, incompletely reflects the full magnitude of the problem) shows failures to deliver rising steadily from August 12 onwards, and these failures to deliver correspond directly to the downward spiral of stock prices. According to the SEC’s partial data, Lehman Brothers saw an astounding 30 million of its shares fail to deliver during the week before the bank collapsed on September 15, 2008.
And make no mistake: Lehman may well have survived if it were not for the naked short selling and other attacks (such as the seemingly deliberate insertion of damaging false rumors into the marketplace) that hammered its stock price. In the weeks before its collapse, the bank had plenty of liquidity to remain a going concern, and it had deals in the pipeline that would have enabled it to raise capital. But the freefall of Lehman’s stock price and other maneuverings by short sellers derailed those deals, and panicked clients pulled their cash. Only then was Lehman forced to declare bankruptcy.
Lehman was not a healthy bank, to be sure, but it had survived plenty of bouts of ill health. It had also survived worse economic downturns, though it had never faced a stock market crash of such magnitude.
And nearly every other major bank, regardless of its health, faced precisely similar fates during the gory month of September, 2008. All seemed doomed to collapse until the SEC issued another “Emergency Order” on September 18, this time banning all forms of short selling, legal or otherwise.
There was no reason to ban legal short selling (a crackdown on illegal naked shorts would have been enough), but the Emergency Order gave the markets some breathing room while the Treasury Department prepared the massive bailouts that signified that the government would not allow any more banks to collapse, no matter what sort of attacks might be directed at them.
As the authors of the report for the Defense Department’s irregular warfare unit conclude, there is no question that short-side market manipulators contributed to the collapse or near-collapse of many of America’s largest financial institutions in 2008. The report states further that “the [short selling] attacks on [America’s biggest banks] were so brazen that it is difficult to imagine that they were uncoordinated.”
And it wasn’t just the banks that were attacked. The SEC’s partial data shows that there was also massive naked short selling of exchange traded funds, or ETFs. These are publicly listed funds that are often highly leveraged and typically trade a basket of multiple stocks across a given industry. When market manipulators attack an ETF, they inflict damage on the entire industry that the fund indexes – and the high leverage magnifies the impact.
Meanwhile, there is strong evidence that the markets for U.S. government debt have also come under attack. The first naked short selling assault on U.S. Treasuries was launched in September 2001, at the time of Al Qaeda’s attacks on the World Trade Center and the Pentagon. In the months and weeks before the 9-11 tragedy, a daily average of $1.5 billion worth of U.S. government bonds failed to deliver. On the days immediately before 9-11, the daily failures to deliver soared to an astounding average of $1.5 trillion and continued to rise in the days after the attacks.
This was new and unusual market manipulation on a Herculean scale, but it was even worse during the months leading up to and following the 2008 crisis, when an average of $2.5 trillion worth of U.S. Treasuries failed to deliver every day. The authors of the report for the Defense Department speculate that financial terrorists, having precipitated the financial crisis, might have intended to attack the government bond markets in an attempt to bankrupt the national treasury.
The media fails to give sufficient attention to these problems, insisting instead on reinforcing the narrative that the financial crisis was in essence caused by “reckless” lending to home buyers who could not pay back their mortgages. It is correct that the financial crisis of 2008 had its proximate cause in the collapse of the mortgage and property markets a year earlier, but that is only the surface of the story.
The Financial Crisis Inquiry Commission (FCIC) made clear in its January 2011 report to Congress that the principal cause of the mortgage and property disaster was the freakish collapse in 2007 of the market for collateralized debt obligations (CDOs), which are packages of mortgages that trade like securities. And as the FCIC also made clear, the collapse of the CDO market was by no means inevitable. Nor did it have much to do with “predatory” lending or the quality of most subprime mortgages. Rather, the problem was that more than half of the CDOs issued in 2006 and 2007 were so-called “synthetic” CDOs, every single one of which was deliberately designed to self-destruct.
That is, just a few firms that specialized in marketing “synthetic” CDOs worked with a select number of bankers and short sellers to hand-pick a relatively small number of mortgages that were certain to default. The miscreants then packaged bets against those relatively few toxic mortgages into so many self-destruct CDOs that they came to account (I must repeat) for more than half of the overall market. It is not quite correct to say this was phantom supply similar to what is generated by naked short selling. But there is no question that the “synthetic” CDOs created a market that was, alas, “synthetic.” It was a market overwhelmed by a supply of instruments that purported to contain representative samplings of an underlying asset (subprime mortgages) that a reasonable person might expect to have some value, but which actually contained (as only the short sellers knew) assets that were worth zero. That is, a small number of miscreants effectively flooded the market with massive volumes of synthetic toxicity.
As these miscreants surely knew, the self-destruct CDOs would, indeed, self-destruct, and thereby wipe out the overall market for CDOs, causing property values to crash. And when that happened, the banks that owned a lot of CDOs or property would be weakened. They would not be so weak that they had to die. But their weakness would create negative sentiment that could be turned into a panic if miscreants were to circulate exaggerated rumors about the banks’ problems and unleash waves of naked short selling that would send stock prices into death spirals.
In short, the report commissioned by the Department of Defense Irregular Warfare unit was correct to note that the financial crisis that nearly destroyed the nation went “far beyond normal expectations…” The authors of this report were also right to note that all of the events that precipitated the financial cataclysm raise “serious questions about whether this was a purposeful attack and if so, by whom, and why?”
By whom? And why? Over the next several weeks, Deep Capture will be publishing the remaining chapters of this book-length story, which is the product of a year-long investigation into the underworld of financial crime and the vulnerability of the U.S. economy to malicious attacks. To that first question – by whom? – we do not have all the answers, but we have quite a few. That is, our investigation has led us down many paths, but they all seem to circle back to a distinct network of miscreant financial operators. Some of these miscreants work for obscure, unregistered outfits like Zuhair Karam’s brokerage, Tuco Trading. Others are powerful American hedge fund managers.
In coming installments of this story, I will name all of the colorful characters affiliated with Tuco Trading, and tell you who was responsible for its massive short selling deluge in 2008. (I am not trying to create suspense; it is simply that there is other ground that we have to cover for you to understand the significance of who these Tuco characters were).
And Tuco is not the only strange financial firm in America. A surprising number of people in the broader network that I will describe have ties to jihadi groups, including, in some cases, Al Qaeda. In addition, a number of financial operators in this network have disturbing ties to the governments of rogue states, such as Russia and Iran. And nearly all the people in this network have ties to the Mafia.
In other words, this is a colorful network. And though it would be a stretch to say these people were the cause of the financial crisis, there is no doubt that many of them contributed to that cataclysm. The rest, meanwhile, have both the capability and the inclination to do considerable more damage.
As to the Defense Department report’s second question – why? – I have no good answers. And ultimately, the question might be irrelevant. The damage to the economy is the same whether it has been done in the name of profit or jihad; in the name of terror, geopolitics, another billion bucks, or nothing more than the fun of the game The miscreants who will be described in this story come in many stripes, but they are all, every one of them, a threat to American prosperity and our national security.
In our next installment, we learn a bit more about Zuhair Karam* and his friends, including a jihadi who inserted Al Qaeda spies into the U.S. military and then set up a financial weapon of mass destruction for use against the markets.
Deep Capture Chapter 2Edit
Al Qaeda’s supporters are “aware of the cracks in the Western financial system as they are aware of the lines in their own hands.” – Osama bin Laden, in a 2001 interview with a Pakistani Journalist
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After my first unsuccessful conversation with Zuhair Karam, I called him again, but he still refused to admit that he knew anything about Tuco Trading, and he declined to tell me anything about the goings on at the Bridgeview Mosque. He continued to insist that he was “just one of the little guys” and refused even to meet me for a cup of coffee.
I have no doubt that Zuhair is “just one of the little guys” and it is possible that he himself has done nothing worse than engage in entirely legal political activities in support of jihadi causes. But I kept calling Zuhair because I knew that his friends and business associates included some people who were far from being “little guys”. Indeed, they were among the most dangerous jihadis and financial criminals in the world.
Zuhair and his family are tied to such characters as Palestinian Islamic Jihad leader Sami al-Arian and to the folks at Benevolence International, the Al Qaeda front that had contacts with people trying to obtain nuclear weapons for Osama bin Laden. Another of Zuhair’s closest associates is Imad E Kharda, the director of the Indiana-based Greater Lafayette Islamic Center, whose one-time imam, Juma Al-Dosari, recruited six Yemeni-American men and set them to an Al Qaeda training camp in Afghanistan.
Upon their return, the Yemeni-Americans, known as the “Lackawanna Six” (because they all hailed from a town in Pennsylvania by that name), moved to Buffalo, New York, allegedly to establish an Al Qaeda sleeper cell. There has been much controversy concerning the Lackawanna Six, with some journalists complaining that there was no conclusive evidence that the six Yemeni-Americans posed a serious danger.
Be that as it may, their recruiter, Juma Al-Dosari, was certainly a threat. In fact, when he was later captured in Aghanistan, it was determined that he was full-fledged Al Qaeda operative. While working as a cleric at another mosque in Indiana, he recruited a disciple who was found with manuals detailing methods for wiping out a portion of the American citizenry with anthrax, plague, and small pox. Of course, this is a free country, and people have the right to hate it. They even have the right to get their kicks from collecting manuals about mass murder. So let me be clear about something before I continue. I will be referring to a number of financial operators in this story as “jihadis,” but I do not believe it is a crime simply to adhere to the jihadi ideology.
That said, the media fails us if it does not report on people who are not only jihadi ideologues, but also engaged in activities that threaten or harm the United States. Osama bin Laden is dead. But the jihad was always bigger than him. And some surviving jihadis are richer, smarter, and, perhaps, just as dangerous.
If nothing else, such people make for interesting reading. So let’s meet some more of Zuhair Karam’s jihadi friends. These friends do not possess nukes or manuals for biological warfare. They do, however, create financial weapons of mass destruction.
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In the summer of 2003, customs agents at London’s Heathrow airport inspected the luggage of a man named Abdurrahman Alamoudi, and found hidden in a secret compartment of one of his suitcases a total of $350,000 in cash. Mr. Alamoudi failed to adequately explain why he was hauling large stacks of $100 bills in a secret compartment, so there was an investigation. This investigation yielded some startling facts.
Mr. Alamoudi, a member of a wealthy family in Saudi Arabia, had been a long time resident of the United States, where he was among the most prominent members of the Muslim community, and a close associate of Zuhair’s family and the directors of the Bridgeview Mosque. Given those associations, it is not surprising that he was an outspoken supporter of Hamas and Hezbollah. Nor is it a surprise that one of his closest friends was Palestinian Islamic Jihad leader Sami al Arian.
Some people believe that groups like Palestinian Islamic Jihad, Hamas, and the Muslim Brotherhood have legitimate political grievances, and perhaps they do. But given that the stated missions of these outfits is to wipe Israel off the map, it is also fair to say that they are extreme. And while many jihadi groups seem to be focused on faraway lands like Palestine, most of them have ties to Al Qaeda, and all of them are united in their hostility to the United States. Moreover, they pay close attention to the U.S. markets – and they see the economy as key to undermining American power.
When the financial crisis hit in 2008, Hamas leaders reacted with glee and issued an official statement proclaiming that the economic cataclysm marked the “End of the American Empire.” Meanwhile, outfits like the Muslim Brotherhood regularly preach the glory of Al Jihad bi-al-Mal, or the “Financial Jihad.”
Government investigators generally interpret Financial Jihad as “contributing money to jihadi groups like Hamas.” But as was noted by the authors of the report commissioned by the Defense Department’s Irregular Warfare Support Program, there are good reasons to believe that an important component of the Financial Jihad is attacking the Western financial markets.
Muslim Brotherhood leader Hamud bin Uqla al-Shuaibi implied as much when he stated in 2007 that jihadis must resist the West, but do not necessarily need to do so with violence. He suggested that “Financial Jihad” was a viable alternative to violence and was indeed “more important than self sacrificing [in armed battle].” He did not specify what he meant by “Financial Jihad” but he was certainly not talking about giving to charity. Rather, he said, “Money is a weapon of Jihad,”
Similarly, Muslim Brotherhood spiritual leader Yussuf al Qardawi has spoken of the need for Muslims to deploy Silah al Naft – i.e. “the weapon of oil” – against the U.S. economy. This was precisely in line with the thinking of Osama bin Laden, who had stressed “the absolute necessity to use the oil weapon.”
In another typical manifesto, Osama bin Laden and his deputy wrote that “it is very important to concentrate on hitting the U.S. economy through all possible means.” In 2007, bin Laden released a video on which he taunted the U.S. for having too much mortgage debt.
Although Osama bin Laden is dead, his words remain important. Indeed, among jihadis, the words of the fallen “martyr” might have more resonance than ever. And, again,the jihad is bigger than bin Laden. It is a global movement that has clearly articulated its goals, and remains intent upon acheiving them.
Al Qaeda and many other outfits have repeated over and over that jihadis should wage economic warfare any way they can. They don’t mean knocking down buildings – they mean wiping out the markets. As Al Qaeda operative Monin Khawaja wrote in 2003, “We have to come up with a way that we can drain their economy of all its resources, cripple their industries, and bankrupt their systems…” Then there is the Muslim Brotherhood document, which is quoted all too frequently, and often to the wrong purposes. It says that Muslims “must understand that their work in America is a kind of Grand Jihad in eliminating and destroying the Western civilization from within and `sabotaging’ its miserable house by the hands of the believers…”
When I say that the document is quoted to the wrong purposes, I am referring to those who point to it as evidence that the Islamism is taking over America, which it is not. Certainly, we should not be hysterical about Muslims calling America a “miserable house”, which is a relatively accurate description of our current state of affairs. However, it is possible that jihadis are, in fact, “sabotaging” our miserable house from within.
As early as 2003, the Department of Homeland Security warned that Al Qaeda was interested in infiltrating American financial institutions, and that Al Qaeda operatives possibly had already obtained jobs at American brokerage houses and banks. Said DHS spokesman David Wray: “There is new intelligence that indicates specific interest [on the part of Al Qaeda] in financial services and indirect indication…that led us to believe that threats could come from within as well as without.”
Osama bin Laden, meanwhile, liked to brag (as he did in the statement with which I opened this chapter) that his supporters understand the weaknesses in the American financial system. In another statement, he was even more explicit, saying not only that his supporters knew how to “exploit” the “cracks inside the Western financial system”, but also that the “faults and weaknesses are like a sliding noose strangling the [American economy].”
Which brings us back to Mr. Alamoudi, the fellow caught with $350,000 stuffed in his suitcase. Mr. Alamoudi was a central figure in what FBI investigators have come to call the SAAR Network, or sometimes the Safa Group, a complex web of companies, investment funds, banks and charities alleged to have funded a host of jihadi outfits, including Al Qaeda. Shortly after the 9-11 attacks in 2001, the SAAR Network became the principal target of Operation Green Quest, the U.S.. government’s effort to shut down the flow of money to terrorists.
One SAAR Network outfit was called the Ficq Council, where Mr. Alamoudi served as a trustee. The founder of the Ficq Council, Taha Jaber Al-Alwani, was named as an “unindicted co-conspirator” in the government’s case against Mr. Alamoudi’s friend, Sami al-Arian, who was himself a central figure in the SAAR Network until he was jailed for his activities as U.S. leader of Palestinian Islamic Jihad. (Although Sami al-Arian was suspected of providing support to the 9-11 hijackers, he was never charged for doing so).
The secretary and board director of the Ficq Council was a man named Sheikh Yusuf Talal DeLorenzo, who is another one of Sami al Arian’s close associates. Sheikh DeLorenzo and Mr. Alamoudi (the fellow with the suitcase full of cash), meanwhile, co-founded a SAAR Network outfit called the Graduate School of Islamic and Social Sciences (GSISS). Amazingly, while FBI agents were diligently investigating this network, U.S. politicians convinced the FBI’s press office to describe the GSISS as “the most mainstream Muslim organization in America.”
On that recommendation, Mr. Alamoudi and Sheikh DeLorenzo earned a contract from the U.S. Department of Defense to screen and hire Muslim Army chaplains who would accompany U.S. troops in Afghanistan. After that, it was learned that Sheikh DeLorenzo and Mr. Alamoudi were not, in fact, the “most mainstream Muslims” in America. To the contrary, Mr. Alamoudi was a full-fledged Al Qaeda operative.
That became apparent soon after the Heathrow customs agents found the $350,000 in cash hidden in a secret compartment of Mr. Alamoudi’s suitcase. The investigation that ensued revealed that Mr. Alamoudi had received the cash from Libyan dictator Moammar Qaddafi, and that he planned to use it to finance a plot that he had hatched with another Al Qaeda operative to assassinate Crown Prince Abdullah of Saudi Arabia. At the time, many jihadis worried that when the crown prince (who is now king) took the throne, he would crack down on prominent terrorist financiers (people like Mr. Alamoudi, who delivered boat loads of money to Al Qaeda).
After it became clear that Mr. Alamoudi (who is now serving a 23-year prison sentence) was an Al Qaeda operative, the U.S. Senate held a hearing to discuss how it came to be that an Al Qaeda operative and his partner, Sheikh DeLorenzo, were hiring chaplains to accompany American troops to Afghanistan. Echoing the words of most everyone else at that hearing, Senator Jon Kyl of Arizona said that it was pretty “remarkable” that “people who have known connections to terrorism are the only people to approve these chaplains.” It took some time for the government to realize just how “remarkable” it was, but the Defense Department did ultimately conclude that the GSISS had probably been inserting Al Qaeda spies into the U.S. Army. At least one of the chaplains that Mr. Alamoudi and Sheikh DeLorenzo hired for the Army was eventually charged and convicted for passing U.S. military secrets to Al Qaeda. Other GSISS clerics were suspected of espionage and merely fired.
Three years later, a lot of people still thought it was “remarkable” that Sheikh DeLorenzo and an Al Qaeda operative had managed to insert spies into the U.S. military. But that didn’t stop Sheikh DeLorenzo (a sophisticated financier who looks the part in his pin-striped suits) from seeking permission from the Securities and Exchange Commission to set up a trading platform called Al Safi Trust, the ostensible purpose of which was to enable Muslim traders to engage in short selling without violating shariah law.
In 2007, the SEC granted permission, which is pretty “remarkable” because Al Safi Trust creates precisely the sort of crack in the financial system that would likely be exploited by people looking to crash the markets. Traders who engage in legal short selling (as opposed to illegal naked short selling) first borrow stock, then sell it, hoping the price will fall. This is a perfectly legitimate practice because it does not manipulate the markets. The stock that is borrowed and then sold is real stock; it is not phantom stock that artificially increases supply and drives down prices.
When Sheikh DeLorenzo set up Al Safi Trust, he explained that Muslim traders cannot borrow stock because shariah law prohibits paying interest. This claim is, to begin with, extremist. Shariah law does not ban interest. It merely warns against “excessive” interest, or usury. Nobody ever said that Muslims cannot pay interest until the radical jihadi movement started to take off in the 1980s. And one goal of this movement is to create a separate, jihadi financial system. This is about politics, not religion.
Regardless, the interest problem could have been resolved in any number of ways. For example, Al Safi Trust could have worked out a fee structure whereby the prime broker, rather than the jihadi traders themselves, paid the interest on the borrowed stock. Instead, Al Safi Trust provides an altogether novel service, known as Arboon, the amazing feature of which is that nobody locates or borrows any real stock. The clients of Al Safi Trust can simply sell as much stock as they like even if there is no stock available to sell.
Of course, if there is no stock available, they are not selling actual stock. They are simply hitting the “sell” buttons on their computers, indicating to the markets that stock has been sold, and creating phantom supply that drives down prices. According to Sheikh DeLorenzo, Al Safi Trust’s short sellers enter into an agreement to eventually buy stock so that they can deliver what they have sold. But an agreement to buy stock at some indeterminate point in the future is a far cry from having actual stock before selling it.
Presumably, Al Saft Trust’s clients do fulfill their agreements by eventually purchasing stock and delivering it to whomever bought it.
But by that time, the phantom stock that was sold would have already done its damage to the markets. With the damage done, Al Safi Trust’s traders can buy shares at lower prices, deliver them, and then unleash another blast of phantom stock, futher driving down prices. In short, Al Safi Trust is nothing more than a cloak for another form of naked short selling, embroidered in Islamic jurisprudence so that regulators will not see through it.
Criminals (or, for that matter, financial terrorists) looking to inflict damage on the markets now have a service, Al Safi Trust, that allows them to conduct their mischief without fear that American regulators will pay even the least bit of attention to what they are doing. I shudder to think who the clients of Al Safi Trust might be, but we should probably consider the possibilities. And towards that end, maybe we should know more about Sheikh DeLorenzo’s background.
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Sheikh DeLorenzo was born in Massachusetts as Anthony DeLorenzo, the son of upper-class parents, and the grandson of Italian immigrants from Sicily. At the age of twenty, he dropped out of Cornell University, and converted to Islam. Soon after, he moved to Pakistan, gradually making his way to Karachi, where he spent several years receiving religious training at Jamiah Ulum Islamia, a maddrassah led by scholars who, like the Taliban, subscribe to the strict Deobandi school of Islam.
According to the International Crisis Group, a well-known non-profit organization that studies war zones and political conflict, the Jamiah Islamia maddrassah has “carried the mantle of Jihadi leadership,” since the days of the Soviet invasion of Afghanistan, and now serves as “the fountainhead of Deobandi militancy countrywide.”
The International Crisis Group notes further that the Jamiah Islamia “boasts close ties with the Taliban” and has played a “major role in helping to establish and sustain” Pakistan’s most violent jihadi outfits, including Harkat ul-Mujahideen, Jaish-e-Mohammed, and Sipah-e-Sahaba.
All of these groups have close ties to Al Qaeda, and Jaish-e-Mohammed, along with the intimately affiliated Lashkar-e-Tayiba, have become, for all intents and purposes, Al Qaeda subsidiaries.
As evidence of this, investigators note, as just one example, that Omar Sheikh, a leading member of Jaish-e-Mohammed, wired money to Mohammed Atta, the ring-leader of the Al Qaeda hijackers who carried out the 9-11 attacks. Omar Sheikh was also responsible for kidnapping Wall Street Journal reporter Daniel Pearl, who was subsequently killed, his head sliced off with an ornate, Yemeni knife and held up to be filmed for jihadi propaganda video. Khalid Sheikh Mohammed, the mastermind of the September 11 attacks, has said that he committed the murder himself.
This was a great tragedy because Daniel Pearl (whom I knew by phone when I worked for the Wall Street Journal) was one of the few journalists to understand the threat to the United States is not just Al Qaeda, but a much larger, complex web of interlinking jihadi groups, shady financiers, agents of rogue states, narcotics smugglers, nuclear weapons traffickers, and Mafia kingpins. We’ll dig into that web in future chapters, but I’ll note now that Jaish-e-Mohammed, one of the outfits spawned by Sheikh DeLorenzo’s madrassah, has been implicated in multiple terrorist plots, including one to fire Stinger missiles at passenger planes in New York.
There is no question that Sheikh DeLorenzo — who is also known as Usama DeLorenzo, and Usama a-Ali, and Usama Ashraf Ali, and a lot of other aliases — is on familiar terms with jihadi groups. Indeed, in the 1980s, Sheikh DeLorenzo worked as key advisor to Zia ul-Haq, who was then the dictator of Pakistan. Sheikh DeLorenzo’s job was to implement the Pakistani government’s most pernicious program — the further development of the country’s network of madrassahs in order to strengthen relationships between the government and jihadi paramilitaries, including many that are now plotting the demise of the West.
As part of Shiekh DeLorenzo’s program, many of these jihadi groups became closely intertwined with Pakistan’s spy agency, the ISI. And, to this day, these entanglements cause conniptions among U.S. government officials who rely on Pakistan as an American ally, but acknowledge that the ISI is sheltering and nurturing jihadi groups who are among America’s most dangerous enemies.
The nexus between the ISI, the jihadis, and key Mafia figures (such as the Indian Mafia kingpin Dawood Ibrahim, who lives under the protection of the ISI and is a key money man for Al Qaeda, according to multiple U.S. government reports) is a genuine threat to global stability, and to the financial system that underlies the American economy. Forbes Magazine ranks Ibrahim one of the 50 most powerful people in the world.
The extent to which Sheikh DeLorenzo remains part of the Pakistani nexus is unclear, but his experience in Pakistan might be less worrying than his time in America, where he came to be on close terms not only with the leader of Palestinian Islamic Jihad and the Al Qaeda operative who was his partner in the GSISS spy scandal, but many other important jihadis, most of them key figures in the SAAR Network of alleged terrorist financiers.
For example, in addition to his high-level positions with the Ficq Council, Sheikh DeLorenzo was a board member at the International Institute of Islamic Thought (IIIT), another outfit identified by FBI investigators as being part of the SAAR Network. Other top officials of IIIT have been linked directly to Al Qaeda and provided logistical support to at least two of Al Qaeda’s biggest achievements – the simultaneous attacks on the U.S. embassies in Tanzania and Kenya; and the bombing, in 2000, of the USS Cole, an American destroyer that was parked at the Yemeni port of Aden.
One top IIIT officer, Tarik Hamdi, hand delivered the satellite phone that Osama bin Laden used to order the assault on the USS Cole. The IIIT was also the largest “donor” to the World and Islam Studies Enterprise, which simply handed the money over to Sami al-Arian’s Palestinian Islamic Jihad and other terrorist groups.
After Sami al Arian’s arrest, the secretary general of the Palestinian Islamic Jihad (who was once a professor, along with Sami Al-Arian, at the University of South Florida, and is now based in Syria) identified IIIT as the group’s most important source of funding. In addition, Sheikh DeLorenzo was a top executive (and continues to serve as a key consultant for) a large investment fund called the Amana Trust, which is interesting on several levels. For one, the Amana Trust was founded by a Muslim Brotherhood figure named Yaqub Mirza, who is the most important U.S.-based operative in the SAAR Network of terrorist financiers.
Mr. Mirza was the incorporator or manager of more than a dozen SAAR Network hedge funds, charities, and financial entities, including Mar-Jac Investments, Mena Investments, Sterling Management Group, and Reston Investments. In addition, Mr. Mirza ran the SAAR Network’s centerpiece, an outfit called the SAAR Foundation, which advertised itself as a charity, but was allegedly an important vehicle for laundering money raised in the United States for jihadi groups.
In 1998, the SAAR Foundation reported that it had an astounding $1.8 billion in annual revenue. After the 9-11 attacks, when the authorities began investigating the foundation for alleged ties to Al Qaeda, the foundation issued new books that stated that it had zero income. In other words, $1.8 billion simply vanished, and officials suspect that the money ended up in the hands of terrorist outfits, including Al Qaeda. In another instance, the SAAR Foundation transferred $9 million to an off-shore account held in the name of Humana Charitable Trust, an entity that did not exist.
Mr. Mirza has also been named by FBI investigators and terrorism experts as the principal U.S.-based bagman for Yasin al-Qadi, a Saudi billionaire who was, until recently, one of a select number of people labeled by the U.S. government as a “Specially Designated Global Terrorist.” Although the State Department recently removed that designation under pressure from the Saudi government, which did not want the world to know that one of its most prominent citizens had been linked to Al Qaeda, I will continue to refer to Yasin al-Qadi as a “Specially Designated Global Terrorist” because the evidence is clear that he is, in fact, a “Global Terrorist” who needs to be “Specially Designated.”
In fact, as upcoming chapters will make clearer, it is probably correct to say that Yasin al Qadi was Osama bin Laden’s favorite financial operator. As evidence of this, we need only to know that in addition to being a major league hedge fund manager and market manipulator, Yasin al-Qadi ran the Muwaffaw (Blessed Relief) Foundation, which was, according to the U.S. Treasury Department, an “Al Qaeda front” and one of the most important sources of funding to Osama bin Laden’s operation.
In addition, Yasin al-Qadi was a major investor, along with a man named Sulaiman al-Ali, in a Chicago company called Global Chemical, which was ostensibly involved in warehousing chemicals for the manufacturing of soap. But the chemicals had nothing to do with making soap. When Global Chemical was raided in 1997, government experts said that the chemicals were likely for use in manufacturing explosives or even chemical weapons.
The president of Global Chemical was Mohammed Mabrook, who used the alias Mohamed Elhazeri, and who was, in the 1990s, the director of an outfit called Mercy International. Given that U.S. authorities have accused Mercy International of funding Al Qaeda and providing logistical support for Al Qaeda’s 1998 bombing of the U.S. embassy in Kenya, one might be suspicious of the intentions of Global Chemical’s operation.
Meanwhile, Global Chemical co-investor Sulaiman al-Ali incorporated, along with Yasin al-Qadi’s bagman, Mr. Mirza, a company called Sana-Bell Inc. As far as anyone can tell, Sana-Bell’s only purpose was to generate and manage money for the U.S. arm of the International Islamic Relief Organization (IIRO).
Among the principals of the IIRO was Mohammed al-Zawahiri, who was the leader of the military wing of Egyptian Islamic Jihad (which has since merged with al Qaeda). Mr. al-Zawahiri is also the brother of Ayman al-Zawahiri, who was Osama bin Laden’s deputy, and is now presumed to be the new leader of Al Qaeda.
Given these connections, it should not be surprising to learn that IIRO has been identified by authorities as an organization that funds terrorism. The United Nations, at one point, officially declared that the IIRO’s branch offices in the Philippines and Indonesia were Al Qaeda subsidiaries. For a long time, the Philippines office was directed by Mohammad Jamal Khalifa, a high-ranking Al Qaeda figure who is Osama bin Laden’s brother in law.
The IIRO, meanwhile, is a subsidiary of the Muslim World League, which Osama bin Laden identified (in a recorded conversation with Al Qaeda lieutenant Jamal Ahmed al-Fadl) as one of his primary sources of funding. The Muslim World League, which was also a big backer of Sami al Arian’s Palestinian Islamic Jihad, Hamas and other jihadi outfits, was incorporated in the United States by Yasin al-Qadi’s bagman, Mr. Mirza, chairman of Sheikh DeLorenzo’s Amana Trust.
While Mr. Mirza handled affairs in the U.S., the Muslim World League’s Peshawar office was managed by Wael Jalaidan, one of Al Qaeda’s founding members. The Muslim World League’s vice president in the U.S., Mr. Hassan Bahfazallah, was a member, along with Mr. Mirza, of Sana-Bell’s board of directors.
Mr. Bahfazallah, meanwhile, was also the executive director of Benevolence International, which received considerable support from “Specially Designated Global Terrorist” Yasin al-Qadi. Benevolence, recall, is the outfit that was (according to the U.S. embassy in Moscow and the FBI) in close contact with people who were trying to obtain nuclear bombs for Al Qaeda by buying them from Chechens with ties to the Russian Mafia.
Given the increased scrutiny that Yasin al-Qadi has faced from U.S. law enforcement, it is possible that he is no longer able to deliver money directly to Al Qaeda. But his expertise as a major league hedge fund manager with deep experience in the U.S. markets might be of service to the Grand Jihad. Same goes for bagman Mr. Mirza, who seems to be a first rate financial operator and has billions at his disposal.
I do not know whether Yasin al-Qadi, Mr. Mirza and the other jihadi financiers are clients of Sheikh DeLorenzo’s naked short selling phantom stock machine, but these people certainly operate in the same circles. Tax returns show that one investor in Sheikh Delorenzo’s Saturna Capital, which owns the Al Safi Trust naked short selling operation, was the Holy Land Foundation, named by U.S. prosecutors as the principal U.S. front for Hamas.
Sheikh DeLorenzo also ran (and continues to serve as a consultant to) the Saturna Brokerage, which is affiliated with the Islamic Society of North America (ISNA), a Saudi funded outfit tied to the Muslim Brotherhood. Mr. Mirza’s Amana Trust also operates under the ISNA umbrella, as does the NAIT investment bank and Tuco trader Zuhair Karam’s Bridegview Mosque, whose directors help run the operations of all of these financial entities.
The current president of Saturna Brokerage is Monem Abdul Salam, who was formerly a principal at Dickinson & Co., a brokerage that was a unit of the Stotler Group, which received a pile of subpoenas in 1989 as part of Operation Sour Mash and Operation Hedge Clipper – two famous FBI investigations into financial firms suspected of laundering money for narcotics kingpins and organized crime. Mr. Salam was not directly implicated in those investigations, but there is no doubt that Dickinson was a dubious brokerage. Several of its leading traders left to found MB Trading, which never bothered to register itself with the authorities until it became the first brokerage ever sanctioned by the U.S. government for catering to a customer in Iran in violation of laws that prohibit doing business with state sponsors of terrorism.
As of 2008, the president of ISNA (the outfit that controls NAIT, Saturna, and Amana Trust) was Muzammil Siddiqi, who also served as president of the Ficq Council, where Sheikh DeLorenzo served as secretary and as a director of the board. Mr. Siddiqi has since been named as an unindicted co-conspirator in the Holy Land Foundation’s terrorist financing case.
There are many other reasons to be concerned about the brokerages and other financial outfits operating under the ISNA banner, one of which is that ISNA was co-founded by Palestinian Islamic Jihad leader Sami al Arian, who (we know) has been accused of providing support to the 9-11 hijackers, and was (according to court documents) taking directions from agents of the Iranian regime operating out of the UN headquarters in New York. This is one reason why NAIT, the multi-billion dollar investment outfit, was named as an unindicted co-conspirator in the government’s case against Sami al-Arian.
ISNA, meanwhile, was named as an unindicted co-conspirator in the government’s case against the Holy Land Foundation. According to United Press International, U.S. government investigators believe that ISNA has transferred money directly to Al Qaeda, but ISNA has not been charged on that account and likely wouldn’t be charged in deference to the Saudi government, which is one of ISNA’s big donors and would be embarrassed by any association with Al Qaeda.
The best the FBI can do, apparently, is occasionally mention ISNA officials as “unindicted co-conspirators” in cases related to Al Qaeda. As just one example, ISNA vice president Siraj Wahhaj was named by the U.S. government as an “unindicted person who may be alleged” to have participated in the 1993 “Day of Terror” plot, hatched by a diverse assortment of jihadis, all with ties to Al Qaeda. The mastermind of both the “Day of Terror” plot and the 1993 bombing of the World Trade Center was a religious scholar and cleric named Omar Abdel Rahman, otherwise known as the “Blind Sheikh” – and he is one of the most important people in the world because his words, more than those of any other Islamic clerics, inspire the actions of Al Qaeda and other leaders of the Grand Jihad.
The Blind Sheikh was until his imprisonment the leader of Al-Gama’a al-Islamiyya, an Egyptian jihadi group. It was long assumed that Al-Gama’a al-Islamiyya was a fierce rival of Egyptian Islamic Jihad, led by Ayman al-Zawahiri, who merged his outfit with Al Qaeda and is now expected to take over bin Laden’s position. To be sure, al-Zawahiri and the Blind Sheikh had their differences when it came to tactics and strategy (especially with regard to Egypt), but they were nonetheless united in their mission to wage jihad against the United States.
Meanwhile, nearly all jihadis are united in their admiration for the Blind Sheikh because his PhD. from Egypt’s prestigious Al Azhar University, the fount of Muslim Brotherhood thought, gives his fatwahs legitimacy. Moreover, his fatwahs are bolder than those of any cleric, and they have a particular ring to them. “Tear the Americans and Jews to pieces! And kill them wherever you find them. Ambush them. Take them hostage…Kill these infidels! Until they witness your harshness. Fight them, and God will torture them…” And so on…
In his most famous fatwah, the Blind Sheikh was the first to call for the use of airplanes as weapons. In this same fatwah (issued from his prison cell after the 1993 attack on the World Trade Center) the Blind Sheikh was also the first prominent jihadi to publicly declare that jihadis the world over should join forces to attack the American economy.
The lengthy fatwah is worth a read, but one line can give you a general idea. The Blind Sheikh began with the usual command to “tear [the Americans and Jews] to pieces”. He then specified how this could be done: “destroy their economies, burn their corporations, destroy their peace, sink their ships, shoot down their planes and kill them on air, sea, and land.”
At the press conference where Osama bin Laden announced his declaration of war against the United States, the Al Qaeda leader gave the assembled journalists laminated cards printed with a photo of the Blind Sheikh and a few words of his famous fatwah – namely, the words that I quoted above. Meanwhile, many of the polished jihadi financiers in the SAAR Network had advocated for the Blind Sheikh’s release from prison.
That was in the 1990s, and nobody paid much attention. Given what we now know, however, maybe the SEC or somebody should pay attention to jihadi financiers who might, indeed, be working to “destroy [our] economies” and “burn [our] corporations” – not with fire, but with the weapons of high-finance.
Weapons such as Sheikh DeLorenzo’s phantom stock machine, also known as Al Safi Trust, which is, in fact, a unit of Saturna Capital — which is, in turn, an affiliate of ISNA. But to the extent that the SEC does pay attention to ISNA (or to the former ISNA officials who are alleged accomplices of Al Qaeda and the Blind Shiekh), it is only to give the SEC stamp of approval to ISNA’s financial empire.
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The leaders of the jihad are often portrayed as primitive bumpkins who live in caves and are armed with nothing more dangerous than a few maniacs willing to blow themselves up. This is to ignore the power of the jihadi ideology, which is articulated with great eloquence by countless people who are eminently learned scholars of both Islam and global politics.
It is also to ignore the jihad’s fighting capabilities. The jihadis have done much more than dispatch a few terrorists here and there. They have organized and commanded insurgent armies with thousands of soldiers. And these armies have fought, with considerable success, two all-out wars (Afghanistan and Iraq) against the world’s most powerful military.
Perhaps even more importantly, the notion that jihadis are backward thinkers right out of the seventh century grossly underestimates the jihad’s sophistication as a modern-day global financial operation. And it is not just sophisticated; it is a massive criminal undertaking that has, according the United Nations, laundered more than $1 trillion through the global banking system in the last five years alone.
As one report prepared for the French Directorate of Military Intelligence explains, “the financial network of [Osama] bin Laden, as well as his network of investments, is similar to the network put in place in the 1980s by BCCI [Bank of Credit and Commerce International] for its fraudulent operations, often with the same people…The dominant trait of bin Laden’s operations is that of a terrorist network backed up by a vast financial structure.” [Italics are mine.]
For those who do not know, the Bank of Credit and Commerce International (BCCI) was a massive and complex financial institution, founded by a Pakistani wheeler-dealer named Agha Hasan Abedi in partnership with Sheikh Zayed bin Sultan al-Nahyan, then leader of Abu Dhabi. Among the other founding shareholders who helped run the operation were the Gokal family of Pakistan; a close-knit network of Saudi billionaires; and the ruling family of Dubai, which is (like Abu Dhabi) part of the United Arab Emirates.
In 1991, BCCI was forced to close its doors after New York District Attorney Robert Morgenthau declared that it was the “largest bank fraud in world financial history.” Eventually, prosecutors demonstrated that it had done illegal business with everyone from La Cosa Nostra and Colombian drug cartels to shady arms dealers and rogue intelligence agents.
BCCI, as we will see, was also a major player, along with U.S. financiers tied to the Mafia, in the savings and loan bust outs that wrought havoc on the U.S. economy in the late 1980s. Meanwhile, several of BCCI’s subsidiaries, such as First Commerce Securities, specialized in manipulating the U.S. markets. By most accounts, some of BCCI’s principals even played a major role in masterminding the 1973 OPEC oil embargo that quadrupled the price of oil, causing the inflationary recession (“stagflation”) that crippled the United States for the remainder of that decade.
The 1970s oil embargo is evidence enough that the U.S. economy is vulnerable to attack by politically motivated financial operators. BCCI co-founder Sheikh al-Nahyan of Abu Dhabi initiated the embargo as a way to retaliate against the United States for providing military aid to Israel, which had just fought a coalition of Arab states in a war that broke out in October 1973. As Sheikh al-Nahyan has said, the idea for retaliating against the United States with an embargo came to him in consultations with his BCCI co-founder, Abedi.
The details of the plan were worked out with Sheikh Ahmad Turki Yamani, then the Saudi minister of petroleum; and Sheikh Abdel Hadir Taher, the governor of the Saudi state oil company Petromin. Both of those Sheikhs were also shareholders in BCCI. And the mammoth oil profits that these Sheikhs earned from the embargo were, to a large extent, delivered to BCCI, which opened for business just before the embargo went into effect. It was, in fact, this new oil money that made BCCI a powerhouse in the world of finance and a giant criminal enterprise capable of plundering the U.S. economy throughout the latter half of the 1970s and the 1980s.
Henry Kissinger once said that the oil embargo was “one of the pivotal events in the history of the [twentieth] century.” Kissinger was not referring to BCCI, but the emergence of BCCI as destructive criminal element was certainly an important outcome. And it is not out of the question that some of the acts that BCCI subsequently perpetrated against the United States were, like the oil embargo, motivated to some extent by ideology and the by the resentment that the sheikhs felt as a result of the 1973 Arab war with Israel. After all, a principal tenet of both Salafi Islam (the brand of Islam subscribed to by the sheikhs behind both BCCI and the oil embargo) and radical Shiite Islam (subscribed to by a number of BCCI’s key executives) is that Muslims should fight their enemies by “plundering their money.” Regardless of what the motives of BCCI’s founders were in the past, it is clear that most of them are, to this day, major players in the global financial system. They have more than enough firepower to inflict damage on the U.S. markets. And, as the French intelligence report noted, “directors and cadres of the bank [BCCI] and its affiliates, arms merchants, oil merchants, Saudi investors” have been among the most important financial supporters of America’s Enemy Number One – Al Qaeda.
By way of introducing just a few of the billionaire BCCI figures who support Al Qaeda, I need to relate a story about Benevolence International, the Al Qaeda front that was accused by the U.S.. government of having contacts with people trying to obtain nuclear weapons for Osama bin Laden.
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In 2002, U.S. soldiers stationed in Sarajevo raided the local offices of Benevolence International and found a document that referred to the “Golden Chain” – an elite club of twenty Saudi billionaires whom Osama bin Laden had identified as his most important financiers. These financiers not only delivered large sums of money to the prospective nuclear weapons proliferators at Benevolence International, but can correctly be understood to have been among Al Qaeda’s founding fathers.
Some highly regarded authors, such as Steve Coll, who is otherwise quite reliable (though arguably a bit over-reliant on his Saudi sources), have suggested that the Golden Chain members funded Al Qaeda only in its early years. This is false. Most of them continued to support Al Qaeda after bin Laden declared war against the United States and after Al Qaeda carried out the 9-11 attacks.
The Golden Chain document has, meanwhile, received virtually no attention from the media, perhaps because it would seem a bit “crazy” to suggest that Al Qaeda is a movement whose most important operatives are not rag-tag fringe fanatics living in caves, but rather the crème de la crème of Saudi society – the people who control much of the world’s oil wealth, the people who own the most powerful manufacturing conglomerates, and the biggest Saudi banks, and the biggest hedge funds, and the biggest stock brokerages, and the Saudi stock exchange itself.
There is something in the wiring of American brains that makes it impossible for even the smartest people in this nation to accept surprising or unpleasant realities. There are a few exceptions, such as Glenn Simpson, who was once The Wall Street Journal’s finest investigative reporter, and who did write about the Golden Chain. But Simpson has left The Journal, and the newspaper has since failed to investigate Saudi ties to terrorism. In fact, it has failed to investigate much of anything at all.
Nowadays, it almost seems like the media is under under strict orders not to write anything surprising whatsover. When I mentioned the Golden Chain document to a former colleague of mine at The Wall Street Journal, he first insisted that there was no proof that the document even existed. When I sent him evidence that it did exist, he did a quick Google search and concluded that the document was not reliable because an American judge had said the document was not admissible in court since it was not clear who had authored it.
The Journal reporter was not interested in investigating the facts; a judge had spoken, and that was enough. It didn’t used to be like this. But now it’s how our media works – nothing is to be reported unless it represents the thinking of some recognized fixture of the establishment.
Never mind that there is a vast body of additional evidence that most of the people identified as members of the Golden Chain have actively participated in the Grand Jihad on multiple fronts. And never mind that the Golden Chain document had been confirmed to be authentic by, among others, American intelligence officials, multiple FBI agents, Al Qaeda’s most reliable defector Jamal al-Fadl, and the nation’s most learned terrorism experts, including Steve Emerson of the Investigative Project for Terrorism, which possesses the world’s largest non-governmental database of intelligence on Al Qaeda and other jihadi groups.
So we must know more about Al Qaeda’s Golden Chain. For starters, we must understand that these extremely wealthy financiers are bound together by the sorts of relationships that many Americans do not understand. These are not mere business relationships. They are the bonds of brotherhood and blood. They are the bonds of fervor and ancient grievances. They are, moreover, the bonds between people who are united in their disdain for the prevailing order, and whose financial crimes have, in many cases, helped subvert that order. One billionaire member of the Golden Chain, according to the Benevolence International document, was Sheikh Khalid Bin Mahfouz, who had been among the masterminds and co-founders of BCCI, and had paid more than $200 million to settle charges for his role in that massive criminal enterprise. Sheikh Mahfouz, who passed away under somewhat mysterious circumstances in 2009 (there were unconfirmed rumors that he was murdered), had also founded National Commercial Bank, which is the single largest financial institution in the Middle East.
Some of Sheikh Mahfouz’s companies – such as Al Khaleejia, SEDCO, and the Saudi Sudanese Bank – have done business directly with companies that were founded by Osama bin Laden. And it was Sheikh Mahfouz who originally set up the Muffawaw Foundation, the outfit that was managed by Yasin al-Qadi until the U.S. government declared Muffawaw to be an “Al Qaeda front” and labeled Yasin al-Qadi as a “Specially Designated Global Terrorist.”
There are some American pundits who claim that Saudi billionaires like Sheikh Mahfouz donate to Al Qaeda only to avoid being attacked, like frightened shop owners paying protection money to the local Mafia thug. These pundits misunderstand the nature of Saudi society, the two most important features of which are Salafi Islam (one of the foundations of the jihadi ideology) and the inviolability of personal relationships.
Sheikh Mahfouz not only believed in the Grand Jihad, but his relationship with the bin Laden family went back decades. Osama bin Laden’s father, Mohammed, and Sheikh Mahfouz were best friends, and it was Sheikh Mahfouz who provided the original finance that allowed Mohammed to build Saudi Arabia’s largest construction company. To cement these ties and to further demonstrate his commitment to the Grand Jihad, Sheikh Mahfouz tried (unsuccessfully) to arrange for his sister to marry Osama bin Laden.
While he was still alive, Sheikh Mahfouz filed lawsuits against the few journalists who sought to expose his ties to Al Qaeda. Meanwhile, the families of the victims of the 9-11 attacks filed lawsuits against Sheikh Mahfouz for providing financial support to the people who killed their loved ones.
And I am thinking I might file a lawsuit against Sheikh Mahfouz’s estate seeking damages for all the stress that I have endured as a result of learning that Sheikh Mahfouz and his friends not only have ties to the world’s most skilled financial criminals, but also billions of dollars that might come in handy to people like Shiekh Mahfouz’s friend, Mohamed Loay Bayazeed, who tried, according to the FBI, to “obtain uranium for Osama bin Laden for the purpose of developing a nuclear weapon.”
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Another member of Al Qaeda’s Golden Chain is Sheikh Saleh Abdullah Kamel, owner of Dallah Albaraka, a conglomerate involved in banking, stock trading, construction, and jihadi media. In addition, Sheikh Kamel, who is linked to the Muslim Brotherhood and Sami Al-Arian’s Palestinian Islamic Jihad, owns the powerful Saudi al-Baraka Bank, which, according to U.S. government investigators, provided much of Al Qaeda’s financial infrastructure in Sudan. Shiekh Kamel also gave Hamas, the jihadi outfit that controls the Gaza strip, more than $20 million so that Hamas could open a bank of its own.
The new Hamas financial institution, which is called al-Aqsa Bank, quickly formed a joint venture with Citibank. That joint venture was quite lucrative for Citibank, which may have been willing to turn a blind eye to illicit financial transactions until 2001, when it cut off relations with Al-Aqsa on the advice of the U.S. Treasury Department. Unfortunately, the U.S. Treasury, though quick with advice, never officially labeled any of the banks or financial institutions linked to Shiekh Kamel as fronts for jihadi groups.
U.S. authorities have also taken no substantive action against Sheikh Ibrahim Muhammad Afandi, a member of Al Qaeda’s elite Golden Chain club who owns some of Saudi Arabia’s most influential businesses, including the Saudi Industrial Services Company, the Great Saudi Development & Investment Company, and the Arabian Company for Development and Investment Limited. Sheikh Afandi also controls BSA Investments, a big private equity fund active in the U.S.
Then there is Abdel Qader Faqeeh, a member of the Golden Chain club and chairman of major corporations and financial institutions, including Bank Al Jazeera and the Savola Group, which recently merged with Azizia Panda to become Saudi Arabia’s 13th largest company. A business partner of Sheikh Faqeeh is Golden Chain member Sheikh Saleh al-Din Abdel Jawad, who is the CEO of the blue chip General Machinery Agencies manufacturing company in Jeddah.
Sheikh Faqee also had a joint venture business with the above-mentioned Sheikh Mahfouz. Indeed, each Golden Chain member has some sort of business partnership with each of the other Golden Chain members – one reason why I say that these people need to be viewed as not just a club, but as a family. I will not bore the reader with a long recitation of every financial transaction that ties Al Qaeda’s financiers together, but I will mention a few, just to erase any question as to whether the relationships exist.
For example, National Commercial Bank, owned until recently by Sheikh Mahfouz, is a partner in a multi-billion dollar investment outfit called the Middle East Capital Group, which is partly controlled by Sheikh Rahman Hassan Sharbatly – who is another member of Al Qaeda’s Golden Chain club. Sheik Sharbatly is also a partner, with Sheikh Faqee, in a unit of Sheikh Faqeeh’s Savola Group. In addition, Sheikh Sharbatly is a board member and major shareholder of Beirut Ryad Bank SAL, Egyptian Gulf Bank, and several other major financial institutions.
Meanwhile, Sheik Sharbatly and Sheikh Mahfouz were both board members of the Saudi Arabian Refinery Company, which refines much of the world’s oil supply. This brings to mind the report that I mentioned at the outset of this story – the one commissioned by the U.S. Defense Department’s Irregular Warfare Support Program. That report speculates that one component of the possible financial attack on the U.S. economy in 2008 might have been the manipulation of oil prices to excruciating highs in the summer of that year.
I do not know if oil prices were manipulated, but it seems like a possibility that is worth considering, especially in light of Osama bin Laden’s proclamations about the “absolute necessity of using the oil weapon.” Another reason to ask whether oil prices might have been manipulated is that the membership of Al Qaeda’s elite Golden Chain club includes Sheikh Abdel Hadir Taher and Sheikh Ahmad Turki Yamani – the two former BCCI shareholders who masterminded the 1973 oil embargo with Sheikh al-Nahyan of Abu Dhabi.
Sheikh Taher, in addition to being an Al Qaeda Golden Chain member and the former governor of the Saudi state oil company Petromin, has also served as director of Saudi European Bank, a big financial institution that is important to the stability of global economic order. Al Qaeda Golden Chain member Sheikh Yamani, we know, is a former Saudi minister of petroleum. He is also a former director of Saudi Aramco, which is the largest oil company in the world.
In addition, Sheikh Yamani presides over Investcorp, an investment firm that he founded. Actually, it’s not just an investment firm; it’s a market-moving behemoth – one of the largest hedge fund and private equity outfits in the world, with more than $50 billion under management. Investcorp has made a deep imprint in the American markets, and has been involved in everything from short selling to the trading of self-destruct CDOs. As for what sort of short selling Investcorp engages in, we need only know that Ivestcorp is a client of Sheikh DeLorenzo’s Al Safi Trust phantom stock machine.
Investcorp was also a pioneer, and continues to be one of the few major players in the shady world of so-called PIPEs deals, also known as “death spiral” finance. PIPEs, or “Private Investments in Public Equity” are simply transactions that see the investors buying stock directly from companies rather than on the open markets. But far from being investors who want the companies to succeed, PIPEs investors often scheme to destroy the company to which they are supposedly serving as benefactors.
Since PIPEs finance dilutes shareholder value, a company that does a PIPEs deal often sees its stock price decline. When this happens, short sellers (often naked short sellers who are colluding with the outfit that provided the PIPEs finance) attack the company, causing its stock price to drop. The more it drops, the greater the number of shares are owed to the PIPEs financier. The greater number of shares, the greater that drop; and so on. Hence the term, “death spiral” finance.
Once the stock price of a PIPEs victim is mauled, the finance is cut off, and the company goes bankrupt, delivering big profits to the short sellers (i.e. profits that far exceed the cost of providing the PIPEs finance in the first place).
The emergence of the PIPEs industry has, without doubt, been a scourge on the markets. As numerous court cases attest, it has destroyed countless companies and countless jobs. Basically, it is a not-insignificant reason why America’s “miserable house” (as that Muslim Brotherhood document called it) is, in fact — miserable.
Sheikh Sulaiman Abdul Aziz al-Rajhi is not miserable. He’s the patriarch of the wealthiest family in Saudi Arabia, and thus one of the 100 richest people in the world. He is jolly and well. So, naturally, he is also a member of the Golden Chain, the elite club of Al Qaeda’s 20 most important financiers.
Maybe because the twenty members of the Golden Chain club are the most prominent people in Saudi Arabia, the U.S. government does not label them as “Specially Designated Global Terrorists.” It does not take steps to shut down their bank accounts or bar them from trading in the U.S. markets. It does not even dare utter their names, perhaps because to do so would embarrass the Saudi government, which is ostensibly a U.S. ally.
When the U.S. government’s “9-11 Commission” issued its final report on the Al Qaeda attacks on New York and Washington, it contained 28 pages that reportedly detailed Saudi ties to Al Qaeda. But when the report was released to the public, the 28 pages about the Saudis were censored, so ordinary people could not read them. A full 28 pages – with no words; nothing but big blocks of black ink. Thus, it is left to independent jihad experts to sort out many of the connections. Steve Emerson and his Investigative Project on Terrorism have done especially heroic work in this regard. Some former top government officials have said that Emerson is better informed about the jihad than the government itself. But Emerson and other people who have done excellent research are largely ignored by the media, which will not report the facts unless they have been stated explicitly by some official spokesman.
At any rate, you won’t read about it in the media, but it is clear that Sheikh al-Rajhi, the wealthiest man in Saudi Arabia, is an important leader of the Grand Jihad. Aside from being an Al Qaeda Golden Chain member, he is the principal force behind the U.S.-based SAAR Network of jihadi financiers that I began to dissect earlier in this chapter and will describe in greater detail in later chapters. In fact, the SAAR Network is named after Sheikh al-Rajhi himself. The initials, S.A.A.R., stand for Sulaiman Abdul Aziz al-Rajhi.
Most of the other Golden Chain members are also involved with the SAAR Network financiers operating in the United States. For example, Shiekh Afandi and Sheikh Kamel were board members of Sana-Bell, the outfit run by “Specially Designated Global Terrorist” Yasin al Qadi’s bagman, Mr. Mirza. Also a board member of that outfit, you will recall, was Mr. Bahfzallah, head of Benevolence International, the outfit that was dealing with people who were shopping for nukes.
Yasin al Qadi’s lawyer, Cherif Sedky also worked for Sheikh Mahfouz. And this same lawyer represented Shiekh Rajhi when the FBI began to ask how it came to be that $1.8 billion dollars from the SAAR Foundation disappeared, most likely into the hands of other jihadis.
Given his important role in the Grand Jihad, it is fair to assume that Shiekh al-Rajhi (who, like all the Golden Chain members is also on familiar terms with Tuco trader Zuhair Karam’s crowd at the Bridgeview Mosque) harbors some disdain for the global financial order. At the same time, Sheikh al-Rajhi is one of the most important players in the global financial order, a person who is perfectly capable of transforming or even undermining it. Indeed, it is fair to say that few men have more sway over “the system” than Sheikh Sulaiman Abdul Aziz Rajhi.
Said to be a whiz with numbers, Sheikh Rajhi directs multiple hedge funds that manage many billions of dollars, several stock brokerages, and the massive Al Rajhi Bank, which is the most venerable of the elite financial institutions that control the Stock Exchange of Saudi Arabia, also known as the Tadawul. Sheikh Rajhi’s companies have around $100 billion in cash at their disposal. All told, the financial fire power of Al Qaeda’s Golden Chain exceeds that of most mid-sized nations.
But, rest assured, jihadis are just bumpkins in caves.
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Despite the death of Osama bin Laden, the jihad’s sophisticated financial operation remains entirely in place. Moreover, it is doubtful that the Securities and Exchange Commission is monitoring the activities of the billionaire financial wizards who are members of Al Qaeda’s Golden Chain. Certainly, it has never charged any member of the Golden Chain for engaging in financial schemes (such as self-destruct CDOs and “death spiral” finance) that have done damage to the U.S. economy.
Indeed, as we know, the SEC has made it easier for these people to manipulate the markets by allowing characters such as Sheikh DeLorenzo (who, as a prominent member of the SAAR Network, is certainly on good terms with the Golden Chain) to operate trading platforms such as Al Safi Trust’s naked short selling machine. Meanwhile, Wall Street’s largest institutions stumble over themselves to do business with other financial behemoths that might not be entirely committed to keeping the U.S. economy in good health.
One such behemoth is the financial empire of Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum — or “Sheikh Mo,” as he is affectionately called in the West. Sheikh Mo, whose family members were among the controlling shareholders of BCCI’s criminal enterprise, now operates, among other entities, the Dubai International Finance Center, which houses Sheikh DeLorenzo’s Al Safi Trust (set up in partnership with Sheikh Mo) and countless hedge funds, most of them intertwined with Dubai’s sovereign wealth fund. The Dubai International Finance Center’s stated mission is to advance shariah compliant finance (such “compliance” being demanded only by radicals who misinterpret shariah law), and it has at its disposal more than a trillion dollars. Frank Gaffney, former assistant secretary of defense for international security, insists that shariah compliant financial products “threaten what is left of the integrity of our free market system. Worse yet, they – and the theo-political-legal doctrine, Shariah, from which they spring – pose a real threat to our society and form of government.”
On the surface, it seems that there is nothing wrong with people creating shariah compliant financial products, even if they cater to an interpretation of Islam that is radical in the extreme. People have a right be radical and to create radical financial products. Indeed, it took me a long time to believe that Shariah finance posed any threat whatsover. My instinct was to believe that it was merely an effort to cater to people who are devoutly religious, no more dangerous than Halal beefsteak.
However, it is prudent to consider whether there is more than religion behind the astounding growth of shariah compliant finance in recent years. Indeed, we must understand that the new and radical interpretation of shariah “compliance” is overtly anti-American, and was invented by jihadi leaders as a means to challenge the U.S. financial order. This is well-documented in a book called “Understanding Sharia Finance”, by Patrick Sookhdeo, Director of the Institute for the Study of Islam and Christianity.
Paul Bracken, professor of management and political science at Yale University, notes that shariah compliant finance has become a powerful force and raises “the prospect that Wall Street could be knocked out of action [with] strategic implications for the United States and for the entire global system of finance.”
As for Sheikh Mo, the eminence grise of shariah “compliant” finance, many in Washington consider him to be an important ally of the United States. But Sheikh Mo considers one of his most important allies to be the regime in Iran, which would like to see the United States obliterated. Meanwhile, Sheikh Mo and his family have been among the biggest supporters of organizations that are carrying out the Grand Jihad.
For example, Sheikh Mo’s family, along with the Muslim Brotherhood, the Golden Chain Saudis, and some factions of the Saudi government are among the biggest contributors to ISNA, an organization whose depredations I have partially described.
A charity founded by Sheikh Mo also donated $50 million to the Council on American Islamic Relations, an ISNA-tied outfit that grew out of the Islamic Association of Palestine, which was the U.S. propaganda arm of Hamas. Numerous CAIR officials have been allegeged to have ties to Al Qaeda, which might explain why CAIR has plotted ways to secure the release from prison of the Blind Sheikh. In Europe, where Sheikh Mo is received warmly (the BBC recently called him an “enlightened dictator”), Muslim Brotherhood spiritual leader Yousef al-Qaradawi (the cleric who has issued calls for “Financial Jihad”) runs the European Council for Fatwa and Research, which has played a key role in fostering the development of shariah “compliant” finance. That outfit was funded almost entirely by Sheikh Mo and his family until it was implicated by authorities for having ties to violent jihadis.
Meanwhile, Dubai, with Sheikh Mo’s acquiescence, has long served as an important operational hub for some the world’s most notorious organized crime figures, some with direct ties to jihadi groups. For example, Indian Mafia kingpin Dawood Ibrahim was, until he moved to Karachi to live under the protection of the Pakistani spy services, one of Dubai’s most honored and ostentatious residents, regularly holding lavish parties at his landmark white mansion – parties attended by prominent figures in the world of high finance (some of whom I will introduce in upcoming chapters), and also by members of Sheikh Mo’s royal family.
Mr. Ibrahim had the full protection of Sheikh Mo until Dubai was pressured by the international community to send him packing. And Mr. Ibrahim was no ordinary Mafioso. He was, as I mentioned, intimately intertwined with the operations of Al Qaeda and other jihadi groups – the only person in the world to be labeled by the United States government as both a “Global Narcotics Kingpin” and a “Specially Designated Global Terrorist.”
Former ABC News journalist Gretchen Peters, a friend and work colleague of mine when we both lived in Cambodia, has published an excellent book about the nexus between jihadis and the heroin trade. One CIA official whom Peters interviewed for the book noted that “if you want to know what Osama bin Laden is up to, you have to understand what Dawood Ibrahim is up to.”
Another close friend of Sheikh Mo was Viktor Bout, a Russian Mafia figure who was, for a long time, flying cargo planes filled with weapons from Dubai to Taliban and Al Qaeda redoubts in Afghanistan and Pakistan. Viktor Bout, like Dawood Ibrahim, operated with the full support and protection of the Dubai government until Interpol put out an arrest warrant for him. Then he moved to Moscow, where he enjoyed the protection of Russian prime minister Vladimir Putin until he was lured to Thailand and arrested by the FBI. Viktor Bout was also closely tied to Abu Dhabi’s ruling family, whose leading members (like Dubai’s ruling family) probably first came into contact with organized crime while they were presiding over the criminal operations of BCCI. Some cargo planes that Bout used to smuggle weapons to Afghanistan were registered as belonging to a company called Flying Dolphin, which was owned by Sheikh Mansour Al Nayan, the present ruler of Abu Dhabi.
Then there is the famous story of why President Bill Clinton failed to kill Osama bin Laden. Soon after Al Qaeda’s 1998 attacks on U.S. embassies in Tanzania and Kenya, the CIA located Osama bin Laden and reported that the Emir of Jihad was hosting some of his closest friends at a party in a remote corner of Afghanistan. The Al Qaeda leader and his friends were spending their days hiking in the mountains and hunting with falcons, then retreating to an Al Qaeda training camp to drink tea and talk of subversive notions.
Figuring that there would not be much time before Osama would vanish again, the U.S. military told President Clinton that this was the ideal moment to blow the Al Qaeda leader to smithereens with a precision-guided Hell-Fire cruise missile. The generals were ready to pull the trigger, but Clinton and his cabinet stopped them. They aborted the mission because Osama bin Laden and his friends were having a party. And these friends were all from Dubai. In fact, they were among the most prominent members of Sheikh Mo’s ruling family.
Sheikh Mo’s family and the leaders of Al Qaeda had finished hunting and were relaxing in the tents that Shiekh Mo’s family members had brought with them to Afghanistan – house-sized luxury tents equipped with giant electricity generators, and decorated with fine carpets, and fabrics laced in gold. No doubt, Osama bin Laden regaled the Dubai ruling family with stories of his exploits, and the Dubai ruling family members no doubt responded with praise for their host’s glorious victories against the United States, perhaps even noting that America’s “miserable house” had gotten what it deserved.
At any rate, the CIA watched the satellite images. The generals asked Bill Clinton if they should fire the missile. And Bill Clinton said, “No” — because, of course, Dubai’s royals were American allies. As George Tenent, who was then the director of the CIA, later put it, Clinton could not take this rare opportunity to kill Osama bin Laden because the missile strike “might have wiped out half the royal family of the UAE.”
Put differently, one might say that “half the royal family of [our ally] the UAE” was partying with Osama bin Laden.
That’s some ally.
Well, never mind, say America’s elite – if Sheikh Mo is supporting jihadis, it is only a matter of political expediency. Perhaps. But, in the end, it doesn’t matter whether the politics are expedient or not. What matters is the end result. And it is probably safe to assume that the Dubai royals who went on hunting expeditions in Afghanistan with Osama bin Laden may be (at least to some extent) sympathetic to the jihad. That is, they have, to a degree, been possessed by a subversive notion – that “the system”, as epitomized by the United States, can be undermined.
Unfortunately, the billionaire sheikhs of the Middle East – whether they be members of ruling families, members of the SAAR Network, or members of Al Qaeda’s Golden Chain – are not the only potential threats to America’s economic well-being. As I mentioned at the outset of this story, there is nexus between jihadi groups and organized crime, and there is a network of financial operators that illustrates this nexus nicely.
So we need to examine this network and what role it might have had in the 2008 financial crisis. But to know the network in more detail we must first go back in history a few decades – back to the time when BCCI was at the height of its power and a singularly destructive financial criminal named Michael Milken was the most formidable operator on Wall Street.
Deep Capture Chapter 3Edit
The year was 1979, and the outsized profits derived from the OPEC oil embargo had fueled the rise of BCCI, whose massive criminal enterprise was now expanding its operations into the United States. Meanwhile, radical Islamists had just taken control of Iran, and a man named Ivan Boesky was about to fly to Tehran, where he planned to spend a year developing relationships with the new regime.
These seemingly unrelated events would have figured in the thoughts of a man named Irving Kott, who one day that year got into his car and started the engine. But Kott suddenly remembered that he forgot something in the house, and he jumped out of the car. Lucky for him, because that’s when a powerful bomb exploded, turning Kott’s car into giant fireball of mangled metal. Kott took some shrapnel, but he survived, and the first thing he did, according to some of his associates, was call his friend, Ali Nazerali.
Kott was livid – he wanted to know what the deal was with the car bomb. Ali Nazerali said he’d ask around. After a few hours, Nazerali called back and said the word on the street was that a hit man named Cecil Kirby planted the bomb, and Kirby worked for Canadian mob boss Vic Controni. It seemed Kott had run a stock scam with Controni, who was then one of North America’s biggest market manipulators, and Kott stole Controni’s share of the deal.
Later court filings revealed that Kirby (and Kott) had also done some work for Antonio Commisso, a.k.a. L’avvocatu, or The Lawyer – a Toronto boss of the Ndrangheta Mafia organization, also known as the Siderno Group, because it has its origins in Siderno, Italy. One way or another, Nazerali offered to patch things up with the Mafia – and he did a good job of it. Commisso ordered Kirby to lay off, and a couple of years later Kott, Nazerali and the Mafia were all in business together, running a brokerage called First Commerce Securities.
Nazerali had spent his formative years working in key positions for the powerful Gokal family of Pakistan. According to “False Profits” (one of the definitive books on the BCCI scandal), as of the early 1980s, the Gokals (who were closely intertwined with Pakistan’s intelligence services) controlled the Gulf Group, which was BCCI’s most important satellite company. The Gokals had also become the most important business partners of the Iranian regime, and served that regime as semi-official financial advisers, handling everything from budgets to the procurement of sophisticated weaponry.
Nazerali was also a blood relative of Swaleh Naqvi, the chief executive officer of BCCI, and through his relative and his dealings with the Gokals, he had come to be a trusted business associate of the Iranian regime and of BCCI’s other principals. He was especially close to Sheikh Mahfouz, the future Al Qaeda Golden Chain financier, but he also sealed business relationships with the ruling families of Abu Dhabi and Dubai. It was through Sheikh Mahfouz that Nazerali came to be an important business partner of Yasin al Qadi, the future “Specially Designated Global Terrorist.”
Nazerali dabbled in arms dealing, delivering weapons to war zones in Africa and to the mujahedeen in Afghanistan, but his primary line of business in the early 1980s was his Mafia brokerage, First Commerce Securities, which soon became an important component of the BCCI syndicate. The importance of First Commerce to BCCI was evidenced not only by Nazerali’s relationship to BCCI’s CEO, but also by the fact that the CEO dispatched his relative, Kazem Naqvi (who is also Nazerali’s relative), to visit First Commerce’s offices almost every day.
Meanwhile, according to “False Profits”, a number of First Commerce’s top executives were simultaneously employees of BCCI, or had worked for BCCI affiliates before joining the Kott-Nazerali operation. At least two of First Commerce’s top executives – Sinan Raouff and Walter Bonn – had previously worked, along with Nazerali, for the Gokal family in Pakistan. Raouff, who was not only a stock manipulator, but also an arms dealer, had previously worked for the Iraqi foreign ministry, and helped BCCI traffic weapons to both Iraq and Iran.
The Gokals brokered many of the weapons sales to Iran, laundering the money through BCCI, and skimming large amounts of the bank’s profits for themselves. The Gokal family patriarch, Abbas Gokal, would eventually be sentenced to 14 years in prison for his role in the BCCI scandal, and at his sentencing, the judge said that Gokal was among the most destructive criminals ever to be prosecuted. Gokal and his associates (including Sheikh Mahfouz, who paid a $200 million fine to settle charges for his role in the BCCI fraud) had, according to the judge, almost single-handedly “shattered the integrity” of the global financial system.
BCCI’s contribution to this destruction was accomplished with considerable help from Mafia-tied entities such as the Nazerali and Kott operation, First Commerce Securities, which is often referred to as “penny stock” brokerage, though that is to underestimate the extent to which it was involved not only in manipulating penny stocks, but also in undermining the broader markets.
One of First Commerce’s former business partners, himself an associate of the Mafia, says that the brokerage was a major player in the “death spiral” finance game, and that it took down many good companies. These were mostly small to mid-sized companies, but Nazerali and his associates would in later years move on to bigger prey.
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Around the time that Nazerali opened First Commerce, Syed Ziauddin Ali Akbar, who had served as BCCI’s treasurer, formed Capcom Financial Services, a commodities futures and investment management firm. Akbar’s sister was married to Nazerali’s relative, Swaleh Naqvi, the chief executive officer of BCCI, and all of Capcom’s key shareholders were BCCI people. Soon, the firm, like First Commerce (and probably trading in concert with First Commerce), became one of BCCI’s most important affiliates.
Later, much of Capcom’s money would disappear into the hands of Saudi intelligence operatives who used the money to buy shares in and penetrate American communications companies, including Western Tele-Communications and American Telecommunications Corporation. A Congressional Subcommittee would later state that the purpose of this operation was probably to gain the capability to track communications in the United States.
Another purpose was to manipulate the companies’ stock prices, and the operation could not have succeeded without the full support and complicity of a man named Michael Milken, who was then the most powerful financial operator on Wall Street. Milken’s operation at the Beverly Hills offices of Drexel Burnham Lambert, which was, in the 1980s, one of the largest investment banks in America, brokered much of the trading conducted by BCCI’s Capcom unit. All told, according to Capcom’s former president, Milken’s operation transacted Capcom securities contracts worth more than $90 billion, an astounding sum at that time.
If you believe what you read in the press, Milken is a financial genius who revolutionized the markets for high-yield debt, also known as “junk bonds.” Most journalists refer to him as the “junk bond king” while noting with admiration that he is also a “prominent philanthropist.” Even the usually reliable Economist magazine published an article in September 2010 that hailed Milken as an “innovator” whose junk bond finance helped build some of America’s greatest companies.
It is true that Milken’s finance contributed to the growth a few major companies – Ted Turner’s CNN and Rupert Murdoch’s News Corp., for example – but Milken and his cronies destroyed far more companies than they built. Among the many corporations that they wiped out were a number of America’s biggest savings and loans companies – massive financial operations whose collapse triggered the famous savings and loan crisis that inflicted serious damage on the economy and cost American tax-payers billions of dollars.
As was later noted by the Federal Deposit Insurance Corp (one of the government agencies that cleaned up this mess), Milken and his closest associates “willfully, deliberately, and systematically plundered certain S&Ls.” And while Milken’s impressive public relations machine has successfully convinced America’s financial journalists to forget the past, it should be remembered that Milken was, in 1989, indicted on 99-counts of securities fraud, market manipulation, and insider trading. He was sentenced to ten years, two of which he served in a federal penitentiary. At the time, most people in America knew Milken as the greatest financial criminal ever to operate on Wall Street.
It is important to understand how the Milken criminal enterprise functioned, because some of the same tactics (and some of the same people) contributed to the financial collapse of 2008.
A principal feature of the Milken operation was a variation on what mobsters refer to as a “bust out.”
In the olden days, Mafia thugs would take over, say, the corner bar, load it up with debt, siphon out the cash, and declare bankruptcy. Milken elaborated on the “bust out” and brought it to the world of high finance. The best book on this is Ben Stein’s “License to Steal”, though Connie Bruck’s “The Predators’ Ball” describes Milken’s larger scheme as well.
The scheme worked as follows: Milken issued junk bonds to finance about a dozen of his closest associates, who used the finance to take over good companies. Under the direction of Milken’s cronies, the companies took on ever greater amounts of Milken’s junk bond debt. But rather than use the finance to grow the companies, the Milken cronies simply looted the companies of their cash.
To create the illusion that there was a liquid market for the junk bonds, the Milken cronies traded their bonds amongst each other at stair-stepping prices, in an illegal process known as “daisy-chaining.” As the government’s indictments of Milken made clear, this junk bond merry-go-round was conducted with Mafia-like secrecy – nobody other than Milken’s closest associates knew that the only buyers for the junk bonds were Milken’s other closest associates.
Meanwhile, Milken presided over a nationwide network of brokerages and fund managers who traded on inside information about these companies and manipulated their stock prices.
When the Milken junk bond cronies were done looting their companies, Milken would cut off access to credit and other traders in his network would attack the companies with waves of short selling. This sent the companies’ stock price spiraling downwards, so that even if the companies’ boards were to remove the Milken cronies, the company would be unable to raise finance from more reputable sources.
When the companies went bankrupt, Milken and the other short sellers would make a fortune. Other Milken cronies would make still more money by purchasing the companies’ assets at fire-sale prices in the bankruptcy proceedings. And then they would repeat the process all over again, assured that junk bond merry-go-round would supply a constant stream of lootable finance.
But, of course, this scheme eventually collapsed – and it must be stressed, the vast majority of the companies that Milken financed ultimately disappeared.
In later years, the “bust out” concept was refined into such schemes as the “death spiral” PIPEs finance that was pioneered with help from Al Qaeda Golden Chain member Shiekh Yamani’s Investcorp and other outfits. Always, the basic idea is to finance a company, load it with debt, and then take it down.
In the 1980s, Milken and his cronies orchestrated a number of bust outs in league with BCCI and its proprietors, including future Al Qaeda Golden Chain member Shiekh Mahfouz, who remained one of Milken’s closest associates until Sheikh Mahfouz’s death in 2009.
I need to be specific about what I mean by “closest associate.” Milken has thousands of associates and not all of them are bad. But the three dozen or so people who are his closest associates are, every one of them, criminals. These include the dozen or so people who benefited the most from his junk bond merry go-round; his former top employees at Drexel Burnham; and a select number of brokers and fund managers, many of them best known as short sellers.
One of the outfits that benefited the most from Milken’s junk bond merry-go-round and the subsequent bust outs was, as I mentioned, BCCI. For example, Milken’s junk bonds financed the take-over of a savings and loan called Centrust, which became a BCCI subsidiary. Centrust was eventually looted and destroyed, but not before it played a role in the larger panoply of BCCI crimes.
Another key participant in Milken junk bond “bust out” schemes was a monumental criminal named Charles Keating. With Milken’s finance, Keating seized control of the giant Lincoln Savings and Loan, and began looting the company with help from two BCCI big wigs – Alfred Hartmann (a BCCI board member and head of BCCI’s Swiss subsidiary, Banque de Commerce et de Placements), and Abbas Gokal (the BCCI conspirator, adivsor to the the Iranian regime, and Pakistani intelligence asset who had formerly employed Ali Nazerali).
Meanwhile, back at First Commerce Securities, Ali Nazerali and BCCI’s Kazem Naqvi were busy stuffing cash and checks into large sacks that they tossed into the back of a white van, and then drove to Schiphol Airport, where they loaded the sacks onto a private jet destined for Geneva. When the sacks of proceeds of various stock manipulation schemes arrived in Geneva, they were delivered to Milken crony Charles Keating’s partner in crime, Alfred Hartmann, who laundered the money through BCCI’s Swiss subsidiary, Banque de Commerce et de Placements.
Later, the Senate Foreign Relations Committee began investigating BCCI for its role in financing Pakistan’s nuclear program. In announcing the investigation, the Committee said that it intended to take close look at Keating’s relationships with the Gokal family. While it is unclear what came out of that investigation, it is certain that BCCI did, in fact, play a major role in Pakistan’s nuclear profliferation efforts. The top two scientists for that program, Abdul Qadeer Khan (known as the “Father of the Islamic Bomb”) and Bashiruddin Mahmood, have since both met with Al Qaeda. Mahmood especially is believed to have shared nuclear know-how directly with Osama bin Laden.
Of course, this is not to suggest that Keating himself had anything to do with Al Qaeda, which had not yet been created , but he was definitely a major figure in the overall BCCI criminal enterprise. It is also certain that Lincoln and Savings and Loan was one of the biggest bust outs in history. When Keating was finished looting Lincoln and Savings, the multi-billion dollar financial institution was an empty husk. And by way of complicated foreign exchange transactions, much of Lincoln’s money was diverted to an outfit called TrendInvest, which was, in effect, another subsidiary of BCCI.
The Senate Foreign Relations Committee, meanwhile, investigated the business relationships between BCCI and another of Michael Milken’s closest associates, Marc Rich, who was (and is) the most powerful commodities trader in the world. In 1983, Rich had been indicted for illegally trading with Iran during the Iran hostage crisis. Key to Marc Rich’s transactions with Iran was the Gokal family and probably BCCI itself.
While Rich was illegally trading with Iran, his office was located in a New York building at 650 Fifth Avenue that was owned by the Alavi Foundation, which advertised itself as a charity. The FBI later discovered that the Alavi Foundation was not a charity – it was a front for the Iranian regime’s covert activities in the United States. In 2009, the Justice Department convicted the Alavi Foundation and its subsidiary, the Assa Corporation, which was a vast business enterprise, with espionage and funding Iran’s covert nuclear weapons program.
Also working out of the Alavi Foundation’s building in the 1980s was Ivan Boesky, the fellow who had spent a year in Tehran in the late 1970s. Boesky ran what was then one of the nation’s most powerful arbitrage funds (today it would be called a hedge fund), and quickly gained a reputation on the Street as a mysterious character who liked to operate in the shadows – a guy known to deliver suitcases full of cash to gorillas with handguns holstered on their hips. Boesky often told people that he had spent his time in Iran working as a CIA agent.
In 1989, when Boesky was indicted on multiple counts of stock manipulation and insider trading, prosecutors described in colorful detail his suitcases full of cash, but Boesky’s claims to have been working as a CIA agent in Iran were dubious to say the least. Boesky is the most famous of Michael Milken’s criminal co-conspirators, and prosecutors made it clear that he was a key figure in the stock manipulation network that Milken ran in the 1980s. It is more than likely, as one of Boesky’s former business colleagues confirmed in an interview with Deep Capture, that Boesky (like Marc Rich, the Gokals, and the other BCCI figures in Milken’s network) had deep ties not to the CIA, but to one of America’s most dangerous foes – the regime in Iran.
There might, in fact, be something to be gleaned from the court documents that were made public during the prosecution of the Alavi Foundation, the Iranian outfit that owned the building where Boesky and Marc Rich kept their offices. The court documents describe how the Iranian agents who ran the Alavi Foundation and its subsidiary, the Assa Corporation, took their orders from Iranian diplomats, including the Iranian ambassador, assigned to United Nation’s mission in New York.
These are the same diplomats who helped direct the activities of Palestinian Islamic Jihad leader Sami al-Arian, who was among the more important figures in the SAAR Network of terrorist financiers that included some BCCI principals, such as the Al Qaeda Golden Chain member Shiekh Mahfouz. The court documents also describe notes found by the FBI in the files of the Alavi Foundation’s one-time director, Ali Ebrahami. The stream-of-consciousness notes are strange and hardly conclusive, but they nonetheless worth considering.
They say, in part, “Conspiracy…to tell the truth > lie > risk > Imam’s birthday gathering…urgent situation > talk > everything > Mafia…”
The word “Mafia” was italicized in the original.
After the word “Mafia,” Ebrahami wrote – “Duty.”
It is not clear to what Ebrahami was referring, but if Iranian agents (or, for that matter, Al Qaeda financiers, Pakistani intelligence assets, and Saudi spies such as those who traded with Milken) ever desired to carry out a “conspiracy” with the “Mafia”, there would certainly be an abundance of Mafia-tied financiers for them to contact. Indeed, they already have made contact with Mafia-tied financiers, many of whom are close associates of Michael Milken.
In upcoming installments, we will explore these contacts in detail. And we will see what this network might have had to do with the financial crisis of 2008. First, though, I must present evidence that the Milken network is, in fact, tied to organized crime, and that these relationships are by no means incidental.
Regular readers of Deep Capture will know that this point has been proved and proved again. But the Milken network’s ties to organized crime are deeper than what we have previously revealed. Indeed, as we will begin to see in the next chapter, it is not an exaggeration to say that Michael Milken’s closest associates were, more than anyone else, responsible for bringing La Cosa Nostra and the Russian Mafia to Wall Street.
Deep Capture Chapter 4Edit
When Michael Milken and his famous co-conspirator, Ivan Boesky, were convicted on multiple counts of stock manipulation and insider trading, the media reported that Boesky not only cooperated with prosecutors, but delivered the key evidence that resulted in Milken receiving a prison sentence of ten years, three of which he served.
These reports were false. As was first noted by Pulitzer Prize winning author James Stewart in “Den of Thieves” (the seminal work on the government’s prosecution of Milken), a careful reading of Milken’s 99-count indictment makes clear that Boesky provided little information to the government. To the contrary, he explained that he could not testify against Milken because he was afraid of what might happen to him. As Boesky put it, Milken had “friends in Vegas” – an apparent reference to the Mafia.
Soon after Boesky expressed his fears, one of Milken’s closest associates, John Mulheren, got into his car and headed towards Boesky’s house. Police officers had been watching Mulheren, and knew that he had in his car a gym bag loaded with two handguns, a 12-guage shotgun, and a .233 caliber Galil assault rifle.
Suspecting that Mulheren planned to murder Boesky, the cops arrested Mulheren and put him in jail, where, according to James Stewart, he spent most of his time conversing with Anthony “Fat Tony” Salerno, who had been the top boss of the Genovese Mafia family until he was jailed on charges of manslaughter.
Nobody has produced evidence that Milken had anything to do with Mulheren’s attempted assassination of Boesky. In fact, it seems unlikely that Milken would kill his old friend Boesky. As we will see, the two men remain on close terms today.
Milken also remained close with Mulheren until Mulheren’s death of a heart attack in 2003. To this day, Millennium Management, a major hedge fund founded by Mulheren and now run by Izzy Englander, remains a key component of the Milken network.
Perhaps Mulheren (whom the government was investigating for his role in the nationwide stock manipulation network that Milken operated in the 1980s) only meant to threaten Boesky. Or perhaps, as some have said, Mulheren was taking the wrong psychiatric medications. Whatever the case, there is no question that Boesky was right when he said that Milken had “friends in Vegas.”
Milken’s best friend in the world, according to Milken, is Steve Wynn, the Las Vegas casino mogul. Meanwhile, Wynn’s best friends in the world, according to Scotland Yard, are Michael Milken and the dons of the Genovese Mafia family.
Indeed, according to a declassified report written in the late 1980s by Scotland Yard investigators, Wynn had “been operating under the aegis of the Genovese Mafia since he first went to Las Vegas in the 1960s.” Scotland Yard noted that both Wynn and his father had a long standing relationship with the above-mentioned Anthony “Fat Tony” Salerno.
Another of Milken’s closest associates was Fred Carr, who was one of the select friends who helped perpetrate Milken’s junk bond merry-go-round scam. Carr used Milken’s junk bond finance to seize control of Executive Life, a massive insurance and S&L conglomerate that was looted and later demolished (that is, “busted-out”). Prior to taking control of Executive Life, Carr had been a principal with Investors Overseas Service, which was, at the time, the biggest Ponzi scheme in history.
One of Investors Overseas’ key feeders (that is, the person who fed the Ponzi much of its money, which he had raised from unwitting investors) was John Pullman, whom the U.S. government had named as a close associate of that same Genovese Mafia boss – Anthony “Fat Tony” Salerno. Meanwhile, Sylvian Ferdman, a Genovese Mafia courier, was routing money into the Investor’s Overseas racket from clients in South America.
Another key component of Milken’s junk bond merry-go-round in the 1980s was MDC Global, an insurance and investment company that controlled a brokerage called Blinder, Robinson. The eponymous head of Blinder, Robinson was Milken crony Meyer Blinder, whose diamond-encrusted pinky ring and thick, gold chains marked him as one among the new breed of financial operators who had descended upon Wall Street.
Blinder, Robinson was first indicted in 1989. Afterward, it came to be known as “Blind’em and Rob’em” because it was not only a key player in Milken’s nationwide stock manipulation network, but also among the most crooked Mafia brokerages in America.
Among the miscreants who manipulated stocks in league with Blinder, Robinson was Thomas Quinn, a capo in the Genovese Mafia family. Another Milken network man who manipulated stocks with Blinder, Robinson was Arnold Kimmes, also known as Charlie Kimmes. Since Kimmes had been named in a widely disseminated 1978 New York crime task force report as a “major organized crime figure”, Milken likely knew whom he was dealing with.
Quinn spent part of the year manipulating stocks in New York, and part of the year in Cannes, where he had a pink villa overlooking the Mediterranean – a pink villa that he had named Le Mas des Roses, or Farmhouse of the Roses, suggesting that some ruthless Mafia figures appreciate things that are cute and pretty. In 1989, as authorities in the U.S. were closing in on Milken, French police stormed Le Mas des Roses, kicking down doors, shouting, ransacking the place, hauling away evidence, and arresting Quinn, who ended up in prison.
Kimmes was arrested soon after. He escaped prison by ratting on Meyer Blinder, who did not escape prison. In 2000, Richard Walker, then the SEC’s director of enforcement, gave testimony to Congress in which he described Blinder, Robinson as being part of a network of brokerages — including D.H. Blair, Rooney Pace, FN Wolf, A.R. Baron, and many others – that were tied to organized crime. Most of these brokerages had been financed by Michael Milken or his closest associates.
The proprietor of Rooney, Pace, which was financed directly by Milken, was Randolph Pace, who was later indicted for running a $200 million stock manipulation scheme with another Milken crony, Judah Wernick. Both Pace and Wernick were also tied to a massive scandal that saw Russian Mafia figures, including Semion Mogilevich — described by British authorities as the “most dangerous mobster in the world” — launder upwards of $7 billion through the Bank of New York in the late 1990s.
Many of the other brokerages mentioned in the SEC’s Congressional testimony – including D.H. Blair, A.R. Baron, and FN Wolf — were financed by Zev Wolfson, a Milken crony who also financed Millennium, the hedge fund founded by Boesky’s prospective assassin John Mulheren.
D.H. Blair was particularly close to Milken. It was founded by Morty Davis, and run with help from Davis’s son-in-law, Lindsay Rosenwald, who served as vice chairman. After Milken went to prison in 1991, one of Milken’s top Drexel, Burnham employees, Richard Maio, became president of D.H. Blair.
In 2000, D.H. Blair was charged on multiple counts of stock manipulation and forced to shut its doors. To describe the full extent of D.H. Blair’s relations with La Cosa Nostra and the Russian Mafia, I would have to bore you with a list of names so long that this story would begin to read like a telephone directory.
But to give you just a small sampling, I will mention that the people indicted in just one of the hundreds of stock manipulation schemes perpetrated by D.H. Blair included: Frank Coppa, a capo in the Bonanno Mafia family; Edward Garafola, a soldier in the Gambino Mafia family; Daniel Persico, a capo in Colombo Mafia family; and Ernest Montevecchi, a soldier in the Genovese Mafia family.
After Milken got out of prison, he hooked up again with D.H. Blair’s former vice chairman, Lindsay Rosenwald, who is now one of the most powerful hedge fund managers in America, and perhaps the single biggest player in the world of biotech stocks.
I have written a book-length Deep Capture article (“The Story of Dendreon”) describing how Milken and Rosenwald, in cahoots with other Mafia-tied miscreants and hedge funds, including Millennium, have sought to destroy biotech companies that are developing promising medicines while promoting Rosenwald companies whose medicines are killing people. That story is a good introduction to the Milken network, but it doesn’t begin to describe the destruction this network has wrought.
Many other powerful hedge fund managers operating today got their start in the 1980s working for Milken-financed Mafia brokerages. And these hedge fund managers are among Milken’s closest associates. Again, when I refer to “closest associates,” I mean no more than a few dozen people who are intimately tied together.
SEC filings and other evidence compiled by Deep Capture show with perfect clarity that all of the hedge fund managers in this network regularly trade in unison, investing in (or, more often, attacking) the same companies. Press reports suggest that the biggest players in this network are, in fact, currently the targets of the largest FBI insider trading investigation in history.
One of the principal hedge fund managers in this network is Steve Cohen, who has been described by BusinessWeek magazine as “The Most Powerful Trader on the Street.” Cohen, who now runs the giant hedge fund SAC Capital, previously was among the select traders who effectively ran Gruntal Securities, a Mafia brokerage that received much of its finance from Michael Milken. While he was at Gruntal, Cohen was investigated by the SEC for trading on inside information that was delivered to him by Milken’s shop at Drexel, Burnham.
There were just a few other traders who had special partnership agreements with Gruntal, and who effectively ran the place. I will name them all, beginning with Maurice Gross, who handled the accounts of the Gambino Mafia family. Gross later founded his own operation with a Pakistani trader named Mohammad Ali Khan, who (according to a case filed by the New York attorney general) alighted with some of the Gambino’s cash. This was no doubt much to the dismay of Gruntal CEO, Howard Silverman, who had come to depend on the Mafia’s good graces.
As of 2008, Silverman was running one of the nation’s biggest “dark pool” trading platforms, an outfit that enabled his hedge fund clients to conduct manipulative trading in total anonymity. It should be a matter of concern that a guy with ties to the Mafia was running a major “dark pool” – especially since experts (such as the authors of the report commissioned by the Department of Defense) say that such platforms could easily be deployed by financial terrorists. And make no mistake: Silverman and all the other principals at Gruntal are, in fact, tied to the Mafia.
One of the people Silverman brought in to help run his brokerage – another of the select traders with special partnerships at Gruntal – was a fellow named Felix Sater, who is a high ranking Russian Mafia boss with ties to the Mogilevich organization. (I will refer throughout this story to the “Russian Mafia” because that is the most common term for it and its most notable feature is its ties to Moscow, but experts and government investigators often use the term “Eurasian organized crime” because it includes a number of mobsters from countries that are no longer part of Mother Russia. The Mogilevich organization, for example, is dominated by Ukrainians.). Felix Sater is a criminal who was once charged with stabbing a Wall Street trader in the face with the brokenstem of a martini glass, and who has threatened to kill multiple people.
The man who runs the Mogilevich organization, Semion Mogilevich, is not only the “most dangerous mobster in the world”, but also sits as #2 on the FBI’s list of “Most Wanted” criminals, behind only Osama bin Laden. A declassified FBI report states that the Mogilevich organization is involved in everything from major league market manipulation to prostitution, Afghan heroin, and trafficking in nuclear weapons materials.
On at least one occasion, the Mogilevich organization tried to sell highly enriched (nuclear bomb grade) uranium to Al Qaeda. This is a matter of dispute for some “experts”, but European Union officials confirm that it is true, and the evidence is indisputable that members of the Mogilevich organization did, at a minimum, claim in meetings with Al Qaeda operatives in Europe that they could obtain the nuclear materials.
After Felix Sater left Gruntal Securities, he and several other former Gruntal traders started their own outfit – a brokerage called White Rock, which was indicted in 2001 for orchestrating stock manipulation schemes in league with D.H. Blair and a whole slew of Russian Mafia and La Cosa Nostra figures including the above-mentioned Genovese Mafia soldier Ernest Montevechi.
According to one of Felix’s White Rock partners, Felix escaped indictment (he was named only as an unindicted co-conspirator) because Felix and his other partner, Eugene Klotsman (formerly of Gruntal) had close ties to high-ranking Russian intelligence officials who were dealing with jihadi outfits in Afghanistan.
Felix and Klotsman told the FBI that if they were to be spared prison time, they could use their Russian intelligence contacts to buy Stinger missiles from Al Qaeda. This was not long after Al Qaeda had bombed two U.S. embassies in Africa, and the U.S. government was eager to get Stinger missiles (which can be used to shoot down commercial airliners) out of Osama bin Laden’s hands.
So, apparently, the FBI passed the deal to the CIA. Felix and Klotsman produced serial numbers proving that they had identified the Stinger missiles that were then owned by Al Qaeda. So the government agreed to grant Felix leniency if he could get his hands on Al Qaeda’s Stingers.
Apparently, Felix, through Russian intelligence, was prepared to cut a deal with Osama bin Laden, but the CIA balked when Klotsman demanded that the U.S. government pay him and Felix $3 million for each missile. Nonetheless, Felix escaped jail, and some of his other associates say that this is because he had close relations with Al Qaeda and offered to help the U.S. government monitor the terrrorist group.
It is difficult to guage the accuracy of these stories, but various versions of the same story are told by people who are certainly in a position to know. Meanwhile, multiple reports from law enforcement, the United Nations, non-governmental organizations in Russia, and the mainstream media in London (distinct from the mainstream media in the United States, which has a peculiar reluctance to publish anything interesting), state unequivocally that Felix’s colleagues in the Mogilevich organization have been selling conventional weapons to Al Qaeda for many years.
There is, moreover, no doubt that Felix has done business with people like former KGB First Deputy Chairman Filipp Bobkov and other people tied to Russian intelligence. So it would not be at all surprising if Felix was, and still is, in touch with people who have relations with Al Qaeda. However, if American officials belive Felix is helping the U.S. government, they are certainly mistaken.
Indeed, it is a bit unsettling that this dangerous criminal is still on the loose. Jody Kriss, the former CFO of Bayrock, a real estate outfit owned by Felix, has filed a lawsuit claiming that Felix threatened to have him tortured to death because Kriss had discovered that Bayrock was a massive money laundering operation.
Someone close to Bayrock’s former executives, meanwhile, say that Felix has laundered money for Steve Cohen, his former trading partner at Gruntal Securities (and now the “Most Powerful Trader on Wall Street”). This has not been proven beyond a shadow of a doubt, and innocent until proven guilty, but there is no doubt that Cohen remains on close terms with Felix.
There are other indications that Felix remains to this day an important figure in the Milken network. For example, his alleged money laundering outfit, Bayrock, has partnerships with several investment funds, nearly every one of which is controlled either by Milken’s former top employees at Drexel, Burnham, or by others among the small band of people who are Milken’s closest associates.
One of Felix’s partners, for example, is Apollo, a fund controlled by Leon Black, who is one of the most powerful investors in America. Leon Black is the son Eli Black, who was, in the 1970s, the head of United Brands, formerly known as United Fruit, a company that has been accused of everything from bribing tin-pot dictators to dealing with La Cosa Nostra and funneling money to Latin American narco-terrorists.
In 1975, Carl Lindner, another of Milken’s closest associates and a key participant in Milken’s junk-bond merry-go-round scam, used Milken finance to take over United Brands. In the midst of this takeover, Eli Black crashed through a plate glass window on the 44th floor of the Pan Am Building in New York, and fell to his death.
After this incident, Leon Black was named head of mergers and acquisitions at Drexel Burnham, the investment bank effectively controlled by Milken. The two men became friends, and after Milken’s criminal indictments, Black insisted that Drexel defend his friend at all costs.
Even after Milken’s indictments and Drexel’s defense of the criminal resulted in Drexel’s collapse, Black continued to insist that Milken was innocent, and today the two men are close friends, involved in multiple business ventures together. Milken’s son, Lance, is partner at Apollo, the Leon Black fund that maintains a partnership with Felix Sater.
Another of the most powerful financiers in America (and also among Milken’s closest associates) is Carl Icahn. In the early 1980s, Icahn was the head of the options department at Felix Sater’s Gruntal Securities. After leaving Gruntal, Icahn started his own investment outfit, funded mostly by Michael Milken and Zev Wolfson (Wolfson being the guy who funded Mulheren and the above-mentioned Mafia brokerages).
As soon as he launched his investment fund, Carl Icahn hired several key employees: Harvey Houtkin, Allen Barry Witz, Gary Siegler, and Alan Umbria. Meanwhile, Umbria, who represented Icahn on the floor of the American Stock Exchange, served as the front-man for the Genovese Mafia in a New York restaurant called Crisci’s, which featured in the movie “Donnie Brasco”—a movie about an undercover FBI agent who infiltrates the Mob. Umbria was also the Mafia’s front-man in another New York restaurant — The Court of the Three Sisters.
One day in the late 1980s, Umbria’s close business associate walked into The Court of the Three Sisters and found Umbria presiding over a meeting in one of the restaurant’s private rooms. The business associate was asked to leave before he could hear what was discussed at this meeting, but the businessman knows who was in attendance – namely, Alan Umbria, a collection of Genovese Mafia thugs, and Louis Micelli, who was a stock broker until his untimely death in 2005.
In addition to being a stock broker, Micelli was a major league narco-trafficker with deep connections to the drug cartels of Colombia, and to a Paraguay cell of Hezbollah, the jihadi-mafia outfit that takes its directions from the regime in Iran. It was the Paraguay cell of Hezbollah that helped Iran blow up a synagogue in Argentina, and for a long time, this cell trafficked in cocaine from bases in Ciudad del Este and other cities in the “tri-border” region where Brazil, Argentina, and Paraguay meet.
That region has since come under greater scrutiny, so Hezbollah’s drug kingpins have moved deeper inside Paraguay, but they continue to traffic coke, working with Hezbollah jihadis resident in North America – especially in Toronto, Detroit, and New York. Hezbollah’s trafficking operation continues to be a partnership with La Cosa Nostra, the Russian Mafia, and (yes) some stock brokers, more of whom we will meet later.
Now, back to Gruntal. There were just a few other traders who effectively ran that outfit in the 1980s, and one of them was Andrew Redleaf, whose wealthy family did a lot of business with Milken’s operation at Drexel. Redleaf got his job at Gruntal on Milken’s recommendation, and after leaving Gruntal, Redleaf went into business with some of Milken’s friends.
For example, Redleaf invested in Sun Country Airlines in partnership with Tom Petters, who was arrested in 2008 and indicted for orchestrating a massive Ponzi scheme in cahoots with Michael Catain, the son of a famous Genovese Mafia enforcer named Jack Catain. Redleaf currently runs a large hedge fund called Whitebox Partners, one of around twenty hedge funds, including SAC Capital, that regularly trade in unison.
Another one of the hedge funds in this network is the massive and eminently powerful Cerberus Capital, run by Stephen Feinberg and Ezra Merkin. In the early 1980s, Feinberg was one of Michael Milken’s top employees at Drexel, Burnham. In the mid-1980s, Milken asked Feinberg to move to Gruntal Securities to help the others (namely, Russian Mafia boss Felix Sater, Gambino Mafia broker Maurice Gross, and Steve Cohen) oversee Gruntal’s operations, which had become important to Milken’s nationwide stock manipulation network.
But aside from the SEC’s investigation of Steve Cohen, regulators did not catch on to Gruntal’s criminality until the mid-1990s, when it was forced to pay the largest fines in SEC history after a series of scandals that saw its managers charged with embezzlement and cooking the books. By then, the traders who really ran the place in the 1980s had moved on to much bigger projects, one of which, we know, was Feinberg’s Cerberus Capital.
In 2006, Mainichi Shimbum, Japan’s most respected business newspaper, reported that Cerberus was tied to the Japanese Yakuza. Feinberg said it wasn’t true and he sued the Japanese newspaper, but there is no doubt that Mafia outfits worldwide are becoming more closely intertwined, and obviously Feinberg has come into contact with quite a few Mafia outfits, including those that were involved with Gruntal.
In addition, Feinberg’s partner in Cerberus, Ezra Merkin, has been charged with civil fraud for his role in the massive Ponzi scheme perpetrated by the infamous Bernard Madoff. One of Merkin’s other funds, Ascot Partners, was the second biggest “feeder” to the Madoff criminal operation.
Among the other big Madoff feeders, according to court documents, were some “made” members of the Mafia, such as Ralph Mafrici, who had a joint account with Madoff’s hedge fund in the name of Eleanor Cardile, a relative of Madoff’s right hand man, Frank DiPascali. Mr. Mafrici was a Genovese Mafia capo who allegedly ordered the assassination of another Mob boss named Albert Anastasia. Since Anastasia was getting his hair cut at the time, the assassination was famously dubbed “The Barber Shop Hit.”
The last of the traders who effectively ran Gruntal was Sam Israel. He later went to work for Michael Steinhardt, who was (and still is) one of the most powerful hedge fund managers in America. In 1991, Steinhardt’s fund cornered the market for U.S. Treasuries, posing a threat to economic stability until the government threatened to press criminal charges, convincing him to back off.
John Lattanzio, the manager of Steinhardt’s hedge fund, was extremely secretive. There wasn’t much information on him until a court case stated that Lattanzio once proposed marriage to a Russian hooker and gave her $289,275 diamond ring.
Nothing wrong with that (marriage is a wonderful thing), but the interesting development in this case was that the lovers quarreled, Lattanzio wanted his ring back, and the hooker-wife told the judge that Lattanzio had big-time Mafia connections. She also said that Lattanzio “would not hesitate to use [the Mafia] to harm me.” Which is not surprising because the man who launched Lattanzio’s career, Michael Steinhardt, also has big-time Mafia connections.
When it became evident that Steinhardt’s ties to the Mafia might become public, Steinhardt preemptively published a book in which he revealed (as if were no big deal) that his father, Sol “Red” Steinhardt, had done time in Sing-Sing prison because he was, in the words of a Manhattan District Attorney, the “biggest Mafia fence in America.” In fact, Steinhardt’s father was effectively the chief financial officer for the Genovese Mafia family.
Of course, the Steinhardts were also among Milken’s closest associates. Nowadays, Michael Steinhardt runs a big exchange traded fund (ETF) outfit called Wisdom Tree Investments. His partner in that operation is Jonathan Steinberg, son of Saul Steinberg, who was a key player in the junk bond scheme that Milken ran in the 1980s. Steinberg used Milken junk bonds to seize Reliance, a giant insurance and financial services firm, which was subsequently looted and destroyed (“busted out”).
In his book, Steinhardt admitted that the first and most important investors in the major hedge fund that he ran in the 1970s-1980s were: the Genovese Mafia family; Ivan Boesky (Milken’s most famous criminal co-conspirator); and Milken crony Marc Rich. When Rich was convicted for trading with Iran during the Iran hostage crisis, Steinhardt testified on Rich’s behalf. Later, Steinhardt, a big contributor to the Democratic Party, pressured then President Bill Clinton to pardon Rich for most of his crimes, and Clinton complied, stirring up large controversy. Although Rich was pardoned, he still owes the U.S. government taxes, so he lives in Switzerland, where his palatial home is guarded by a private army of mercenaries.
Rich has done quite a lot of business with companies, such as Highland Capital, that were under the control of Russian Mob boss Semion Mogilevich, and he was linked to the scandal that saw Mogilevich and other Russian Mafia figures launder more than $7 billion through the Bank of New York.
The consensus among organized crime experts and FBI investigators is that the Genovese Mafia family brought the Russian Mafia to America – and perhaps the reader is just beginning to understand the importance of the Milken network to both the Russians and the Genovese.
At any rate, it should be no surprise to learn that Sam Israel, the Gruntal trader who went to work for Steinhardt, later went into business with Robert Booth Nichols, whom the FBI had indentified as a close associate of the Genovese Mafia family. The business was a criminal hedge fund called Bayou, and Israel was sentenced for his crimes in 2008. When it came time for him to show up for prison, Israel parked his car on a bridge and left a note in the window that said, “Suicide is Painless.” Then he ran away.
After that, Israel had second thoughts and decided to turn himself in. But he no longer had his car, so he had to drive to prison on a little red motor scooter, which must have been embarrassing. But at least he was famous – the media was reporting that Bayou was the “biggest Ponzi scheme in history”.
Before that, the biggest Ponzi schemers in history had been the above-mentioned Milken and Mafia cronies Fred Carr and Tom Petters. Unfortunately, in December of 2008, the Mafia-tied Milken crony Sam Israel’s Ponzi was topped by the Mafia-tied Milken crony Bernard Madoff, who turned himself in to the FBI and announced that his Ponzi scheme (which absconded with upwards of $50 billion) was, in fact, bigger.
But that is only the tip of the icerberg so far as the Milken network’s ties to organized crime are concerned. Upcoming chapters will make this abundantly clear.
Deep Capture Chapter 5Edit
As Bernie Madoff’s former secretary noted in an article that she wrote for Vanity Fair magazine, right before Madoff turned himself over to the FBI, he made a point of flying to Switzerland to meet with Marc Rich. In fact, Marc Rich, the fellow who had been indicted for trading with Iran, was the last person Madoff met before going to jail.
Madoff and Rich would have had much to discuss. They had done business together for decades, going back to the time in the 1980s when Rich and a man named Edmund Safra were among the most important Western business partners of the regimes in Iran and Russia. Safra first came to fame in the Iran-Contra affair, which saw him selling his contacts with the Iranian regime to the Israelis, and he later became a billionaire due largely to the business he conducted with Marc Rich in Russia.
In the 1990s, Safra controlled the Republic National Bank and countless other financial entities that were heavily focused on Russia. And much of the business that Safra and Rich conducted in Russia was done with the people who were the real power in Russia, the people who make Russia’s foreign policy and direct its economic activities. Safra has been widely credited with having been among the small clique of billionaires who orchestrated the 1999 rise to power of Russian president (now prime minister) Vladimir Putin.
That clique was led by two Russian oligarchs, Boris Berezovsky and Roman Abramovich. At the time, Berezovsky was the most powerful man in Russia, famously named the “Godfather of the Kremlin” by Forbes journalist Paul Klebnikov, who authored a book by that name and was then murdered on the street outside his Moscow offices.
In 1999, Abramovich was relatively obscure, but he was an important business partner for Berezovsky. The two men effective co-managed a single business empire. They were, as we will see, also involved in various ventures with the Russian Mafia kingpin Semion Mogilevich. Abramovich, like Mogilevich, earned billions siphoning money (with the apparent consent of Vladimir Putin) from the Russian state oil firm, Gazprom.
It should be understood that Gazprom is much more than an oil company. It is one of the most important instruments of state power in Russia, a key tool of Putin’s foreign policy and the source of cash that Putin uses to cement relationships between himself and shady businessmen, most notably Abramovich and Mogilevich.
Moscow police arrested Mogilevich in 2008, and some interpreted this as a sign that President Dmitry Medvedev was asserting his power by taking on the friends of Prime Minister Putin. More likely, the arrest was meant to placate the United States, which, after all, had Mogilevich as #2 on its Most Wanted list. Either way, Mogilevich was quickly released, with the Russian Interior Minister announcing that the charges against the world’s most notorious Mafia boss were “not of a particularly grave nature.”
As of 2011, reports from Moscow suggest that Mogilevich may face no charges whatsoever. This was not a surprise, given Mogilevich’s importance to the Russian government. As I mentioned, Mogilevich was implicated in massive money laundering scheme that saw more than $7 billion laundered through the Bank of New York. Much of that money was said by prosecutors to have been filched by Russian government officials, including president Boris Yeltsin, who had just named Vladimir Putin as his successor thanks in large part to the support of Abramovich, Berezovsky, and quite likely, Mogilevich.
More recently, U.S. diplomatic cables obtained by Wikileaks in 2010 reinforced the statements (which I quoted at the outset of this story) of National Intelligence Director Admiral Blair that the Russian government and organized crime outfits (the most prominent of which is the Mogilevich organization) are closely intertwined.
As one cable from the U.S. embassy in Moscow noted, the Russian government “operates more as a kleptocracy than a government. Criminal elements enjoy a ‘kryshna’ (a term from the criminal/mafia world literally meaning roof or protection) that runs through the police [and] the Federal Security Service [Russia’s spy agency]…”
Until his death, Edmund Safra was clearly part of this nexus. His Republic National Bank was among those that were implicated (though never charged) in the Russian Mafia and money laundering scandal that focused on the Bank of New York. Soon after that scandal became big news in 1999, two masked men arrived at Safra’s home in Monaco, locked him in a bathroom, lit the place on fire, and left Safra to die a terrible death from smoke inhalation.
That murder has never been solved, but one theory is that it was part of the Russian government’s effort to cover up a money laundering and stock manipulation network that was, in fact, much bigger than the Bank of New York scandal that broke in 1999. As we will see in an upcoming chapter, that theory is correct.
Many of the people involved were among Michael Milken’s closest associates. Two of these associates were Bruce Rappaport and Abbas Gokal, owners of Inter Maritime Bank, which became the Bank of New York affiliate most responsible for building ties to Russia.
Gokal, you will recall, was also a key BCCI figure, closely linked to Pakistan’s spy services and tied up in the Iran-Contra scandal. Later, Gokal (in addition to being an official advisor to the regime in Iran) would also be implicated in assisting Pakistan’s nuclear weapons proliferation, including the transfer of nuclear weapons expertise to Iran.
One of the Russian oligarchs whom Gokal and Rappaport introduced to Bank of New York was Mikhail Fridman, head of Alfa Bank, who is a close associate of Abramovich and Mogilevich. Currently, Fridman and Alfa Bank are the principal financiers of Iran’s Buhsher nuclear facility, which is widely believed to be part of Iran’s efforts to obtain nuclear weapons. In 1999, Fridman, like Safra, was among the small clique of billionaires (led by Berezovsky and Abramovich) who orchestrated Vladimir Putin’s rise to power.
After the Bank of New York scandal hit the front pages in 1999, Berezovsky purportedly had a falling out with Putin and went into “exile” in London. Some Russian journalists, noting that Putin has met with Berezovsky since then, argue that the falling out was not real – that it was yet another example of the smoke and mirrors that Putin uses to conceal the nature of his relationships. Aside from the meetings, there is no strong evidence to support this theory, but anything is possible when it comes to the affairs of Russia.
Whatever the case, Berezovsky and Abramovich split up their business empire in 1999 in a deal that is still being mediated by Abu Dhabi royal Sheikh Sultan bin Khalifa al Nahyan (he of the same family that co-founded BCCI). That same year, Putin’s government charged Berezovsky with various crimes, and Berezovsky emerged as the leading figure in “the London Circle”, a strange group of Russian exiles that seems to be opposed to Putin’s regime.
Abramovich remained in Russia, and is now perhaps that nation’s most powerful man. He is Russia’s fourth richest oligarch, having earned billions not only from siphoning money from the Russian state oil company, Gazprom, but also from companies that are involved in everything from financial services to radioactive isotopes. And he maintains a private army of at least 100 former KGB operatives and mercenaries.
Such private armies are not mere security companies; they are the bonds that tie oligarchs like Abramovich to the siloveki – the former KGB operatives and current spies who feature prominently in Putin’s government. Putin himself is a former KGB operative, and before becoming president, he was the head of the KGB’s successor outfit, the FSB.
People like Mogilevich and Abramovich should be viewed as being part of the intelligence apparatus that controls Russia. Indeed, Russian commentators note that Putin and Abramovich have something approximating a father-son relationship, with there being some dispute as to which man is the father figure.
In 2010, I began to take an interest in Abramovich because he seemed to be tied to a network of brokerages in the United States, including the criminal operation run by Bernard Madoff, and also, Tuco Trading, the little, unregistered brokerage that employed the jihadi Zuhair Karam (whom I introduced at the outset of this story). Indeed, I had taken such a close interest that I was beginning to wonder whether someone was going to put radioactive polonium in my tea.
Of course, I joke – that seemed unlikely, but there was the odd case of a former KGB operative named Alexander Litvinenko, who had been an employee of Berezovsky and a member of the London Circle. In 2006, Litvinenko was making what seemed like outrageous claims about Putin, stating, for example, that Putin’s government had extensive contacts with Al Qaeda.
Putin’s government responded that it was, in fact, Litvinenko and Berezovsky who were funding jihadis, including the same Al Qaeda-tied Chechen terrorists who had, in 2004, taken hostage hundreds of children (many of whom were subsequently killed when Russian forces attacked the hostage-takers) at a school in the Russian city of Beslam.
Litvinenko, in turn, said that the Russian intelligence services had orchestrated the “Chechen” terrorist attacks as part of an effort to enhance Putin’s power, the theory being that the Russian people would embrace a strongman like Putin if they believed their children were being killed by Chechens. Litvinenko’s claims were echoed by Russia’s most prominent journalist, Anna Politkovskaya, who was promptly murdered in the elevator of her apartment building.
Since then, it has been concluded even by the Russian courts that the Russian intelligence services did stage at least one Chechen “terrorist attack”, a bombing that killed an unspecified number of people and collapsed a bridge. The FSB says that it was merely a training exercise to prepare Russia’s intelligence operatives for real Chechen attacks. As for the other attacks, the evidence remains circumstantial, and the truth may never be known.
Whatever the truth, though, Litvinenko (who was on close terms with Chechen nationalists) claimed again in 2006 that he had evidence that the Russian government had developed a working relationship with Al Qaeda. Soon before he was to release this evidence (or, at any rate, soon before the date on which he claimed he was going to release this evidence) Litvinenko was poisoned by radioactive substance called polonium-210, which had apparently been dropped in his tea. Two weeks later, in November 2006, Litvinenko was dead.
Berezovsky’s spokesman said the murder was the work of Putin’s thugs. Others said it was the work of Abramovich. Moscow newspapers aligned with Putin duly accused Berezovsky of orchestrating the radioactive polonium attack as part of a conspiracy to discredit the Russian government. Still others said that Litvinenko had been trying to blackmail some powerful business people in Moscow and was killed as a result. Meanwhile, the Russian government claimed that Litvinenko was building a nuclear bomb for Al Qaeda and accidentally poisoned himself with the polonium.
None of these theories have been supported by solid proof. Such are the mysteries of present day Russia. But even more concerning than the murder itself is the fact that the murderers were able to easily smuggle polonium 210 into Britain, suggesting that this substance could quite easily get into the hands of people such as “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier), Al Qaeda Golden Chain member Sheikh Mahfouz, and all the jihadis who not only supported outfits such as Benevolence International (which was in contact with people shopping for nukes) but also have close business relationships with leading Russians, including Abramovich and Berezovsky.
In 2003, the Nuclear Regulatory Commission issued a lengthy report on the real possibility that terrorists could deploy “dirty bombs” made of radioactive material. The report listed polonium 210 (the substance used to kill Litvinenko) as one of the 10 radioactive materials of “greatest concern”. A dirty bomb would not be nearly as lethal as a full-fledged nuclear device, but one dirty bomb could contaminate much of lower Manhattan with cancer-causing radiation and precipitate wide-spread panic, with millions of people fleeing major cities.
A dirty bomb coupled with an effective attack on the financial markets could potentially bring the United States to its knees.
This is why I think it is generally a good idea to be on the lookout for people who are in any way mixed up with both radioactive polonium poisonings and unregistered little brokerages, like Tuco Trading, which transacted manipulative trading equal to twenty percent of the volume of the biggest brokerage on the planet. And this is why I kept telephoning Zuhair Karam, the jihadi who worked for Tuco Trading.
I really did believe Zuhair when he said he was “just one of the little guys” but I figured he knew something about the big guys who were trading through Tuco in the month before the collapse of Bear Stearns in 2008. I also suspected that this trading might have been connected to trading through a larger network of brokerages that included not just Madoff’s crooked operation, but also ostensibly upstanding outfits like Credit Suisse, the giant investment bank.
In fact, the New York district attorney’s ongoing investigation of Assa Corporation seems to overlap with a current Justice Department investigation focused on Credit Suisse. The Assa Corporation, recall, is the Iranian espionage and business outfit indicted in 2009 for funding Iran’s nuclear program. It was a unit of the Alavi Foundation, which owned the building that had housed the offices of Ivan Boesky and Marc Rich. The Iranian agents who ran Alavi and Assa Corp., we know, took their orders from diplomats working out of Iran’s mission to the United Nations in New York.
The misdeeds of Credit Suisse could fill several books, but for our purposes, it is enough to know that the bank had several key relationships. One was with Bernard Madoff. Credit Suisse’s raised at least $1 billion for Madoff’s scam (the bank denies that it knew that it was a scam).
Meanwhile, Credit Suisse’s most important client was Leon Black (the Milken crony whose father fell through a plate glass window in the Pan Am building). The relationship between Black and Credit Suisse is, to this day, so close that Black has played a role in deciding which executives should run its key departments.
Credit Suisse’s other key relationship is with the regime in Iran. Indeed, it is fair to say that the Islamic Republic has had few better friends than the executives of Credit Suisse. In December 2009, Credit Suisse was fined $536 million, or around 10 percent of the bank’s profits for that year, for deliberately helping Iranian banks, including Bank Melli and Bank Saderat, hide their identities and conduct secret transactions valued at more than $1 billion. Amazingly, however, no Credit Suisse executives faced criminal charges.
It is amazing because Credit Suisse’s executives conducted these secret transactions for Iran knowing full well that they were transferring the $1 billion directly to the Atomic Energy Organization of Iran and the Aerospace Industries Organization, the Iranian government entities responsible for the regime’s covert production of nuclear weapons and long-range missiles.
According to the U.S. Treasury Department, while Credit Suisse was helping to finance Iran’s nuclear weapons program, the bank was also using code names to conceal securities trading though other brokerages on behalf of financial firms in Sudan and Libya. A former employee of the Manhattan district attorney’s office (who now runs a private intelligence firm that specializes in tracking suspicious financial transactions) suspects that the Libya and Sudan trading was tied to similar trading originating out of Iran and involving executives of the Alavi Foundation and the Assa Corporation, the Islamic Republic’s espionage and business operations in New York.
So far, the Justice Department has not described the nature of that trading, nor has it revealed the names of the Credit Suisse employees and the other brokerages involved. But when I called Zuhair Karam of Tuco Trading, I knew that his family was on close terms with Palestinian Islamic Jihad leader Sami al Arian, the fellow who was, like the Assa Corp, taking directions from Iranian operatives working out of the UN headquarters in New York. I also had received a tip that much of the massive volume that went through Tuco in 2008 was tied to a certain Iranian fellow who was an associate of the Palestinian Islamic Jihad leadership and Iran’s Revolutionary Guard.
I figured Zuhair could tell me more about this, but he was not cooperative. Not yet, anyway. At this stage in 2010, I knew only that the report by Tuco’s bankruptcy receiver stated that 2,000 anonymous accounts in China and one other account had traded 2 billion shares through Tuco in the month before the March, 2008 collapse of Bear Stearns.
In fact, Tuco certainly traded far more shares than that, but the receiver’s report only mentioned the trading out of the 2,000 anonymous accounts in China and that one other account. In any case, those 2 billion shares alone were, I must stress, equal to around 20 percent of the volume of the largest brokerage on the planet.
I knew that the people behind those anonymous accounts were not Chinese, and I suspected that Zuhair Karam could tell me more about the people who were behind the accounts. But, as I say, Zuhair was not initially cooperative. Only later would he provide the confirmation I needed to know the full story.
But while Zuhair was still refusing to cooperate, I had begun a discussion with another person tied to Tuco, a trader in Moscow by the name of Alexey Ivin, who, along with several other Russian traders, held an account at Tuco called “Orange Diviner.” We do not know how many shares were traded through this account because Tuco’s bankruptcy receiver had a stroke before he could finish his report, but Orange Diviner was interesting on many levels.
For starters, it seemed surprising to me that Tuco, an obscure, little brokerage in Chicago that had not even bothered to register with the authorities, had attained such international prominence . When Orange Diviner came on board at the beginning of 2008, Tuco had been in business for only a few months. And the international attention that Tuco had received was by no means insignificant. The Orange Diviner group was comprised of some seriously heavy players, most of whom appeared to be top henchmen of either Roman Abramovich (Putin’s right-hand man) or Semion Mogilevich (the Russian Mafia kingpin).
One of the “Orange Diviner” Tuco traders was named Sergey Maksimov, and according to a man familiar with Orange Diviner, this was the same Sergey Maksimov (sometimes spelled “Sergei Maximov”) who worked at a high level for Semion Mogilevich at an outfit called YBM Magnex, which was a massive stock fraud and one of the big reasons why Mogilevich ended up in second place on the FBI’s Most Wanted list, just below Osama Bin Laden. YBM Magnex was tied to the larger stock manipulation and money laundering network that was identified after the Bank of New York scandal became public.
An FBI report from 1999 (since declassified) noted that Czech authorities had reported that Sergey Maksimov was dead, the victim of an execution-style murder. However, he is alive and well. With help from Russian journalists and an organized crime expert in Boston who has provided assistance to the Deep Capture investigation, we located him in Ukraine, where he now runs a big financial institution called VAB Bank.
I couldn’t get in touch with Mr. Maksimov, but Alexey Ivin agreed to answer my questions about Tuco and Orange Diviner with the stipulation that his answers would be translated into English by his girlfriend. His answers – well, to summarize, he said everything at Tuco was on the up and up, so far as he knew.
Later, I sent Mr. Ivin an email with the following question: “I notice that other people in Orange Diviner [all of whom had accounts at Tuco] include Sergey Maksimov of VAB Bank, Sergey Pavlov of EvrazRuda, and Evgeny Potapov, formerly of Evrazruda, and Alesandr Romanov of Evraz Group. A few others — altogether an impressive group. How did you all come together to form Orange Diviner?”
Mr. Ivin responded, “sergey maksimov – he was my friend who invite my person from orange-diviner and he is my partner of business. sergey pavlov and evgeny potapov – they was investors in orange-diviner. romanov was just a student. other people—was just students too, they don’t have enough experience in trading business.”
I couldn’t think of any clever way to get more information out of Mr. Ivin, and though it seemed that he was lying about the students, I felt like he might be willing to help me, so I asked him rather bluntly, “Since Sergey Maksimov previously worked with Semion Mogilevich, do you think you could help me learn more about Mogilevich and mafia involvement in U.S. markets. I know this would be risky for you, but it would be a good deed…”
Mr. Ivin replied, “Maksimov never was work with Mogilevich, and we (maksimov and i) don’t know this man…I don’t know what you toking [sic] about”. When I wrote back to Mr. Ivin, noting that he had not disputed that Maksimov worked for VAB Bank, and the Maksimov who worked for VAB was definitely the same Maksimov who worked for Mogilevich, Mr. Ivin replied that the Maksimov in Orange Diviner did not work for VAB Bank after all. Then Mr. Ivin sent me an email that said, “Sergey Mikhaylov, Timofeyev’s heir to the leadership of Orekhovskaya, Igor “Max” Maksimov, was killed in February…”
I do not know what that was supposed to mean, and to make a long story short, I never did get to the bottom of this. But I’ll go out on a limb, and say that since Mr. Ivin did not initially dispute that Maksimov worked for VAB Bank, and since I am certain that Maksimov at VAB is the same guy who worked for Mogilevich, and since Mr. Ivin refused to tell me where his Maksimov currently worked (if not at VAB), it is likely the case that the Maksimov who co-founded Orange Diviner was, indeed, a top Russian Mafia boss with links to the Russian government.
As I continued to ask questions about the other members of Orange Diviner, Mr. Ivin became even less communicative, saying at one point that he had never heard of a fellow, Alexandr Lyssenko, who was listed clearly in Tuco’s account books as being a member of Orange Diviner. When I followed up with questions stating that the other members of Orange Diviner were not students, but had, in fact, worked at high levels for Roman Abramovich’s most important companies, including the Evraz Group, Mr. Ivin did not deny it. Rather, he answered vaguely, “I don’t know about cooperation between [Orange Diviner] and Evraz.”
In fact, one of the Orange Diviner traders at this obscure, unregistered brokerage in Chicago was the Moscow-based Evgeny Potapov. He had been president of Abramovich’s Evraz Group. That is, he was the top-henchman to Russian prime minister Vladimir Putin’s right-hand man, Roman Abramovich (the fellow who is like a father to Putin). Potapov has also served as a board member and head of overseas assets for the giant Russian metals concern Norilsk Nickel.
In that capacity, Potapov had Norlisk launch a program in 2007 with the Russian foreign ministry to combat terrorism and organized crime. That a metals company suspected of having ties to the Mafia and to jihadis (who use Russian metals like they use diamonds – as currency) is directing the Russian foreign ministry’s battle against organized crime and terrorism should give you an idea of how things work in Russia.
Another member of Orange Diviner, Alesandr Romanov, had been the director of transportation at Abramovich’s Evraz Group. Meanwhile, Orange Diviner member Sergey Pavlov had been both head of investment planning at Evraz, and head of investments at Rusal, another big company then owned by Abramovich.
As for Alexandr Lyssenko, the fellow whose name did not ring a bell with Mr. Ivin – he was working for Alfa Group, the outfit run by Mikhail Fridman. Alfa is best known for having helped Iraq skirt UN sanctions during the reign of Saddam Hussein. But, as I mentioned, Fridman, a close associate of Abramovich and Mogilevich, is also the principal financier and developer of Iran’s Bushehr nuclear power plant, the facility that has much of the Western world in hysterics because it is assumed to be a front for the Islamic Republic’s secret efforts to acquire nuclear bombs in preparation for the coming of the Hidden Imam.
Yet another member of the Orange Diviner Tuco Trading group was Evgeny Chernov, who was working for ITP Rus AG, a company that has been linked to Gazprom scandals. Mr. Chernov also served for some time as Russia’s deputy trade representative in Armenia. Then there was Orange Diviner member Maxim Mishin, who was working for MDM Group, a company that was implicated in the scandal that saw Mogilevich and the Russian government manipulating the markets and laundering money through the Bank of New York.
As for Mr. Ivin himself, he works as the “head of international” for BrokerKreditServis (BKS, sometimes called BCS), a Moscow brokerage that is a joint venture with Russia’s state development bank, Vnesheconombank, or VEB. According to the Heritage Foundation, a respected think tank, VEB is an instrument of Russia’s intelligence services. BKS’s chief operating officer, Dmitry Peshnev Podolskiy was formerly the head of the above-mentioned Alfa Group, Iran’s favorite nuclear proliferator.
All in all, this was an interesting group of “day traders” – traders who should be watched closely, especially given that they were, in 2008, availing themselves of the services of this strange brokerage in Chicago, Tuco Trading. Since Tuco Trading was shut down by an “Emergency Order” of the SEC soon after the Orange Diviner account was set up, it is possible that the account did not have a chance to conduct much trading through Tuco.
But, as we will see, there is good reason to believe that it might have done so, and even better reason to believe that these same people transacted large volumes through Tuco’s partner brokerages, which were not shut down by the SEC.
In any case, we have to wonder why a group of illustrious Russians who sat at the nexus of the Russian Mafia-intelligence apparatus (an apparatus that also happens to have extensive ties to Iran) was involved with this obscure brokerage in Chicago.
So, yes, in the Fall of 2010, I found this odd, and I turned my attention back to trying to figure out who was behind those anonymous accounts in China. I was intrigued by the tip I had received that it was an Iranian with ties to the Revolutionary Guard, but it would be another couple months before Zuhair Karam would help me confirm the identity of this Iranian, and his ties to the Russian Mafia.
Meanwhile, I learned more about Bernie Madoff’s criminal operation, and it was beginning to look a lot like a massive market manipulation enterprise that catered to Russian oligarchs, the Mafia, and other people who are likely hostile to the United States.
- * * * * * * *
In December, 2008, shortly after Bernard Madoff went to lengths to pay one last visit to Marc Rich (friend of Iran) then turned himself in to the FBI, a Frenchman named Thiery Magon de la Villehuchet was found dead in his Manhattan office, Xanax on the desk, his wrists slit open, blood drained into a carefully placed garbage can. The police ruled it a suicide.
Monsieur de la Villehuchet has been described in the press as a “victim” of Bernard Madoff’s famous Ponzi scheme. In other words, he put a lot of money into Madoff’s hedge fund, lost all that money, and couldn’t take the stress. As matter of honor, he killed himself, and did so with such composure that he thought to position that garbage can so nobody would have to clean up after him.
A few months after Monsieur de la Villehuchet’s death, another man, Jeffrey Picower, was found dead, floating in the swimming pool at his Palm Beach mansion. They said it was a heart attack. The press reported that Picower was another “victim” of the Madoff Ponzi scheme.
Meanwhile, the press continued to report that while Madoff’s Ponzi scheme was a colossal fraud, his giant brokerage and market making operation was legitimate. After all, Bernard Madoff was a “prominent” businessman. For a time, he had been the chairman of the Nasdaq stock exchange, and he even roamed the halls of the SEC, which invited him to help it write some of its rules governing brokerages and hedge funds. Surely, Madoff’s rise to “prominence” suggested that his best-known business, the brokerage, was on the up and up.
This recalls Mark Twain’s observation that “it has become a sarcastic proverb that a thing must be true if you saw it in a newspaper.” Indeed, as Twain saw it, the fact that people believed what they read in the newspapers was evidence that civilization was in decline. I think it is fair to say that civilization has, indeed, taken a beating since the time of Twain, and unless the media gets its act together, things will only become worse.
The truth is, Picower and Monsieur de la Villehuchet were not victims – they were perpetrators. As we now know from multiple lawsuits that have been filed against the Madoff estate, Picower alone personally pocketed more than $5 billion from the Madoff Ponzi fraud. Monsieur de la Villehuchet and Marc Rich also profited from Madoff’s criminal operation.
What these men had in common was that they were, of course, among Michael Milken’s closest associates. Monsieur de la Villehuchet had co-founded Apollo Management with Leon Black, the fellow who had helped Milken run Drexel, Burnham. This is the same Leon Black whose fund employs Lance Milken (Michael’s son), and does business with Felix Sater, the Russian Mafia boss who was ostensibly going to buy Stinger missiles from Osama bin Laden.
In addition to knowing how to get in touch with Al Qaeda, Felix has relationships with other powerful people. For a time, he was trying to broker a deal whereby the U.S. investment bank Salomon Brothers would be bought by Felix’s friend Boris Berezovsky (then still the “Godfather of the Kremlin” and Roman Abramovich’s key business partner). Nothing came of the Salomon deal, but Felix’s partner says the deal almost closed, and Felix has not disputed this account.
Mr. Picower, the fellow found floating in his swimming pool, had formerly been the largest investor in the arbitrage fund run by Milken’s famous criminal co-conspirator, Ivan Boesky, who, with Marc Rich, had been among the biggest investors in the fund run by Michael Steinhardt (son of the “biggest Mafia fence in America”). Boesky and Rich, recall, also both worked out of the offices owned by the Alavi Foundation, the Iranian espionage outfit.
After Boesky was released from prison in the 1990s, he headed to Moscow and hooked up with Berezovsky, Abramovich and members of the Mogilevich organization.
Sources close to Felix Sater tell Deep Capture that as of 2008, Boesky, Felix and other Russian Mafia characters to be introduced shortly had become the key clients of an offshore hedge fund called Lines Overseas Management. Lines Overseas, meanwhile, was a key feeder to the Madoff criminal operation.
Another key client of Lines Overseas Management was Ali Nazerali, the fellow who once worked at a high-level for the Gokal family (tied to the Iranian regime and Pakistani intelligence). This is the same fellow who ran the BCCI outfit First Commerce Securities with his relatives, one being the BCCI treasurer who set up the Capcom Saudi intelligence outfit that manipulated the U.S. markets in the 1980s with help from Michael Milken.
Another key Lines Overseas client, introduced by Nazerali, was Christopher Metsos, who was a Russian spy. In 2010, the FBI arrested Metsos along with nine other Russian spies, all of whom were charged with espionage and deported back to Moscow.
I realize that at this stage in the story, the mention of Russian spies, Milken cronies, the Mafia, and BCCI in the same breath will seem a bit nutty. But read on, and you will see that such relationships are by no means unusual or incidental.
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Another person who helped perpetrate Madoff’s fraud was Ezra Merkin, who fed billions into the Ponzi scheme while concurrently running Cerberus Capital, the hedge fund founded by Stephen Feinberg, who had formerly been one of Michael Milken’s top employees at Drexel Burnham before being reassigned to work with Felix Sater at Gruntal.
We also know that other big Madoff feeders included “made” members of the Mafia, such as Ralph Mafrici (perpetrator of “The Barbershop Hit”), who had a joint account with Madoff’s hedge fund in the name of Eleanor Cardile, a relative of Madoff’s right hand man, Frank DiPascali.
Meanwhile, one of the biggest feeders to the Madoff fraud was Bank Medici, an outfit in Austria that catered mostly to shady characters tied to Russian prime minister Vladimir Putin. One of Bank Medici’s big clients – and a likely participant in the larger Madoff operation – was Roman Abramovich (the guy whose relationship with Putin is like that of a “son” or a “father”, depending on whom you ask; the same guy whose top henchmen, along with some Mogilevich henchman, had those odd accounts at Tuco Trading).
After Madoff’s fraud was exposed, and Bank Medici was implicated in the fraud, its founder, Sonja Kohn, disappeared. The Wall Street Journal speculated that she feared being killed by her Russian clients, who had lost money in Madoff’s Ponzi scheme. The speculation, however, was false. Ms. Kohn might well have been targeted for assassination, if only because she knew a great deal about Madoff’s larger operation, but her Russian clients did not lose a dime in the Ponzi scheme. Nor did Sonja Kohn herself.
According to the Secretary of the Commonwealth of Massachusetts, in fact, Ms. Kohn and Bank Medici were receiving large payments from an outfit called Cohmad Securities, which was a unit of Madoff’s brokerage.
That is an extremely important piece of information. It is one of several pieces of information that show that the Madoff’s brokerage was tied into the criminal activities of Madoff’s Ponzi scheme.
Cohmad Securities was co-owned by Madoff partner Robert Jaffe, and played an instrumental role in managing Madoff’s brokerage services. According to the Boston Globe, Jaffe was a once a key money manager for the Angiulo Brothers, who were then the bosses of the Genovese Mafia family in Boston.
The other key figure in the Madoff brokerage was Genovese Mafia capo Ralph Mafrici’s pal, Frank DiPascali, who seems to have been a point man for Madoff’s larger criminal operation.
Jaffe also helped raise money for the Ponzi scheme. And, importantly, it is clear that a lot of the money from the Ponzi was used to finance the operations of Madoff’s brokerage. By piecing together numbers cited in just a few lawsuits, it seems that at least $1 billion was diverted from the Ponzi to Madoff’s brokerage. And since I haven’t come close to getting through all the paperwork that has emerged from the Madoff case, it seems fair to assume that the figure might well be, in fact, much larger than $1 billion.
Why would Madoff transfer money from his fund to his brokerage? One hypothesis is that some of the Ponzi’s feeders (i.e. the people whom I have just named and their clients) wanted Madoff’s brokerage to engage in manipulative naked short selling, generating phantom stock to drive down the markets.
Indeed, an off-shore businessman who has seen some of Madoff’s records says that Madoff’s investment fund (his Ponzi) would place orders for stock, and these orders would be filled by Madoff’s market making operation (his brokerage), which would sell the stock to the “buyer” without first purchasing or borrowing it, thereby creating phantom supply.
Such naked short selling, though, creates large liabilities in the form of “securities sold but not yet delivered.” The fraud that brought down the giant brokerage, Refco, in 2005, saw Refco CEO Santo Maggio hide precisely the same sorts of naked short selling liabilities with help from an Austrian Bank called BAWAG (another operation tied to Roman Abramovich, the Mogilevich organization, and other Milken cronies whom we will meet in an upcoming chapter).
Just as Refco tried to hide its naked short liabilities with help from the Austrian bank BAWAG, so too did Madoff, most likely with help from Bank Medici, which was receiving payments from Cohmad, a key component of the Madoff brokerage.
There are several other reasons to believe that the $1 billion or more that was transferred from the Madoff Ponzi to the Madoff brokerage was used to cover up naked short selling liabilities.
One reason is that Madoff’s “stock loan” department (as Madoff’s former secretary has testified) was housed on the same floor of the Lipstick building as his Ponzi fund. Multiple former employees of the Madoff operation have said that visitors were prohibited from visiting that floor, precisely because it was the center of Madoff’s criminal enterprise. And “stock loan” – i.e. the brokerage function that was responsible for borrowing (or, in the criminal scenario, not borrowing) stock for (naked) short sellers — would have been key to any phantom stock scheme perpetrated in league with the Ponzi.
As confirmation that Madoff’s brokerage was a criminal outfit dependent on the Ponzi, we need only know that Daniel Bonventre, the brokerage’s director of operations, was charged in February 2010 with helping to ensure that “more than $750 million of [the Ponzi] investor fund were used to support [Madoff’s] market making [i.e. brokerage] and proprietary trading operations, but were accounted…so as to conceal the true source of the funds.” And Bonventre’s chief function at Madoff’s operation was, according to his indictment, to supervise “settlement and clearing of trades executed by the market making and proprietary trading operations.”
In other words, the guy who secretly transferred a lot of the “Ponzi” cash to the brokerage seemed to be doing so specifically to cover “settlement and clearing” – i.e. to hide the fact that stock was not “settling and clearing” because it was stock that had been sold “naked.” That is, it was stock that had been sold even though Madoff and his clients had not purchased or borrowed any stock to sell. It was phantom supply, meant to manipulate (and perhaps even crash) the markets.
No doubt, it was not a coincidence that Madoff had long courted the SEC and had even managed to wangle himself into the position of actually writing some of the SEC’s most important rules governing short selling. Indeed, SEC officials named one of its short selling rules after the SEC’s favorite crony – Bernard Madoff. The rule was called “The Madoff Exemption” – and it permitted market makers, such as Madoff, to sell short on a downtick.
The SEC rule prohibiting others to short sell on a downtick (which was scrapped entirely, at the behest of Madoff and others in his network, right at the inopportune moment in 2007 when the markets had begun to weaken) was meant to prevent traders from inducing death spirals and crashing the markets. But thanks to “The Madoff Exemption”, the clients of Madoff could induce death spirals without a word from the SEC.
Madoff also helped write the SEC rule that allowed market makers, such as Madoff, to engage in naked short selling so long as the purpose was to maintain “liquidity” in the markets, and so long as real stock was eventually delivered. Given that Madoff was, after all, a criminal of monumental proportions, it boggles the mind that neither the SEC nor the media ask whether Madoff might have “rented out” his market making exemption to hedge funds wishing to use naked short selling to drive down the markets.
It is more than likely that Madoff not only rented out his exemption, but abused it, never “clearing”, or delivering the stock he had “temporarily” sold naked.
The fact that Madoff actually helped write the SEC rules governing short selling (rules that contained precisely the sort of loopholes that would allow miscreant traders to crash the markets) should give you a sense of just what sort of agency the SEC was in 2008. In fact, the utter failure of the SEC and the all-important Depository Trust and Clearing Corporation, or DTCC, to prevent naked short selling caught the attention of the people who were hired by the Defense Department Irregular Warfare Support program to analyze the causes of the 2008 financial crisis.
The report that was produced for the Defense Department (the same report I cited at the outset of this story) states that there is a possibility that the SEC and the DTCC (a self-regulating body responsible for ensuring settlement of short sales and other transactions) were compromised by organized crime or even foreign enemies of the state. The report concludes: “Implications that these parties [the SEC, the DTCC, and other Wall Street institutions] have been complicit [in acts of financial terrorism] or otherwise co-opted cannot be ruled out.”
That statement is not preposterous. Bernard Madoff was not the only suspect character roaming the halls of the nation’s regulatory bodies. We have seen that Sheikh DeLorenzo (he with the Al Qaeda partner linked to the military spy scandal) also received favorable treatment from the SEC, which allowed him to set up Al Safi Trust’s naked short selling machine in 2007. And as we will see, there were still other, equally dangerous people who “captured” officials at both the DTCC and the SEC.
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Given the people whom Bernard Madoff serviced, it is clear that he was not just a monumental criminal, he was also a threat to national security. Consider that he had just a few other key “feeders” who profited from his scam, one of whom was the Abu Dhabi royal family, another of whom was Al Qaeda Golden Chain member Sheikh Mahfouz. The Abu Dhabi royals and Sheikh Mahfouz, of course, came to be on close terms with Madoff and his network when they were perpetrating the BCCI criminal enterprise.
Sheikh Mahfouz is the man who set up Blessed Relief (an Al Qaeda front) with “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier). Remember that he also had ties to the folks at Benevolence International (who tried to obtain nukes for Al Qaeda). Sheikh Mahfouz fed the Madoff Ponzi through EFG Bank in Dubai, an outfit with close ties to Dubai’s ruler, Sheikh Mo, who, in 2007, helped set up Al Safi Trust’s naked short machine with Sheikh DeLorenzo.
Some associates of the Milken network say that Sheikh Mahfouz had some ownership stake in EFG (which, like the other feeders, claims, improbably, to have been a “victim”), but I have been unable to confirm that. Whatever the case, in 2010, EFG’s affiliate, EFG Hermes, bought Credit Libonais, a bank that was majority-owned by Sheikh Mahfouz’s family. Given that the feeders to Madoff’s Ponzi were likely participating in this fraud in order to help cover up naked short selling, it seems probable that Sheikh Mahfouz and the Abu Dhabi royals were among Madoff’s short selling clients in 2008.
It is also likely that some of the naked short selling handled by Madoff’s brokerage originated from Tuco Trading (the little outfit tied to the jihadi Zuhair Karam, the Russians and others to be discussed). This is because Tuco Trading had a partnership with Man Financial, which was a unit of Man Group, a giant hedge fund that was (though it, too, claims to be a “victim”) one of the principal feeders to the Madoff Ponzi fund. Man Financial also had member accounts at Tuco and provided Tuco with one of its trading platforms.
The managing director of the Man Group, also known as MF Global, is Thomas Harte, and he (like Shiekh Mahfouz and the other Madoff feeders) is one of Michael Milken’s closest associates. Mr. Harte had been a vice president of Milken’s operation at Drexel Burnham. A number of MF Global’s other top executives, such as senior vice presidents Fred Demler and Fred Ulmann, are also Drexel alumnae. Further evidence that the Man Group is part of the Milken network emerged when the media published reports in 2010 that the Man Group was thinking about buying Steve Cohen’s SAC Capital.
Steve Cohen, we know, was investigated in the 1980s for trading on inside information given to him by Milken’s shop while Cohen was running Gruntal Securities with Felix Sater, Feinberg and others. Nowadays, the media is reporting that Cohen is the main target of the largest FBI insider trading investigation in history. Most likely Man Group’s stated plan to buy SAC Capital was designed to discourage the FBI from investigating the hedge fund and its role in a larger criminal enterprise.
This, we will see, is a familiar pattern – members of the Milken network purchasing or offering to purchase funds and companies run by other Milken cronies who are under federal investigation. The idea seems to be to keep investigators focused on individuals rather than the funds or companies. Once the funds or companies are purchased, investigators tend to assume the new owners will run them in a more honest fashion.
As for the Man Group’s credentials, it is worth noting that its subsidiary, Man Financial, not only had a partnership with Tuco Trading, but also had a similar partnership with BrokerKreditServis, the Russian outfit where Orange Diviner’s Mr. Ivin works as “head of international.” BrokerKreditServis, you will recall, is run by the former head of Alfa Bank (financier to Iran’s nuclear program), and Orange Diviner’s other traders were henchmen of Roman Abramovich and Mogilevich.
Meanwhile, Man Financial had other key clients. One key client was the Lucchese Mafia family. This has been well documented by lawyers representing a company called Eagletech, and it has been confirmed by others.
Another key Man Financial client in 2008 – Al Qaeda.
Deep Capture Chapter 6Edit
In 2008, one of Man Financial’s big clients was a key Al Qaeda money launderer and market manipulator.
This will no longer seem surprising once you come to understand that the underworld of illicit finance is a small world, and once you understand that the underworld is becoming the overworld, which is to say that criminality has gone mainstream.
The Mafia has been a player in the financial markets since the 1980s, and we have begun to see how Michael Milken and his closest associates (including the ones who run Man Financial) made that happen. Meanwhile, where there is Mafia, there are jihadis.
At the outset of this story, I quoted former U.S. National Intelligence Chief Admiral Dennis Blair’s warning about the “nexus” between organized crime and terrorism. In addition, not long ago, the U.S.. Department of Justice hired experts who produced a report that was titled, “Exploring Links between Transnational Organized Crime & International Terrorism.”
In this report, the experts (all noted academics and former employees of national security agencies) stated that “criminal and terrorist organizations will integrate and might even form new types of organizations.”
The experts said, “Granted, the motives appear different: organized crime focusing on making money and terrorism aiming to undermine political authority.” But, according to the experts, the evidence is clear that “the goals of crime and terror groups have coalesced in the past.”
The shared goal is not political in the sense of being rooted in a complex ideology, but it has political implications. “Terror groups,” said the Justice Department experts, “sometimes seek and obtain the assistance of organized crime based on the perceived worthiness of the terrorist cause, or because of their common cause against state authorities or other sources of opposition.”
Indeed, according to the experts, the Mafia and the jihadis “have similar profiles, and are often the same individuals….many individuals belong to both terror and organized crime groups, and conduct a variety of tasks for both.”
Among the many examples cited by the experts was that of Dawood Ibrahim, the Indian Mafia boss. Recall that a CIA official said, “If you want to know what Osama bin Laden is up to, you have to understand what Dawood Ibrahim is up to.”
Daniel Pearl, the Wall Street Journal reporter who was murdered by jihadis in 2002, had begun to investigate Mr. Ibrahim, but he never wrote a story about him. After Pearl’s death, The Journal announced that it would henceforth stop sending reporters to dangerous places because doing so did not conform with the paper’s mission to report on the world of business.
Apparently, The Journal had concluded that dangerous people in dangerous places do not conduct business. Since then, the newspaper has given up on investigating anything at all.
Meanwhile, most other newspapers seem equally disinclined to devote resources to serious investigations, or to publish stories that might surprise their readers. So you won’t read much about Dawood Ibrahim in the press, though Forbes Magazine ranks him as one of the 50 most powerful people in the world.
But Mr. Ibrahim is also one of the most dangerous people in the world. He is someone who should be appearing on the front pages of every newspaper in the land.
Mr. Ibrahim, we have seen, used to run his global criminal operation out of Dubai, with the full acquiescence of the local ruler, Sheikh Mo. While in Dubai, Mr. Ibrahim came to be on close terms with everyone from Bollywood actresses and Saudi sheikhs to financial cons and market manipulators (such as Ali Nazerali, formerly of BCCI) who inhabit the network of Michael Milken.
For most of his career, Mr. Ibrahim was nothing more than a secular Mafia boss, involved in the usual trades – narcotics smuggling, money laundering, market manipulation, trafficking of precious metals, prostitution, protection rackets, and the proliferation of nuclear weapons materials.
But in the early 1990s, Mr. Ibrahim and his Mafia outfit, which is called “D-Company”, began to form relationships with jihadis, including Osama bin Laden. And thanks to those relationships, he soon came to the attention of Pakistan’s spy agency, the ISI.
In 1993, the ISI invited some of the top members of Mr. Ibrahim’s crime gang to Pakistan to receive paramilitary training. Also in 1993, Mr. Ibrahim and his henchmen, with cooperation from jihadis and the ISI, orchestrated the most deadly one-day attack in Indian history, simultaneously exploding powerful bombs in thirteen locations throughout Bombay (now called Mumbai).
A total of 250 people were killed in those attacks, and 700 were injured. Clearly, this was not a typical Mob hit. It was an act of terrorism, coordinated by a man who was not by appellation a “terrorist”, but rather a Mafioso who happened to have found common cause with rogue spies and jihadis.
Mr. Ibrahim, who now lives in Pakistan under the protection of the ISI, is also suspected of involvement in the cataclysm that hit Mumbai in 2008, when Al Qaeda-linked jihadis (most of them members of Laskhar-e-Tayyiba) launched attacks in more than ten locations around the city, occupying several hotels and a synagogue, and killing at least 173 people, including at least five Americans, one a 13-year old girl.
This is why Dawood Ibrahim enjoys the distinction of being the only person labeled by the U.S. government as both a “Foreign Narcotics Kingpin” and a “Specially Designated Global Terrorist”.
But he is not the only person who has deserved those appellations. The Saudi billionaire Sheikh Mahfouz (formerly of BCCI) was, until his death in 2009, another person who was connected to both the drug trade and the Grand Jihad. And many leaders of Al Qaeda are heavily involved in the heroin trade, running their drugs through the Albanian Mafia (which is essentially an Al Qaeda subsidiary) in close cooperation with the Russian Mafia and La Cosa Nostra.
There are purists who would insist that Dawood Ibrahim is not officially part of Al Qaeda because he has never sworn allegiance to Osama bin Laden. This would be to misunderstand the nature of Al Qaeda, which has never had more than a smattering of official members, though far more people have done its bidding.
Most of the hijackers who carried out the September 11 attacks were also not “officially” members of Al Qaeda. In fact, when those attacks were carried out, the 9-11 mastermind, Khalid Sheikh Mohammed, was also not yet “officially” an Al Qaeda member. He swore allegiance to bin Laden and officially joined Al Qaeda in early 2002, months after 9-11.
To defend against Al Qaeda, we must understand that the enemy is not just a few sworn members, but a large, loose network of people who collaborated with Osama bin Laden, and will continue to collaborate with bin Laden’s successor. All of these people are on the same page, though they do not call themselves Al Qaeda.
In Osama bin Laden’s formal declaration of war against the United States, the name “Al Qaeda” was not even used. Instead, the declaration was signed by bin Laden and the leaders of mutiple other outfits – the Jihad Group, the Egyptian Islamic Group, Jamiat-e-Ulema, and the Jihad Movement of Bangladesh.
Mr. Ibrahim’s D-Company is affiliated with Jamiat-e-Ulema, and a number of Mr. Ibrahim’s top henchmen are full-fledged members of the Jihad Movement of Bangledesh. So it is not surprising that D-Company has helped carry out multiple terrorist attacks linked to these and other Al Qaeda affiliates.
In addition to carrying out terrorist attacks, Mr. Ibrahim and D-Company are the single most important dealers of Al Qaeda heroin. In addition to serving as Al Qaeda’s #1 heroin dealers and carrying out terrorist attacks linked to Al Qaeda affiliates, Mr. Ibrahim and D-Company play a key role in managing Al Qaeda’s finances.
Thus, we think it is fair to say that Dawood Ibrahim and his henchmen are members of a somewhat intangible network of closely affiliated people. And it is correct (indeed, it is essential, if we are to understand the real enemy) to describe all of the people in this network as being “members” of Al Qaeda, regardless of whether they openly declare themselves as such.
Dawood Ibrahim is not only a “member” of Al Qaeda. He is also a notorious market manipulator said to be the most important trader on the Karachi stock exchange. And he is quite active in the U.S. markets.
In 2008, one of Dawood Ibrahim’s top henchmen was Naresh Patel. Mr. Patel presided over an underground Al Qaeda and Mafia banking network with tentacles in the United Arab Emirates, India, Pakistan, China, Nigeria, Italy, Afghanistan, South Africa, the Congo, Nepal, the Cook Islands, Great Britain, and the United States.
The principal function of this network was to manage Al Qaeda drug profits — hundreds of millions of dollars that both Al Qaeda and its subsidiary, the Albanian Mafia, had earned from selling not just heroin, but also cocaine.
According to the U.S. Department of Justice, much of that money was transferred through banks in Dubai, and onwards to at least fifteen accounts that Patel held at Man Financial, the outfit that was (as we have seen) tied to Michael Milken, Bernie Madoff, Tuco Trading, and BKS in Moscow.
Patel traded huge volumes through these Man Financial accounts in 2008, but the DOJ didn’t catch him until 2009, at which point he was charged with transacting, through Man Financial, massive volumes of “wash trades” –simultaneously selling and buying commodities. He was doing the same thing with securities.
The DOJ described this activity as “money laundering” because money laundering was part of it, and money laundering is a concept that is fairly well understood by counterterrorism officials. Market manipulation, by contrast, is less well understood, judging from the fact that few people are ever prosecuted for it, though it happens constantly and, sometimes, on massive scales.
There is no sign that the DOJ understands that people (like Naresh Patel) who deploy “wash trades” are not just laundering money – they are manipulating markets. They use “wash trades” (simultaneously buying and selling the same securities) to create a tremendous amount of trading noise as cover under which they can manipulate prices down.
In other words, wash trades create static and drown out genuine market signals. Most often, as the information in the marketplace gets attenuated, wash trades are deployed simultaneously with naked short selling to create the appearance of panic selling. This induces the very sell-off on which the trader is betting.
Having pushed equilibrium through a tipping point, the manipulators can sit back and watch the sell-off carry the securities lower, at which point they cover their short. But because the manipulative trades were submerged in a river of identical buy-sell-buy-sell-buy-sell orders, it is difficult to tease them out and see the manipulation in action.
A price is a piece of information about value and scarcity. Wash trades such as Naresh Patel’s do serious damage to the markets in themselves, just by washing out that market information about value and scarcity.
But it would be a good idea for the SEC to check Naresh Patel’s and Man Financial’s trading records (not to mention those of Madoff’s brokerage and others that transacted trades for Man Financial) to see if this Al Qaeda man’s wash trades were, like most wash trades, part of an even bigger short-side market manipulation scheme.
It would also be helpful to know exactly which Man Financial executives were responsible for transacting the jihadi’s manipulative trades. Certainly, the Milken cronies who own Man Financial had some responsibility. It also seems likely, for one, that Man Financial’s vice president of trading control, Neda Nabavi, would have had oversight of the trading.
This might or might not be relevant, but I will nonetheless point out that Ms. Nabavi is also the executive director of an Iranian social club called Shabeh Jomeh. This social club appears to be innocent enough–it organizes parties and other social gatherings. But it is an instructive guide to Iranian business networks.
The co-founder of Shabeh Jomeh (along with Man Financial’s Nabavi, and one other fellow) was Babak Talebi, who was also a board member of the National Iranian American Council (NIAC).
The NIAC was set up in the wake of the 9-11 attacks, ostensibly to serve as a voice for “moderate” Iranian-Americans who object to terrorism. In a remarkably short period of time, the organization gained access to high-level officials at the State Department and the Central Intelligence Agency.
But, as it turned out, the National Iranian American Council’s principal mission was not to serve as a voice against terrorism. In fact, it said little at all about terrorism. Instead, it devoted most of its energies to advocating on behalf of the Iranian government.
In 2007, an Iranian American journalist named Hassan Daioleslam began publicly asserting that the NIAC should be officially registered as an agent working for the Iranian regime. The director of the NIAC, Trita Parsi, responded by suing Daioleslam for defamation.
This turned out to be a mistake, because it allowed Daioleslam to request “discovery” of the NIAC’s internal documents, which proved that the NIAC had, from its inception, been in regular contact with Iran’s ambassador to the United Nations, who was (recall) also directing the operations of Palestinian Islamic Jihad, the Assa Corporation, and the Alavi Foundation.
It emerged from the court battle that the NIAC was coordinating its lobbying and advocacy with a man named Siamak Namaz. Some years earlier, Namaz had founded an outfit in Europe called Iranians for International Cooperation, the stated mission of which was to “safeguard Iran’s interests”. The NIAC, it appeared, was founded to fulfill that same mission in the United States.
As to the credibility of NIAC’s claims that it advocates on behalf of “Iranian-Americans”, as opposed to the Iranian regime, it has been noted that the group has very few Iranian-Americans as members, while its leaders, Namaz and Parsi, are Iranian nationals who, by all accounts, are loyal to the regime of the Islamic Republic, and have no intentions of becoming American citizens.
It is, moreover, the case that while Namaz was lobbying on behalf of the Iranian regime, he was also working as a managing director of a company called Atieh Bahar, which is the international consulting arm of the Atieh Group, a holding company that has contracts with Iranian government ministries and the Iranian banks that were financing the Islamic Republic’s nuclear program.
Shortly after this information became public, the head of the Atieh Group, Bijan Khajehpour, was arrested in Iran and supposedly imprisoned by the regime. Meanwhile, Namaz and Parsi suddenly began claiming to support the democracy movement in Iran.
In light of these developments, I feel confident in floating a hypothesis – namely that the Iranian government instructs its agents to speak out in favor of democracy in order to provide cover for their activities on behalf of the regime.
It is quite possible that the Islamic Republic even stages the imprisonment of its best agents to provide them with a pro-democracy veneer that will enable them to operate more effectively in the West.
Certainly, it seems unlikely that Namaz and Parsi are genuine democrats given that internal NIAC documents show that the organization aspired to snuff out the so-called “Democracy Fund” and other pro-democracy movements led by Iranians living in the U.S.
In a document titled “Campaign for a New American Policy on Iran,” the NIAC vowed to “end the Democracy Fund as we know it”. Along these lines, the NIAC document lists several important goals. At the top of the list is the goal of convincing liberal Iranians and their supporters to “abandon the pursuit of regime change.”
As for Mr. Khajehpour, perhaps he really was a threat to the regime in Iran. Perhaps he really did go to prison. But he didn’t stay in prison long, and he is now in London, from where he operates a business empire that has much reach into the United States.
I do not mean to suggest that Americans should view the NIAC as something mysterious or scary. To the contrary, Americans should engage the NIAC, just as the U.S. government should engage the Iranian regime.
Trita Parsi, NIAC’s founder, has written an excellent book that is a must-read for anyone wishing to understand the Iranian party line. Perhaps, one day, Parsi can convince his associates in Iran that there is little to be gained by threatening to exterminate Israel and waging what the Ayathollah calls “economic jihad” (with “jihad” understood to mean “war against the infidels”).
However, as long as Iran demonstrates by its actions that it is an enemy of the United States, it might be best to treat its agents with a degree of suspicion. Another book worth reading is “Shariah: The Threat to America,” by former CIA director James Woolsey, who implicates Iran in everything from the September 11 attacks to the development of shariah “compliant” finance that poses a threat to the global financial system.
As we know, the Alavi Foundation, the other front for the Iranian regime that was dealing with Iran’s UN ambassador, was indicted in 2009 for espionage and funding Iran’s nuclear weapons program. A report in the New York Daily News even suggested that the Alavi Foundation was conspiring to import nuclear materials into the United States for use in a terrorist attack on a major American city.
As for Shabeh Jomeh, the Iranian social club co-founded by Man Financial’s vice president of trading controls, it might well be nothing more than opportunity for Iranians to get to know each other. But it might also be worth noting that in addition to being tied to the NIAC, Shabeh Jomeh’s third co-founder is Tamilla Ghodsi, a managing director of Goldman Sachs.
Ghodsi sits on the board of the Razi Health Foundation, an outfit that transferred large sums of money to the above-mentioned Alavi Foundation. Meanwhile, The Alavi Foundation delivered money back to the Razi Health Foundation, raising the possibility that these organizations were essentially one and the same thing.
But the SEC has not investigated Man Financial at all. In fact, it has almost never prosecuted a major case of market manipulation, much less checked the trading records of a key Al Qaeda money manager who was manipulating the markets through a brokerage that also does business with the Mafia.
So nobody is prosecuting Man Financial, despite the fact that it was clearly complicit in Al Qaeda man Naresh Patel’s illegal trading, and despite the fact that the Milken cronies who run that operation must have known precisely who Naresh Patel was.
Indeed, it is the law – as prescribed by the Patriot Act — that brokers and hedge fund managers must know whether their customers are Mafiosi, jihadis, or both.
This is especially true when the customers are members of Al Qaeda and appear to be conducting massive volumes of manipulative short trades at the height of a financial crisis.
Deep Capture Chapter 7Edit
As should be clear by now, the premise of this story is that a network of affiliated hedge funds and brokerages have done considerable damage to the financial markets. It should also be clear that most of the people in this network have ties to organized crime, and some have done a considerable amount of business with rogue states and jihadi outfits.
The damage caused by this network will be more fully quantified in upcoming chapters, but first let us become better acquainted with more of the network’s key operators. Towards this end, it will be instructive to consider what happened to the remains of the brokerage that was controlled by Bernie Madoff.
Authorities never fully investigated Madoff’s brokerage even though Madoff’s co-conspirators (Mobsters, dangerous Russians, people tied to the regime in Iran, folks like Al Qaeda Golden Chain member Sheikh Mahfouz, and other close associates of Michael Milken) were likely feeding Madoff’s Ponzi in order to cover up his brokerage’s manipulative trading.
The government’s investigation seems to have come to an end in 2010, shortly after the arrest of Daniel Bonventre, the fellow responsible for transferring at least $750 million of Ponzi money to Madoff’s “clearing and settlement” operation (i.e. the operation that transacted any manipulative trading that occurred).
As I have mentioned, often when criminal operations in this network come under investigation, they are sold to others in the network. The goal seems to be to discourage the Feds from continuing their investigation. As it were, Madoff’s brokerage (which no doubt consisted largely of liabilities, in the form of securities sold short but never delivered) was purchased in an auction that took place in June, 2009.
That auction was odd in many ways, one of which is that it may have been rigged.
Three brokerages attended the auction, only one of which made a bid. One of the observing brokerages was Guzman & Co, owned by Leopoldo Guzman, who had recently been serving as chief investment officer of the Gulf Investments Company, a shariah-compliant Saudi-owned outfit in Kuwait.
The other observing brokerage was Aleo Capital Markets. I haven’t been able to find out much about that firm except that it is run by David Weisberger, former CEO of Lava Trading.
Lava Trading is part of a larger group called SunGard, which was spun off from the Sun Oil Company. Sungard has been at the forefront of providing trading platforms to “shariah-compliant” financial institutions in the Middle East.
In 2008, Sungard sponsored a “Gala Networking Reception” where it was declared that “Islamic [shariah] finance can be the model for the global economy.” The keynote speaker at this event was the CEO of a secretive financial labyrinth known as Dar Al-Maal Al-Islami, or “The House of Islamic Money”.
Victims of the September 11 attacks have sued The House of Islamic Money, noting that it kept accounts for Wael Jalaidan, a founder of Al Qaeda, and that it has done business with companies that were owned by Osama bin Laden.
The House of Islamic Money’s board members included Haydar Mohamed bin Laden, Osama’s brother; and “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier). One of its subsidiaries, Shamal Islamic Bank, was run by Abdul Jalil Batterjee, who was also the chairman of an outfit that controlled Benevolence International, the Al Qaeda front that had contacts with people trying to obtain nuclear weapons for the Grand Jihad.
SunGard supplies trading platforms to several brokerages that have been charged by FINRA with deploying those trading platforms for the purposes of manipulative naked short selling. SunGard was also found to be “systematically” reporting short sales as long sales in the summer of 2007 – a habit that accompanies manipulative trading.
SunGard, meanwhile, owns a brokerage called Assent. Many of Assent’s traders were, in 2008, also trading through Zuhair Karam’s Tuco Trading, accounting for some of that brokerage’s large volume.
At Tuco, recall, there were several interesting accounts. One was the Orange Diviner account, controlled by the top henchmen of Roman Abramovich (the Russian prime minister’s right-hand man) and Russian Mafia kingpin Semion Mogilevich. Also involved with Orange Diviner were people affiliated with Alfa Group, the outfit that is funding Iran’s nuclear program.
Two other Tuco accounts traded 2 billion shares (equal to 20 percent of the volume at the biggest brokerage on the planet). One of those two accounts contained more than 2,000 anonymous sub-accounts based in China.
In the fall of 2010, I had received a tip that the accounts responsible for those 2 billion shares had been set up by an Iranian fellow with high-level ties to the Revolutionary Guard and Palestinian Islamic Jihad (whose leader in the U.S. was taking directions from Iranian diplomats to the UN).
However, Tuco’s Zuhair Karam had yet to help me confirm the identity of that Iranian.
But I did know that some traders at Assent (the Sungard outfit, a number of whose traders were also operating through Tuco) were involved with a brokerage called Carlin Equities. Another person involved with Carlin was Arik Kislin, whom the U.S. government has named as being a “member” of the gang run by Vyacheslav Ivankov, or “Little Japanese” – the top boss of the Russian Mafia in the United States during the 1980s.
In 2009, Ivankov was assassinated on a Moscow street after admitting that he had long been employed by the Russian intelligence services. Meanwhile, Kislin and a Russian Mafia figure named Michael Chernoy (sometimes spelled Mikhael Cherney) were partners in a money laundering outfit called Trans Commodities, which has been linked to the Russian government.
In addition, Kislin was named by the FBI as an associate of an Iranian arms dealer named Babeck Seroush, who operated out of Moscow and worked with the GRU, Russia’s military intelligence agency. In 1984, prosecutors for the Southern District of New York indicted Seroush for smuggling semiconductors and military-issue night-vision goggles to North Korea. Kislin has admitted that he has done business with Seroush.
Assent, the outfit with some traders who are associated with Carlin (the Kislin-tied brokerage), is affiliated in other ways with Tuco Trading. For example, a brokerage called Lightspeed (which had a partnership with Tuco and provided Tuco with one of its trading platforms) referred trades to Assent, which in turn referred trades to a Texas outfit called Penson Financial, and a California brokerage called Wedbush Morgan.
Wedbush, meanwhile, referred most of its trades onwards to Bernard L. Madoff Investment Securities LLC.
In other words, employees of a brokerage tied to a Russian Mafiosi (a former partner of an Iranian arms dealer who has done business with Russian intelligence and North Korea) made trades that were passed down a line of Mafia- and jihadi-linked brokerages and, in many cases, ultimately executed by Bernie Madoff.
So to summarize: The auction for Madoff’s brokerage was attended by three brokerages. One of those brokerages (Guzman & Co) was owned by a fellow who had most recently been working for a Saudi outfit in Kuwait.
The second brokerage (Aleo) was owned by the former CEO of an outfit (Lava Trading) that was a subsidiary of SunGard, which has ties to the jihadi House of Islamic Money and also owns Assent, a number of whose traders operated through Lighstpeed. Many of Assent’s traders also operated through Zuhair Karam’s Tuco (which deployed the Lightspeed trading platform); and through Carlin Equities, the outfit tied to Russian Mafia figure Arik Kislin.
Although they attended the auction, Aleo and Guzman did not bid for Madoff’s brokerage, and most likely attended the auction simply to ensure that Madoff’s brokerage would, in fact, be sold to the third brokerage in attendance. That third brokerage was Surge Trading, and in the end, Surge did indeed buy Madoff’s operation.
At the time of this writing, Surge Trading’s accounting firm had refused to sign off on its financial statements due to unspecified problems relating to its purchase of Madoff’s brokerage. Could it be that those problems have to do with Surges’s efforts to cover-up the liabilities in the form of “securities sold but not yet delivered” that Madoff’s brokerage would have accrued from generating “failures to deliver” in order to help its clients manipulate down the markets?
I don’t know. Apparently, it’s a big secret. But it seems to be a good bet, given that there could be no possible reason (other than to hide liabilities that pointed to a massive financial crime) why a brokerage would want to buy the operations of the world’s most famous financial criminal.
Surge Trading opened for business not long before buying Madoff’s brokerage. Indeed, it is posssible that it was set up for no other reason than to buy the Madoff operation. And there is no question that Surge Trading is part of the close-knit network that is the subject of this multi-chapter story.
That is, it is part of the network whose key operators include criminals (including Madoff himself) who are tied to either Michael Milken, organized crime, jihadis, rogue states, or all of the above.
Surge Trading is run byFrank Petrilli, former vice president of a brokerage called Datek Securities (also known as Datek Online). In 1999, the SEC charged Datek with running trading accounts for a guy named Martin Clainey, except that Clainey wasn’t his real name. His real name was Phillip Gurian, and he was the right hand man to a Decalvacante Mafia family capo named Phil Abramo, who was one of America’s most notorious market manipulators, known in Mafia circles as the “King of Wall Street.”
Abramo has been charged for multiple market manipulation crimes, and was at the center of one of the biggest naked short selling cases of all time. In that case it was determined that Abramo and his short selling crew destroyed dozens of companies that had been given death spiral finance by a brokerage called Hanover Sterling, which was controlled by the Genovese Mafia.
In 2003, Abramo was indicted for murder.
In addition to catering to the Abramo boys, Datek also had a partnership with A.R. Baron, the Mafia outfit that was (recall) financed by Milken crony Zev Wolfson and later charged by the DOJ with manipulating stocks in league with a host of La Cosa Nostra characters and Russian Mafia boss Felix Sater’s White Rock Partners.
A.R. Baron was Datek’s clearing firm, responsible for ensuring delivery of any shares sold short by Datek. Later, Datek’s clearing firm was J.B. Oxford, a Mafia brokerage controlled by Russian oligarch Boris Berezovsky (at this point still the “Godfather of the Kremlin”) and Irving Kott, who, recall, was Ali Nazerali’s partner in First Commerce, the BCCI brokerage. Also involved with First Commerce (according to a former employee): Phil Abramo.
That was before Ali Nazerali started a hedge fund, Valor Invest, in partnership with Yasin al Qadi (Osama bin Laden’s favorite financier).
Datek also did quite a lot of business with one Joseph Gutnick, who was an important figure in the ultra-orthodox Lubavitch Hasidic movement in Israel. Mr. Gutnick was long known in Israel as the Goldener Rebbe, or the Golden Rabbi, because he ran several extremely generous charities that played key roles in securing the elections of a succession of Israeli prime ministers.
The grateful leader of the Lubavitchers, the late Rabbi Menachem Mendel Schneerson, once predicted that Gutnick would discover diamonds and gold in the Australian desert – a prediction that Mr. Gutnick included in promotional videos that he showed to his Datek brokers, who referred to him as “Diamond Joe.”
In 1993, Mr. Gutnick was among the most ardent Israeli opponents of the Oslo Peace Accords between the Israeli government and the Palestinian Liberation Organization). Mr. Gutnkik and his charities later orchestrated much of the Israeli building in occupied territories of Palestine, helping to provoke Palestinian radicalism and the rise of Hamas and Palestinian Islamic Jihad.
In 1999, Gutnick was exposed by Barron’s magazine for using his charities to launder money and manipulate stocks for such characters as Judah Wernick, the Milken crony who was (as we have seen) indicted by the DOJ for his role in a $200 million stock manipulation scheme that he ran with Milken crony Randolph Pace, who would later be implicated in the scandal that saw the Russian Mafia and Russian government laundering billions of dollars through the Bank of New York.
Datek was founded in the 1980s by two brothers, Irfan and Omar Amanat. Omar Amanat was also the founder of Lightspeed, one of the outfits that provided a trading platform to Tuco Trading. Those 2 billion shares (equal to 20 percent of the volume of the largest brokerage on the planet) that were traded through two accounts at Tuco were largely transacted on the Lightspeed platform (which, recall, also transacted trades for Sungard’s Assent and Carlin Equities, the outfit tied to Russian Mobster Arik Kislin).
In the fall of 2010, I had not yet received confirmation that a certain Iranian fellow was behind the two accounts that traded the 2 billion shares. But I knew that Omar Amanat (founder of Datek; and designer of Tuco’s Lightspeed, which transacted a large portion of those 2 billion shares) was also the founder of Bridges TV, an American television network devoted to broadcasting Islamic teachings and other programming that is ostensibly of interest to Muslims.
There is, of course, nothing wrong with Islamic television. It’s better than “Dukes of Hazard” reruns. I include Bridges TV in this story only because people choose their business partners and the company they keep, and it is probably no coincidence that Omar Amanat (founder of Datek and Lightspeed) chose as his partners in Bridges TV two men – Muzzammil Hassan and Nihad Awad. Mr. Hassan served as Bridges CEO until he chopped off his wife’s head.
Mr. Hassan chopped off his wife’s head apparently because he believed that it was a matter of honor to chop off the head of a disobedient wife. This would have been legal in Taliban-ruled Afghanistan, but it’s against the law in California, so Mr. Hassan is now in prison.
Meanwhile, Mr. Awad, the other partner in Bridges, is a jihadi who is a member of both Hamas and the Muslim Brotherhood. He is a close associate of Palestinian Islamic Jihad leader Sami-al-Arian (who took orders from Iranian agents in New York) and the Blind Sheikh, mastermind of the 1993 terrorist attacks on the World Trade Center.
Mr. Amanat knew this when he chose Mr. Awad as his partner because Mr. Awad had been the chief propagandist for Hamas in the United States, and he was under investigation (and soon to be named as an unindicted co-conspirator) in the government’s case against the Holy Land Foundation, which was the principal front for Hamas in the United States.
Court documents from that case noted also that Mr. Awad had attended a secret meeting for 20 Hamas leaders that was held in 1993 at a Marriot Hotel in Philadelphia. The FBI secretly monitored and recorded this meeting, so we know who was there, and what was said. There is one thing the people at this meeting did not say – the word, “Hamas.” Instead, they said, “Samah,” which is Hamas spelled backwards, an attempt to use coded language to disguise the purpose of this meeting, which was to advance the Hamas political agenda and figure out ways to derail the Oslo Peace Accords.
Perhaps they even had assistance in this effort from Diamond Joe a.k.a. the Golden Rabbi. Spend some time in any war zone and you will see avowed enemies collaborating to fuel the conflict from which both sides profit. It is, in fact, widely accepted that Israeli politicians (largely funded by criminals like Diamond Joe) were at this time nurturing Hamas as an alternative to the Palestinian Liberation Organization.
The Hamas leaders at the secret meeting in Philadelpia also discussed ways to advance the “Grand Jihad” to “sabotage the West’s miserable house from within.” The Muslim Brotherhood document that described that Grand Jihad was presented by prosecutors in the Holy Land Foundation case. (Hamas is a creation of the Muslim Brotherhood).
One of the attendees at the secret Hamas meeting, Abu Baker, noted that the jihad against the United States would have to be conducted by stealth. “War is deception,” he said. “Deceive, camouflage…Deceive your enemy.”
Nihad Awad (future partner of Lightspeed and Datek Securities founder Omar Amanat) was at the secret meeting in his capacity as the deputy director of the Islamic Association of Palestine, which was the propaganda arm of Hamas in the United States, principally tasked with that “deception” and “camouflage.”
Also at the meeting was Awad’s boss, Islamic Asssociation of Palestine President Omar Ahmad. The FBI recorded Amad and Awad plotting ways to keep the Blind Sheikh out of prison, despite the Blind Sheikh having been implicated in the 1993 World Trade Center attack.
Which is not surprising because the Blind Sheikh (Osama bin Laden’s spiritual inspiration) had been living in Omar Ahmad’s house (free room and board) while he was plotting other atrocities, including the “Day of Terror” plot to blow up multiple New York landmarks. This, recall, is the same Blind Sheikh who first called on jihadis to destroy American corporations and the American economy.
Datek Securites co-founder Irfan Amanat (brother of Oman) is also on close terms with the top officials of Hamas and Palestinian Islamic Jihad. Irfan now lives in Dubai, where he is a partner in MNA Partners, which is run by Kamal Tayara, a founder off the Alarabiya News Channel.
Alarabiya is better than most American news networks in that it actually reports the news. However, it tends to give disproportionate attention to the “atrocities” committed by American troops in Iraq, while stressing that Al Qaeda’s crimes pale in comparison.
I do not mean to suggest that Omar and Irfan Amanat are terrorists. But they definitely know terrorists, and are on exceedingly good terms with some of them.
It is therefore of possible concern that aside from founding Datek and Lightspeed, Omar and Irfan Amanat founded Island, the largest Electronic Communications Network (ECN) in America. In fact, they founded or served as key consultants to nearly every other major ECN in the nation.
Since ECNs act like their own private stock exchanges and enable stock manipulators to operate in anonymity, they are cited by U.S. government agencies as among the bigger loopholes that could be exploited by financial terrorists.
As it were, Irfan Amanat used one of his Electronic Communications Networks to engage in a massive market manipulation scheme. And it was precisely the sort of scheme that worries experts in threat finance.
This scheme was carried out in September 2001, in the days before and after the Al Qaeda attacks on the World Trade Center. While the timing may have been a coincidence, there is no question that Mr. Amanat’s attacks damaged the markets.
The scheme involved MarketXT, a trading firm and ECN founded by Irfan Amanat and his brother Omar. According to the SEC, in September 2001, Irfan Amanat and MarketXT deployed “a [computer] program without any arbitrage features…The program, dubbed ‘RLevi2’, automatically placed buy or sell orders at timed intervals…In other words, wash trades and matched orders were the result of the program’s design.”
Strangely, the SEC wrote that Irfan’s massive volumes of wash trades were “market manipulation” but it did not charge him with that crime. In response to the SEC’s claim that this was a “market manipulation” scheme, Mr. Amanat said that his RLevi2 computer program was not meant to crash the markets (as it appeared), but was instead designed “solely to generate tape rebates” (i.e. rebates that stock exchanges pay to traders who generate massive volumes).
The SEC clearly did not accept this explanation. That’s why it stated unequivocally in its charges against Amanat that he had “manipulated the markets.” But the SEC seems incapable of ever actually charging anyone for market manipulation, and so the Commission charged Amanat only with using wash trades to generate tape rebates.
Mr. Amanat’s scheme (like the one that Al Qaeda man Naresh Patel ran through Man Financial) was, in fact, blatant market manipulation – a scheme that created the illusion of massive volume, and severely damaged stock prices by specifically targeting Exchange Traded Funds (ETFs).
As I noted at the outset of this story, threat finance experts worry about ETFs because they contain stocks across a given industry, and their high leverage makes them ideal tools through which to manipulate the markets. The more leverage, the more damage manipulative trading can inflict.
Indeed, it might be worth asking whether some ETFs were created to help short-side market manipulators crash markets. This is because the man who invented ETFs might be tied to the Russian Mafia. And because the second biggest creator of ETFs is definitely tied to the Mafia.
The biggest player in the world of ETFs is Michael Sapir. He invented them. He is also, I believe, a relative of Russian Mafia boss Tamir Sapir, who runs an outfit called The Sapir Organization. Tamir Sapir is also a partner in Bayrock, the alleged money laundering outfit run by Russian Mafia boss Felix Sater (the guy whose Russian intelligence contacts were going to buy Stinger missiles from Al Qaeda after his brokerage was indicted for manipulating the markets with La Cosa Nostra and Datek’s clearing firm, A.R. Baron).
By his own admission, Sapir used to be primarily in the business of selling electronics equipment to KGB operatives in New York. His partner in the electronics business was Semion Kislin, uncle of the above-mentioned Arik Kislin (tied to Carlin Equities). Like his nephew, Semion has been named by the U.S. government as an associate Vyacheslav Ivankov, one-time top boss of the Russian Mafia in the United States.
Ivankov, also known as Yaponchik (“Little Japanese”), was the sort of criminal who inspires fear and wonderment at what a human can become, a mass murderer who would brag to his associates that he made his victims die slow and excruciating deaths. As I mentioned, he was assassinated on a Moscow street in 2009, shortly after revealing that he had long been employed by the Russian intelligence services.
Note: I do not have a birth certificate or DNA test confirming the relationship between the two Sapirs, so there is a chance that I am mistaken about this. But I am going to go out on a limb and report it anyway because some of Michael Milken’s associates have told me that the two men are related, and because Michael Sapir’s spokesman refused to deny the relationship on the record.
I asked Tamir’s spokesman if he would confirm or deny the relationship with Michael. Actually, “spokesman” was not his official title, and that’s probably not the right word to describe him. He sounded more like the sort of fellow one would be likely to meet under a bridge near the New York harbor, in the middle of the night.
At any rate, he didn’t answer my question. He said “The Sapir Organization is very private. We don’t provide that sort of information.”
Then — “click” — he hung up the phone.
The other innovator of ETFs, and the second biggest provider of them after Mr. Sapir, is Michael Steinhardt’s Wisdom Tree Investors. Steinhardt (I noted previously) is the son of the “biggest Mafia fence in America” (as the Manhattan DA put it). Steinhardt himself has disclosed that he started his first hedge fund with money from the Genovese Mafia and two fellows (Marc Rich and Ivan Boesky) who were on close terms with the Russian Mafia and the regime in Iran.
Steinhardt’s partner in Wisdom Tree is the son of Saul Steinberg, who in addition to being a key player in the junk bond merry go round that Michael Milken ran in the 1980s, also ran a fund with finance from Zev Wolfson, the guy who financed the above-mentioned A.R. Baron (Datek’s clearing firm) and numerous other Mafia brokerages mentioned in earlier chapters.
So, another summary: In September 2001, Irfan Amanat was busted for using his ECN and his “RLevi2” computer program to generate massive volumes of wash trades (the same sorts of wash trades conducted in 2008 through Man Financial by Al Qaeda man Naresh Patel). Mr. Amanat was doing this, the SEC said, to “manipulate the markets.”
But the SEC did not charge Mr. Amanat for manipulating the markets. It charged him for generating massive volumes of wash trades (which manipulate the markets). So while stating that Amanat was “manipulating the markets”, the SEC also states that Amanat’s only purpose was to generate rebates from the exchanges.
Which makes no sense, because Amanat wasn’t just churning stocks, he was specifically targeting Michael Steinhardt and Michael Sapir’s highly leveraged ETFs, trying to inflict as much damage as possible.
Is Mr. Amanat a financial terrorist? I know he is (like most of the other characters mentioned so far) part of the Milken network, and that’s all I need to know to suspect that he is a threat to the national security of our “miserable house.” Decide for yourself.
However, it might be wise to keep an eye on someone whom the SEC found “manipulat[ing] the markets” at the time of the collapse of the World Trade Center, and who has also does business with a Hamas operative (Nihad Awad) who plotted to keep from prison the Blind Sheikh, mastermind of the first attack on the World Trade Center. This after the Blind Sheikh had been living in the house of Awad’s boss, issuing fiery sermons commanding jihadis to destroy the U.S. economy.
And I’d like to stress this: Two critical functions of the U.S. financial system (ETFs and ECNs) can be quite easily turned into weapons, and are primarily controlled by people who have exceedingly close relationships with the Mafia, jihadis, and rogue states. This seems problematic.
Of course, when Omar Amanat’s Datek came under investigation for its ties to Mafia characters like Martin Clainey (a.k.a. Phillip Gurian), it was quickly purchased by one of Milken’s closest associates, a guy named Steven Schonfeld, who was formerly a principal at the Milken-financed Blinder, Robinson (the outfit known as Blind’em and Rob’em, indicted by the DOJ for manipulating stocks with the likes of Mafia capo Thomas Quinn).
Schonfeld bought all of the assets of Datek (including the executives who had handled the accounts of the Mafia) and folded them into a new outfit called Heartland.
Schonfeld is now the owner of one of the nation’s largest hedge fund and brokerage empires. He also has a securities rap sheet a mile long, having been fined by the Financial Industry Regulatory Authority for everything from naked short selling to bribing stock loan executives at major brokerages.
Once paid off by Schonfeld, the stock loan guys would routinely vouch that there was stock available to be borrowed (the necessary prerequisite for a legal short sale), when in fact there was no such stock. A hedge fund manager doing this is participating in a large scale market-demolition operation. Indeed, it seems to me that Schonfeld belongs in jail.
Since Schonfeld is one of Michael Milken’s closest associates, it is unsurprising that SEC filings show that his trading regularly replicates that of others in the network, including SAC Capital’s Steve Cohen (former trading partner of Russian Mafia figure Felix Sater) and the Man Group, feeder to the Madoff Ponzi and owner of Man Financial (which, like Lightspeed, provided a trading platform to Tuco).
It is also worth noting that in 2008, Schonfeld was a co-owner of Lightspeed, the Omar Amanat outfit that provided Tuco Trading with one of its trading platforms, and transacted a large portion of those 2 billion shares in the month before the 2008 collapse of Bear Stearns.
There are many reasons to believe that the trading conducted through Lightspeed was manipulative short selling. One reason to believe this is that FINRA ultimately fined Lightspeed after finding that at the height of the financial collapse in September 2008, Lightspeed had transacted massive volumes of “short sales of financial institution securities on behalf of customers in contravention of the Commission’s [the SEC’s] emergency order of September 18, 2008 that provided that ‘all persons are prohibited from short selling any publicly traded securities of any included financial firm.’”
In other words, Lightspeed’s clients were attacking the big banks in violation of an SEC “Emergency Order” meant to prevent such attacks from worsening a devastating financial crises. Many of those banks, of course, collapsed or almost collapsed, and the financial crisis got a lot worse.
FINRA is supposed to refer such cases to the DOJ and the SEC, which are supposed to investigate further and decide whether to press criminal or civil charges. But before the SEC or the DOJ could investigate this case, Schonfeld sold Lightspeed to Penson Financial (clearing firm for Tuco Trading).
Meanwhile, as we know, the former vice president of Datek (Omar Amanat’s Mafia outfit, purchased by Schonfeld when it came under investigation) bought Bernie Madoff’s operation, ensuring that nobody would investigate how all of these brokerages were tied together and processed massive volumes of manipulative trades at the height of the financial crisis in 2008.
In the fall of 2010, I was beginning to understand how this network was tied together, so I called the jihadi and Tuco trader Zuhair Karam again. This time Zuhair was a little bit more forthcoming. He confirmed that he knew Omar Amanat and many of those Hamas leaders who attended the secret meeting in 1993. He suggested that my tip about an Iranian being behind those 2 billion shares might be right, but he still would not elaborate.
Only later would I confirm the identity of that Iranian. But after talking to Zuhair, I recalled some information that a former (and foreign, not American) spy had given me in 2006 when I first began investigating the Milken network. The former spy had spent a number of years tracking the Milken network, but when I met him, I did not realize the importance of what he was telling me. In 2006 this former spy was telling me, in a nutshell, that the Milken network was going to wreck the economy.
I pretty much ignored that former spy, and did not return to his information until the fall of 2010, when it was too late. This is one of my life’s great regrets.
What, precisely, did that former foreign spy tell me? How did I come to meet him in the first place? Well, this requires some explanation.
Deep Capture Chapter 8Edit
In August 2005, Patrick Byrne, CEO of an internet retailer called Overstock.com and future founder of Deep Capture, held a conference call for around 500 Wall Street folks and financial journalists. During this call, Patrick gave a presentation, which he titled “The Miscreants Ball”. The presentation described a network of miscreant short sellers who seemed to be using a variety of dubious tactics to manipulate stock prices and damage public companies.
Patrick said that there was a famous criminal at the center of this network. He said that he wasn’t going to name the criminal for the time being, but would simply call him “the Sith Lord” – a reference to the evil mastermind from Star Wars. Patrick did not say that this criminal or any of the hedge fund managers he named in his presentation were tied to the Mafia. But he did suggest that the there were indications that the Mafia seemed to be involved in short-side market manipulation.
In addition, Patrick said that he had information that a fellow named Kevin Ingram was somehow involved, and this Ingram guy had been arrested by the FBI for his role in an illegal Stinger missile deal involving some shadowy Pakistani characters.
Patrick concluded his presentation by saying that he believed that abusive short selling posed a risk to the stability of the financial system. And he said that he was filing a lawsuit against one miscreant short seller, a guy named David Rocker, who then ran a hedge fund called Rocker Partners, later renamed Copper River.
Rocker was one of Michael Milken’s close associates. He previously worked for the Belzberg brothers – Sam and Hymie. The Belzbergs, who are also among Milken’s closest associates, had been key participants in the junk bond merry-go-round and bust out scams that Milken masterminded in the 1980s.
Though Patrick didn’t know it when he filed his lawsuit against Rocker, the Belzbergs had also been tied to the Genovese Mafia by U.S. customs agents and the Canadian Royal Mounted Police who filed reports on the Belzberg’s business dealings with the Mafia. Of course, when the Belzberg’s ties to the Mafia were exposed, they expressed surprise that the people they had been dealing with for years were Mobsters. They had even dealt with Meyer Lansky, who was one of the most famous Mobsters in the world, without (according to the Belzbergs) knowing who Meyer Lansky was.
Whatever the truth, Rocker subsequently went to work as a top trader for Michael Steinhardt’s hedge fund. Steinhardt has since admitted that his father was in the Mafia and that the Manhattan District Attorney called his father “the biggest Mafia fence in America.” But the Belzbergs must have been surprised to learn that, too.
Rocker, meanwhile, spent much of his career telling people on Wall Street of his ties to the Mob. But maybe, like the Belzbergs, he didn’t know he had ties to the Mob.
The media response to Patrick’s “Miscreants Ball” presentation was disappointing in general, but one crew of journalists covered the presentation with relish. These journalists seemed to think it was supremely hilarious that the CEO of a sizable public company had used the “Sith Lord” metaphor.
These journalists also seemed to believe that there was something weird about a CEO talking about the Mafia and Stinger missiles. This was especially troubling, given that those journalists could have found on Google in one minute numerous news stories and government documents about the Mafia infiltrating Wall Street.
There were also plenty of detailed articles and about Kevin Ingram and his involvement with Stinger missiles and shady characters from Pakistan (see for example “Ex-Goldman Trader Stung in Arms Plot, Shocks Colleagues , New York Observer, July 1, 2001).
The journalists lambasted Patrick in stories that portrayed him as a nutcase. In some instances, they quite literally suggested that he might need psychiatric care. The New York Post printed a photo of Patrick with a UFO over his head.
Patrick proceeded to do battle with these journalists, and his battle came to my attention in January, 2006 – shortly after I had taken a job at Columbia University in New York. Specifically, I was the assistant managing editor responsible for critiquing the business press for the Columbia Journalism Review, a magazine that serves as a media watchdog.
It seemed to me that the journalists had been a bit vicious in their attacks on Patrick, so I called him, thinking I’d write a quick story about his criticisms of the New York financial media.
During our initial conversation, Patrick went on at length about the Mafia, but he did not seem in the least bit insane. In fact, I was already aware that the Mafia was active in the markets.
In 2001, while working as a correspondent for Time magazine in Asia, I had spent many weeks investigating a network of Mafia-tied brokerages that were operating out of Bangkok, Thailand. The Thai authorities had raided some of these brokerages, so their owners had gone temporarily into hiding. Which is to say they had abandoned their penthouse apartments and were living in luxury hotel suites in the center of Bangkok, ordering their lawyers to make the Thai government’s investigations go away.
I found one of them, John Kealey, owner of the Brinton Group, and he refused to comment on media reports that he had ties to the Irish Republican Army, but he did acknowledge that he had (unwittingly, in his version of the story) done business with a Mafia enforcer with the last name Ciasullo, first name Eugene, though he didn’t like to be called “Eugene” – he preferred to be called “The Animal.”
A few days later, I met a fellow named David Cordova at his office, which was around the corner from a three-story nudie bar and brothel complex called Nana Plaza. Cordova owned a Bangkok brokerage called Kensington and in addition to manipulating the markets, he was selling a fake AIDS cure with a famous Mob enforcer named Bernie Sandow.
When I met Cordova, he had just returned from Ghana, where he’d had an audience in the Manhyia Palace with Otumfuo Osei Tutu II, King of the Ashanti people.
The first thing that happened at our meeting was that Cordova’s wife arrived and announced that she was going to read my palm. She said she was a fortune teller with magic powers.
I let her read my palm, and she said that things did not look good for me–I was going to die. In fact, I was going to die really soon. The second thing that happened was that Cordova told me he had a handgun under his desk and he was looking for some “hired help” to kill a stock broker named Danny Sterk, who’d screwed some of Cordova’s boys on a deal.
In addition, Cordova thought he might assasinate Danny Sterk. And this Sterk – well, he was a stock broker, too. But he was also a former mercenary who could kill a man with one quick jab to the throat.
Sterk, who also dealt in forex derivatives, had attracted some attention to himself when he threatened to kill an innocent airline employee. This was because the airline employee had refused to allow Sterk’s dog sit with him on a flight to Kinshasa.
So, by comparison, Patrick Byrne’s story did not seem all that strange to me. I began to investigate, and within a few weeks it was clear that the journalists attacking Patrick all had close relationships (in some cases business relationships) with certain hedge fund managers, most of whom were among the closest associates of Michael Milken, the famous financial criminal.
For details about these journalists see earlier Deep Capture stories, including “The Story of Deep Capture”, which explains how and why we came to embark on the Deep Capture project.
At any rate, back in 2006, I never did write the quick story about Patrick and the financial media that I had planned for the Columbia Journalism Review. Instead, I concluded that Michael Milken was probably “the Sith Lord” and decided to conduct a deeper investigation into the tactics of hedge funds tied to Milken.
By that time, though, Patrick had modified his “Sith Lord” analogy to say that there was probably not one man at the center of the network, but a few key figures. Patrick had publicly added that he would (hint, hint) “sack up” as to the identity of one “Sith Lord” sometime in the near future.
As everyone on Wall Street understood, but I failed to catch, Patrick was referring to SAC Capital, which is referred to colloquially on the Street as “sack,” or sometimes ‘Saks”.
Months later, I was still investigating, and I was far down the rabbit hole, thinking I had seen it all. But I hadn’t seen it all, because a number of strange things were about to happen, the first of which was the appearance in my office of a former operative for a foreign intelligence agency.
This former spy announced that he had spent many years investigating Michael Milken and his friends, and he said that one key to understanding this network was a guy named Gene Phillips, who was deeply tied to the Mafia. He also said that Milken and his associates were holding secret meetings in Costa Rica, where they were planning the destruction of some big companies.
The former spy didn’t know all the details, but he said these meetings had something to do with Real Estate Investment Trusts, or REITs. He said that mortgage companies and something called “collateralized debt obligations” were also being discussed at these meetings in Costa Rica.
In addition, the former spy said that he had confirmed that Kevin Ingram, the guy mentioned by Patrick Byrne – the guy tied to the Stinger missile deal — was working for the Milken network, and had mysterious ties to the Pakistani intelligence services.
There was also something about a guy in Costa Rica. It seemed this guy in Costa Rica was hosting the secret Milken meetings, and there was a lot that was strange about this guy — he had ties to the Mafia, and jihadis, and he worked out of the same building as the Israeli embassy, and…
And, well, that’s when I started to tune out. At this stage in my investigation, I had determined that the Mafia certainly had a presence on Wall Street and was manipulating the markets. Indeed, I had spent some time looking into the murder of one Mafia-tied naked short seller.
But I was not yet at the stage where I could believe that some prominent American investors were tied to the Mafia. And when the former spy began talking about jihadis and secret meetings in Costa Rica and the Israeli embassy and mysterious ties to Pakistan – well, it all seemed a bit too much.
It seemed, in fact, like the kind of conspiratorial story that a former spy might tell to toot his own horn and make it seem like he was in possession of special secrets known only by him. I did not believe what the former spy told me, and I escorted him out of my office thinking he was an interesting character, worthy of a novel, perhaps, but not of use to my investigation.
After the former spy was gone, I glanced at the stack of documents he had given me, but it was just a glance before I dumped the documents in a drawer and promptly forgot about them.
I didn’t believe that former spy. I didn’t look closely at those documents. I didn’t immediately follow up on any of the information that he had given me. And these are among my life’s greatest regrets.
I now know that when I met that former spy, I had become complacent. I could believe that bad things were happening in Bangkok. I had personally witnessed bad things happening in places like the Congo and Aceh and the Philippines. But I could not believe that such things could happen in America.
In short, I was a comfortable journalist, back in the United States with a comfortable job, disinclined to think the worst or examine notions that seemed, on their surface, to be outlandish.
However, I did know back in 2006 that I was on to a big story. And in some subconscious fold of my brain, I must have realized that anything was possible. So it eventually occurred to me that I should put that former spy’s documents in a safe place. The thought hadn’t crystalized, but somehow I believed that those documents might one day come in handy.
And now – five years later – there are some things that I know.
I know, for example, that what that former spy told me was true. And I know that there was much more to the story – that what the spy told me was only a tiny fraction of it. Moreover, I now understand why a former spy (a fellow who had spent much of his career tracking jihadi terrorists) would have taken a special interest in some of the people in the Milken network – especially those who were gathering in Costa Rica.
Kevin Ingram, the guy linked to the attempted Stinger missile deal, was at some of those meetings in Costa Rica. And he wasn’t just working for the Milken network, he was playing a key role in devising some of the schemes that the network would perpetrate against big companies and the mortgage markets.
In 2007, a blogger who was writing under pseudonyms (sometimes he called himself “Bob O’Brien”, sometimes he called himself “the Easter Bunny”) used some clever internet forensics to determine that Ingram was helping members of the Milken network, including David Rocker, orchestrate a short selling attack on a mortgage company called Novastar Financial.
I know it is weird to cite someone who calls himself the Easter Bunny as a credible source, and believe me – the Easter Bunny is a weird guy. But sometimes weird is a good thing to be. Sometimes weird people are smart, and when the Easter Bunny was still writing his blog (TheSanityCheck.com), he was a keen observer.
Moreover, the Easter Bunny’s conclusion that Ingram assisted the short selling attack on Novastar Financial has since been confirmed by people who have assisted my investigation, and who know Ingram well.
These people say that Ingram also helped devise the self-destruct CDO scam that I described at the outset of this story. As you will recall, “synthetic” CDOs (collateralized debt obligations) were designed by short sellers who made sure they contained the mortgages most likely to default. The Financial Crisis Inquiry Commission has blamed these instruments for the 2007 collapse of the mortgage markets.
Ingram knew quite a bit about collateralized debt obligations because he had previously worked as the head of the mortgage-backed securities desks at Goldman Sachs and Deutsche Bank. After leaving the big banks, Ingram ran his own high-flying company that specialized in trading mortgage bonds and mortgage derivatives, such as CDOs.
In addition, according to the DOJ, Ingram had gone into multiple lines of business with an Egyptian named Diaa Badr Mohsen, who had warehouses full of weapons – including Cobra helicopters, and Stinger missiles – in Miami and New Jersey.
Acting on a tip from a diamond trader named Randy Glass, the FBI began investigating the Egyptian as part of a larger sting operation focused on a mysterious Pakistani who was trying to buy components for nuclear weapons.
The court documents in the Ingram case do not name the Pakistani, but they make it clear that the Egyptian, Diaa Badr Mohsen, had expressed interest in supplying weapons to him. They also make it clear that the Egyptian had previously sold a lot of weapons to people in Pakistan and that he laundered the money from these weapons sales through Kevin Ingram.
In June 2001, the FBI arrested Ingram as he was about to board his private airplane and fly to Europe with more than $2 million in cash that he had obtained from undercover FBI agents posing as arms dealers.
The FBI also arrested the Egyptian Diaa Badr Mohsen, along with a Pakistani liquor store owner in New Jersey named Mohammed Raja Malik, who also dealt in sophisticated weaponry.
A few months later, the September 11 attacks occurred, and the FBI questioned the Egyptian Diaa Badr Mohsen extensively. This was because the FBI determined that it was likely that the Egyptian Diaa Badr Mohsen was tied to Al Qaeda. Indeed, the bureau suspected that the Egyptian might have direct ties to the 9-11 hijackers.
I do not know what came of that investigation (I have found no records that the Egyptian was ever indicted on terrorism charges), but study Pakistan long enough and you will know that illegal arms deals to that country inevitably lead to Al Qaeda, or to its fellow travelers, likely including Pakistan’s spy agency, the ISI.
In short, Kevin Ingram (former head of the Goldman Sachs mortgage bond desk; important errand boy for a network of market manipulators with ties to the Mafia; and a money launderer for an arms dealer with possible ties to both Al Qaeda and to a Pakistani who was in the market for components that could be used to build nuclear bombs) is perhaps not someone who should be handling “financial weapons of mass destruction” (e.g., self-destruct, synthetic CDOs).
As for those meetings in Costa Rica – well, there is much more I have to say about them, beginning with the fact that they were hosted by a man named Jonathan Curshen.
Back in 2006, Curshen was one of Costa Rica’s more prominent residents, known for the large-scale money laundering and brokerage operation he ran out of a company called Red Sea Management. He was also known for the raucous parties that he held with other Costa Rica residents, including a man named Steve Cohen.
That’s not the Steve Cohen who runs SAC Capital (although Curshen knows him, too). It’s the Steve Cohen who was Michael Milken’s cellmate in prison.
When the two men got out of prison, Cohen came to possess a potentially lucrative internet domain – Sex.com – and was looking to partner with someone who could develop it into a big business. Milken introduced Cohen to his best friend, Steve Wynn, the Las Vegas Casino operator, and Wynn seemed interested.
But before that deal could happen, it emerged that Cohen did not actually own the Sex.com domain, but had used an elaborate scheme to steal it from an online dating entrepreneur named Gary Kreman, who filed suit against Cohen. When Cohen lost the lawsuit, he fled to Latin America. In 2005, he was arrrested on the Mexican border and charged for failing to pay a $65 million court judgement.
Jonathan Curshen, the host of the meetings in Costa Rica, had a colorful cast of clients that included a number of shady characters from the Middle East, and people like James Arion, owner of a string of Canadian brothels, including Lady Godiva Escorts, Dangerous Curves, Cupid Escorts, and Sweet Dreams.
Arion also ran a money laundering operation through the All Saints Greek Orthodox Church in Toronto while engaged in some kind of business with Jonathan Idema, an American mercenary who was convicted in 2004 for running a secret, private prison in Afghanistan and torturing Afghan citizens.
The precise nature of Arion’s business with Idema remains unclear, just as it remains unclear what (aside from torturing people) Idema was doing in Afghanistan. He often claimed to be a covert operative, working for the U.S. government, but those claims were almost certainly false.
At other times, he claimed to run a private security company that was hunting Al Qaeda, and exposing the terrorist group’s ties to Iran, Russia, and other rogue states. But the information that he provided to the press was routinely false. Indeed, it seemed he was conducting deliberate disinformation campaigns. At least one video that he made was used by Al Qaeda for propaganda purposes.
When Idema came under investigation, he tried to curry favor with the FBI by telling the bureau that he had penetrated the Russian Mafia and had information about the trafficking of nuclear weapons to terrorists. But when the FBI pressed him for details, he refused to provide them, stating that he believd that the FBI had been infiltrated by Russian intelligence, which (in his version of the story) wanted him dead.
So Idema is a bit of a mystery. But one thing is certain: Johnathan Curshen has ties to jihadis and the Russian Mafia. He famously led a group of investors that was going to buy an outfit called YBM Magnex right at the time in 1998 when government investigators in the United States and Canada had determined that YBM Magnex was controlled by Semion Mogilevich, the Russian Mafia boss who also stands accused of trying to sell highly enriched uranium to Al Qaeda.
The charges against Mogilevich for his role in YBM Magnex, which was a massive stock fraud and money laundering operation, are what initially earned Mogilevich his place on the FBI’s list of the world’s “Ten Most Wanted” criminals.
Curshen had additional ties to the Mogilevich Organization, and he was following the familiar pattern – people in the Milken network buying the criminal operations of others in the network as soon as those operations come under investigation.
As it happened, a year after Curshen moved to acquire YBM Magnex, new evidence showed that YBM was part of a bigger money laundering and market manipulation enterprise. This was the one that saw more than $7 billion of Russian Mafia and government money laundered through the Bank of New York.
In addition to Mogilevich, Russsian Mobster Grigori Loutchansky (suspected of trafficking in nuclear weapons materials) was also tied to the Bank of New York scandal. Recall that others tied to the Bank of New York scandal included a number of Michael Milken’s closest associates, including Randolph Pace and Judah Wernick.
In fact, Milken himself was tied to that scandal. And it was not just a Mafia money laundering scandal; it was one of the biggest market manipulation schemes in history, perpetrated with the full cooperation of the Russian government, in league with people — such as Marc Rich, Edmund Safra, and Abbas Gokal (the Pakistani intelligence agent) — who had close ties to the regime in Iran.
I first came to suspect Milken’s involvement in the Bank of New York affair when a young organized crime expert in Boston sent me some information suggesting that a certain Gene Phillips had played an instrumental role. In the fall of 2010, I was investigating Phillips and calling Zuhair Karam, the jihadi who worked for that little Chicago outfit, Tuco Trading.
Recall that some interesting Russian characters had an account called “Orange Diviner” at Tuco Trading. The Russians behind Orange Diviner included: 1) the top henchmen of Roman Abramovich (prime minister Putin’s right-hand man); 2) traders associated with Mikhail Fridman (financier of Iran’s nuclear program); and 3) two Mogilevich henchmen, one of whom (Sergei Maximov) had worked for YBM Magnex, and another of whom (Maxim Mishin) worked for the MDM Group, which, like YBM, was tied to the Bank of New York scandal.
Recall also that I had received a tip that a certain Iranian was behind a couple of Tuco accounts (one with more than 2,000 subaccounts based in China) that had, in the month before the 2008 collapse of Bear Stearns, transacted manipulative trading equal to more than 20 percent of the volume at the largest brokerage on the planet.
In the fall of 2010, I had not yet learned the identity of this Iranian, but I was learning more about Gene Phillips and beginning to make some progress with Zuhair Karam. During one of my conversations with Zuhair, I suddenly remembered that former spy whom I had met in 2006. I recalled that the former spy had also mentioned Gene Phillips.
It was only then, in the fall of 2010, that I finally took a close look at those documents that the former spy had given me–those documents that I had instinctively stored in a safe place way back in 2006.
Information in those documents and other information that I later uncovered would help me learn that many of the people tied to the massive Bank of New York scandal had moved on to bigger things by 2008. Indeed, they had contributed mightily to the worst financial crisis since the Great Depression.
Some of them had also been at those meetings in Costa Rica, where Michael Milken and his friends had discussed mortgage derivatives, REITs, and ways in which to destroy some big companies.
More on the Bank of New York scandal and the events of 2008 later. First let us consider some additional information about the host of those Costa Rica meetings, Jonathan Curshen, white knight for Russian Mafia boss Semion Mogilevich’s YBM Magnex fraud.
In February, 2011, Curshen was indicted for his role in what seems like a small-time stock manipulation scheme, but the FBI might have targeted Curshen because he was involved in much bigger crimes.
While Curshen was still operating in Costa Rica, a Deep Capture operative with an elaborate cover traveled to San Jose to meet with Curshen. Before he could enter the offices of Curshen’s Red Sea Management, the Deep Capture man was frisked and questioned at length by guards armed with machine guns.
This was because Red Sea Management was, in fact, located on the fifth floor of the heavily fortified building that housed the Israeli embassy (just as the former spy had told me).
During the meeting, Curshen admitted to the Deep Capture undercover man that he had been a major league naked short seller since the 1990s, and had taken down multiple companies in league with a pack of other miscreants, many of them friends of Michael Milken.
In a subsequent meeting at a luxury hotel in a different Central American location, Curshen hinted to the Deep Capture man that he had also laundered money for Colombian drug cartels.
This was unsurprising, because in 2006, at the time when Curshen was hosting the Milken meetings, counter-narcotics officers searched a DC-9 airplane at a remote Mexican airport and found that it was loaded with more than 5 tons of cocaine. And the plane was tied either to Curshen or Curshen’s clients, or both.
It is not certain that Curshen or his clients themselves were drug smugglers, but people who checked the plane’s tail numbers discovered that it had been registered as belonging to a shell company called DuPont, which was located at the same address as Curshen’s company, Red Sea.
In 2004, DuPont had transferred the plane to Skyway Communications, a Curshen-linked company that had a partnership with an outfit called Lantex, which was in the business of providing counter-terrorism services to government and corporate clients. Since Lantex (through an outfit called Titan) had contracts with the Department of Homeland Security (DHS), this might explain why the plane carrying 5 tons of cocaine was adorned with a DHS logo.
The plane had also been registered at various times in the names of a number of companies controlled by Curshen’s clients or closest associates. For example, the plane was once registered in the name a company called Southmark, controlled by the myterious Gene Phillips.
Later, the plane was registered in the name of Genesis Aviation, which was incorporated by Curshen’s Red Sea client Ramy El Batrawi. At the same time, El Batrawi was running a company called GenesisIntermedia that was controlled by another Curshen associate, the Saudi arms dealer Adnan Khasshogi, who was a key figure in various BCCI scandals, including Capcom, the Saudi intelligence operation that traded through Michael Milken’s Drexel Burnham in the 1980s.
Meanwhile, many other Curshen clients were traders who had been implicated in stock manipulation schemes involving Khashoggi. One of these was Rafi Khan, the son of a Pakistani diplomat (some of Khan’s associates say that Khan’s father was, in fact, with the ISI, Pakistan’s spy service).
Khan was involved with the Holy Land Foundation, the outfit that was tied to Tuco trader Zuhair Karam’s Bridgeview Mosque and which was identified by prosecutors as the principal U.S. front for Hamas, the jihadi group whose stated mission is to wipe Israel off the map. Federal prosecutors, recall, named Nihad Awad (parnter of Omar Amanat, designer of Tuco’s trading platform, Lightspeed) as an unindicted co-conspirator in the Holy Land case.
Given that Curshen’s associates were financing Hamas, one can understand why a former spy (who had once worked closely with the Israelis) would wonder how it came to be that Curshen chose to locate his offices in the same building as the Israeli embassy.
There are, in fact, many other reasons why a former spy would be interested in this network, and to better understand these reasons, we need to go back to September 10, 2001 – the day before Al Qaeda hijackers crashed airplanes into the World Trade Center and the Pentagon.
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On September 10, 2001, a famous short seller named Anthony Elgindy, also known as Amr Ibrahim Elgindy, liquidated some accounts that he held at Salomon Smith Barney. In explaining to his broker why he was liquidating these accounts, Elgindy said that a major event was going to occur on the next day that would cause the Dow Jones market average to fall to 3,000 (it was then trading at 9,600). Of course, just such an event did occur on September 11, and the Salomon broker called the FBI to express his suspicions that Elgindy had advance knowledge the Al Qaeda attacks.
The FBI proceeded to investigate, and key to its investigation was evidence that had been compiled by the man who would later go undercover to befriend Jonathan Curshen in Costa Rica. This man knew that Curshen and Elgindy were close associates and had often joined together to perpetrate manipulative short selling attacks on public companies.
In fact, Elgindy and a larger pack of closely affiliated traders had destroyed a company in which this man once had a large investment, so needless to say, the man was motivated to see some of these traders put in prison.
He was more than motivated. You could say he was obsessed. And beginning in 1999, he had gained access to a private internet chat site that Elgindy controlled – a chat site where Elgindy and his pack discussed in detail their short selling attacks on public companies. It was also learned that Elgindy had paid off a couple of FBI agents, who were helping the short sellers by providing them with confidential information about the companies that they were attacking.
Seeing multiple crimes in progress, the businessman hired a secretary to work full time printing out transcripts of the discussions taking place on Elgindy’s chat site.
Soon enough, the businessman’s garage was stacked high with these transcripts, and when Elgindy came under investigation after the 9-11 attacks, the businessman handed the transcripts over to the FBI. The transcripts provided clear evidence that Elgindy and his crew had manipulated the stocks of hundreds of public companies.
Meanwhile, the FBI began to track the FBI agents who were on Elgindy’s payroll and learned that one of them, Jeffrey Royer, had warned Elgindy that he was a target of the FBI’s investigation into the Al Qaeda attacks.
Later, the SEC inspector general (aided by those same transcripts) concluded that Elgindy also had friends at the SEC . Indeed, not only had the SEC failed to prevent Elgindy’s market manipulation, but some SEC officials had helped him attack certain companies by launching investigations of whatever companies Elgindy instructed them to investigate, and by providing Elgindy with confidential information about the status of these investigations, as well as other investigations that the SEC was conducting.
Which, in gambler’s parlance, is known as “a lock.” In economists’ jargon, Elgindy and his crew had “captured” the SEC and a couple people within the FBI. Which seems rather amazing, given what we now know about this particular market manipulator: for example, that he tried to liquidate his Salomon Smith Barney portfolio on September 10, 2001.
Another thing we know is that after Elgindy was arrested, federal prosecutors argued vehemently in court that he had ties to terrorists and advance knowledge of Al Qaeda’s attacks on the World Trade Center and the Pentagon.
As evidence, the prosecutors noted that Elgindy had delivered large sums of money to Mercy International, a “charity” that appeared to be an Al Qaeda front. Elgindy’s defense council argued that Elgindy had not given money to Mercy International, but rather to Mercy USA, which was somehow different.
The prosecutors eventually abandoned their Mercy argument, which is a shame, because it is now clear that Mercy International and Mercy USA were one and the same. When Mercy International came under scrutiny it simply changed its name to Mercy USA, and much of the money that went to Mercy ended up with Al Qaeda.
Indeed, Osama bin Laden, in a taped conversation with a senior lieutenant, Jamal Ahmed al-Fadl, stated that Mercy was Al Qaeda’s third most important source of funding. Moreover, as you might remember, Mercy officials were directly involved in the planning of Al Qaeda’s attacks on the U.S. embassies in Africa.
And as Elgindy probably knew, Mercy USA’s director, Mohammad Mabrook, was, among other distinctions, the president of Global Chemical, the bomb-making factory set up by hedge fund manager Yasin al-Qadi, who was later labeled by the U.S. government as a “Specially Designated Global Terrorist” because of his ties to so many other Al Qaeda fronts.
That information was never presented in court. Instead, Elgindy’s prosecutors pursued a different line of argument, noting that Royer, one of the FBI agents who was in Elgindy’s pocket, had told his supervisor that prior to September 11 Elgindy had informed him of an imminent terrorist attack and had said on precisely what day it would happen.
The prosecutors said that the supervisor was “willing to take the stand, swear under oath that Mr. Royer told him…that a few days before September 11th, Mr. Elgindy told him that there was going to be a major event related to terrorism. He’s willing to take the stand and swear to that. That’s competent evidence.”
Unfortunately, that supervisor never took the stand because the judge quickly put an end to prosecutors’ attempts to link Elgindy to terrorism. The judge said that any discussion of terrorism so soon after the 9-11 attacks would prejudice the jury and that prosecutors should focus on the more demonstrable charges of market manipulation and bribing FBI agents.
It is possible that the judge was influenced by The Wall Street Journal, which was following the Elgindy trial, and later published a front page story. This story was rather amazing, and is worth quoting at length.
“Mr. Elgindy’s defense team thinks that references to the suspicions [of terrorism]…unduly influenced the jury,” wrote The Journal, which gave no sign of disagreeing with the defense team.
The rest of the story went on at length about the horrible agony that Elgindy’s wife and son were suffering as a result of the trial. “Mrs. Elgindy,” the Journal wrote, “says she doesn’t know what she will do if her husband receives a lengthy sentence. ‘He was the first person who gave me the courage and strength to question what I had been taught,’ she says…”.
The Journal continued: “After the arrest, Mrs. Elgindy was suddenly a single parent with three sons…who were alternately angry and withdrawn. The situation has been particularly tough for their youngest son, Sammy. On a recent family visit to the New York jail, Sammy sat on his father’s lap and told him, ‘Daddy, if I could stay here with you, I would.’…”
Apparently, Elgindy had “captured” not only SEC officials and FBI agents, but also financial journalists (including John Emshwiller, the author of the Journal story) who had come to depend on Elgindy for negative stories about public companies.
I do feel badly for Elgindy’s son, but if The Journal wanted to elicit sympathy for Elgindy, it might have instead noted that the Russian Mafia chopped off Elgindy’s finger.
When Elgindy appeared in court with the missing finger, the judge asked what had happened to it. Elgindy said he lost his finger in a barbecue. But an investigator close to the Elgindy case says that Elgindy’s Russian Mafia colleagues cut off the finger as a warning to keep him from ratting on his wider network of stock manipulators. Which is not surprising, given that Elgindy sat right at the center of the jihadi-Mafia nexus that I wish to highlight with this story.
In the 1980s and 1990s, Elgindy was a principal at Blinder, Robinson, the Milken-financed brokerage that (we know) traded in league with a host of organized crime figures, such as Genovese Mafia capo Thomas Quinn. The other key principals at Blinder (a.k.a. Blind’em and Rob’em) were Mr. Blinder himself and Steven Schonfeld, the guy who would later buy the Mafia-tied Datek Securities and Lightspeed, both of which were founded by Omar Amanat.
Recall that Lightspeed provided Tuco with one of the trading platforms that Tuco used to transact manipulative trading equal to 20 percent of the volume at the largest brokerage on the planet. Recall also that Omar Amanat co-founded with the jihadi outfit Hamas an Islamic TV station whose CEO later chopped of his wife’s head.
Also tied to Blinder, Robinson was a fellow named Alexander Shvarts, who later went on to manage a brokerage called Global Equities, and is now manager of Carlin Equities, the outfit linked to Arik Kislin, associate (according to the U.S. government) of Yaponchik, or “Little Japanese” — once the top boss of the Russian Mafia in the United States.
Kislin, recall, is also a former business partner of Babeck Seroush, the Iranian arms dealer who has worked with Russian military intelligence. Shvarts is also invested, along with Kislin, in a company called Edulink.
Mr. Blinder (first name Meyer) was a Russian Mafia figure from Kiev, Ukraine. While Elgindy was helping run Blinder’s Mafia brokerage, Elgindy’s family was arranging for Palestinian Islamic Jihad leader Sami al-Arian to move to the United States and obtain work as a professor at the University of South Florida.
That is the same Sami al-Arian who was on close terms with Tuco Trading’s Zuhair Karam and the 19 Hamas leaders (including Omar Amanat’s partner Nihad Awad) who were at that secret meeting in Philadelphia in 1993. The meeting was secretly recorded by the FBI, so we know that those Hamas leaders plotted to secure the release from prison of the Blind Sheikh, who masterminded the 1993 World Trade Center attack while living at the home of Awad’s partner, Omar Ahmad.
It is also the same Sami al Arian who was a key figure (along with the above-mentioned Yasin al-Qadi and others) in the SAAR Network of terrorist financiers. Some FBI investigators have suspected that Sami al-Arian provided assistance to the September 11 hijackers.
As we know, Sami al-Arian was, perhaps not incidentally, also taking instructions from Iranian agents working out of the United Nations mission in New York. The Iranian regime, of course, is also an important sponsor of Hamas.
As of 2001, Elgindy and a small pack of affiliated market manipulators were trading through just a few remarkable and eminently criminal brokerages. One of these brokerages was called Global Securities.
A trader who once worked closely with Global Securities has told Deep Capture that the brokerage had subsidiaries that were affiliated with people who were working for the Iranian regime. Global was founded by a fellow named Art Smolensky, but it was managed by several Iranian guys–Aarif Jamani, Nashrulla Jamani, and Ferzana Jamani.
Documents that Deep Capture obtained by means that we believe to have been reasonably legal show that Aarif Jamani and a host of other people associated with Global Securities were later clients of Red Sea, Jonathan Curshen’s outfit in Costa Rica.
I have not been able to confirm with 100 percent certainty that Global Securities is tied directly to the Iranian regime, but it is true that the brokerage had a subsidiary–Global American–that appears to have been tied to some of the incorporators of the Assa Corporation, the outfit that would in 2009 be charged by the DOJ with espionage and funding Iran’s nuclear program.
This is the same Assa Corporation that was part of the Alavi Foundation, which was (like Elgindy crony Sami al-Arian) taking orders from Iranian diplomats at the UN mission in New York. I will remind you also that the Alavi Foundation’s director was scribbling notes to himself about the “Mafia” and some “conspiracy.”
I have no idea what those notes meant, but I do know that Global Securities and a few other brokerages catered not just to Anthony Elgindy, but to a whole pack of market manipulators with extremely close ties to both the Mafia and the Iranian regime, or its proxies, such as Palestinian Islamic Jihad and Hamas.
One trader in this pack was Rafi Khan, the son of a Pakistani diplomat (or ISI spy). This is the same Rafi Khan who was involved with the Holy Land Foundation, a Hamas front that was indicted for financing terrorism. I’ll repeat that an unindicted co-conspirator in the Holy Land case was Nihad Awad, Omar Amanat’s partner in the Islamic TV station.
Rafi Khan, we know , was a client of Red Sea Management, the Costa Rica outfit owned by Jonathan Curshen.
Then there was Global Securities client Mansur Ijaz, who has close ties to Iran and is a paid lobbyist for the Pakistani government. Ijaz has publicly claimed to have had direct contact with Osama bin Laden.
Shortly before the September 11 attacks, Ijaz founded Crescent Investment Management with James Abrahamson, who was a board member of an anti-terrorism and security company called Stratesec.
The FBI investigated a Stratesec director who was suspected of having advance knowledge of the September 11 attacks because he was tied to Mansur Ijaz, and he purchased a large number of Stratesec shares shortly before the attacks occurred. However, no charges were filed. According to a Rafi Kahn associate, the above-mentioned Alexander Shvarts (partner of Russian Mafia figure Arik Kislin) was also trading through Global Securities. Some people in this crowd say that Shvarts’s Global Equities and Global Securities were affiliated, but I have yet to be able to verify that beyond a shadow of a doubt.
There is no question, though, that Shvarts’ Mafia associates were dealing with Global Securities. In 2001, Shvarts was indicted for a money laundering scheme that he perpetrated with a diamond merchant named Aleks Paul. Soon after, Paul was indicted for his role in the massive stock manipulation scheme that was perpetrated by Russian Mafia boss Felix Sater, La Cosa Nostra and A.R. Baron (clearing firm to Omar Amanat’s Datek).
Felix Sater’s market manipulation network was, as we shall see, tied in with the larger Bank of New York scandal. Meanwhile, Felix was among a closely affiliated pack of market manipulators who were, back in 2001, trading through Global Securities.
According to several of Sater’s associates, Sater has close ties to the Russian intelligence services. These associates (and an article in the New York Times) report that Sater escaped jail on charges of market manipulation by offering to help the U.S. government buy Stinger missiles from Al Qaeda.
Nowadays, as I have mentioned, Sater’s alleged money laundering outfit, Bayrock, has a partnership with Tamir Sapir, the Russian Mafia figure who used to sell high-tech electronics equipment to the KGB with Semion Kislin.
Semion Kislin, recall, is the uncle of Arik Kislin (business partner of the above-mentioned Shvarts, and former business partner of the Iranian arms dealer and intelligence agent Babeck Seroush).
Felix Sater’s other Bayrock partner is Leon Black’s Apollo fund. Maybe it’s also worth recalling at this point Leon Black’s importance to Credit Suisse, the investment bank that was caught financing Iran’s nuclear program while helping Libya, Sudan (and also the above-mentioned Iranian espionage outfit, the Assa Corporation, according to initial findings by a former staffer of the Manhattan District Attorney’s office) conduct securities transactions — probably manipulative trading — through a network of other brokerages.
At any rate, back in 2001, Elgindy was trading through Global Securities with a pack of closely affiliated market manipulators. Many of them were plotting their moves in discussions on Elgindy’s private chat sit, and a future Deep Capture operative was still secretly printing out transcripts of the discussions.
One trader who was a member of this private forum was Dan Loeb, who used the screen name “Mr. Pink” – a reference to a gangster in the movie “Reservoir Dogs”.
Loeb now runs Third Point Capital, one of the more powerful short selling hedge funds in America. He got his start working for Jeffries & Co with a number of Milken’s former top employees from Drexel. His first big deal was to buy certificates of beneficial interest that Milken had issued just before going to jail.
Also trading in league with Elgindy was Jeffrey Thorp, who ran a hedge fund called Langley Partners. He is the son of Edward Thorp, famous for working with the Genovese Mafia to invent a method for beating the black jack tables in Las Vegas casinos.
In addition to collaborating with the Mafia on gambling schemes, Edward Thorp ran a hedge fund called Princeton Newport, which was raided by the FBI in 1989.
I mentioned before that Milken’s more famous criminal co-conspirator Ivan Boesky (who worked out of the Iranian Assa Corporation’s building in New York) refused to testify against Milken. He said he was afraid because Milken had “friends in Vegas.” Contrary to many media reports, Milken’s 99-count indictment cited little in the way of information provided by Boesky.
Instead, the indictments that were leveled against Milken mostly cited evidence that the FBI had hauled away when it raided Thorp’s Princeton Newport. In fact, that evidence showed that Princeton Newport was one of the most important components of Milken’s nationwide stock manipulation network. And the Princeton Newport evidence, more than any other evidence, is what earned Milken time in prison.
In 2001, Thorp’s son, Jeffrey, was nailed for orchestrating (in league with Elgindy) naked short selling death spiral schemes that, according to the SEC, crippled or destroyed more than 20 companies. To escape criminal charges, Thorp cooperated with the authorities’ investigation of Elgindy.
In 2001, another trader in the Elgindy pack was Adnan Khasshoggi, the investor and arms dealer who was involved in Capcom, the Saudi intelligence trading outfit that was a unit of BCCI and conducted more than $90 billion in trades through Milken’s shop at Drexel Burnham.
Khasshoggi is one of the world’s most fascinating characters. He is the subject of countless conspiracy theories that are probably false, but there are some facts about him that are indisputably true.
For one, in the 1980s, Khashoggi was said to be the richest man in the world. Though he no longer holds that title, he is still, in the well-chosen words of former CIA operative Robert Baer, “almost a cartoon of the Saudi wheeler dealer,” – a wheeler dealer who owns two commercial-size jets; twelve Mercedes stretch limos; countless homes, including a $30 million, thirty-thousand square foot apartment on Fifth Avenue; and a 282-foot yacht that was used in the James Bond movie “Never Say Never Again.”
Khashoggi is a regular feature at New York high-society parties hosted by the sort of people who think that no party is fashionable without a rogue arms dealer in attendance. Khashoggi is, moreover, a close associate of Libyan dictator Muammar Gaddafi, for whom he used to work as a mediator, and of the regime in Iran.
Because of his ties to Iran, he became a key player in the Iran-Contra scandal, which saw Khashoggi and an Iranian arms dealer named Manucher Ghorbanifar, broker a deal for the United States to sell weapons to the Iranian regime in return for the regime’s commitment to secure the release of American hostages being held by Iran’s terrorist proxies, including Hezbollah and Sami al-Arian’s Palestinian Islamic Jihad.
In the end, only two American hostages were released, and many more were taken, which is to say that Iran stiffed the United States, and so did Khashoggi, who brokered the deal.
Nowadays, there is some dispute as to whether Khashoggi is a shady character who cares about nothing other than money, or a shady character who also supports the Grand Jihad. Either way, Khashoggi is certainly on close terms with many of the Grand Jihad’s leading figures, including “Specially Designated Global Terrorist” Yasin al Qadi and, until his death in 2009, Al Qaeda Golden Chain member Sheikh Mahfouz.
Khasshogi got his big start in business working with Shiekh Mahfouz selling construction equipment to Osama bin Laden’s father, Mohammed bin Laden, who founded Saudi Arabia’s largest construction company.
Many people who have nothing to do with jihad have done business with the bin Laden construction firm, and there is no evidence that the firm itself supported Osama’s terrorism. But in the case of Khashoggi, who has a history of playing both sides of geopolitical conflicts, these relationships may have significance.
It is also possibly significant that Khashoggi’s Iran-Contra partner, Manucher Ghorbanifar, was involved in Bank Al Taqwa, along with “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier) and many others tied to terrorism. Bank Al Taqwa, a Muslim Brotherhood financial institution, has been charged with supporting multiple jihadi groups, including Al Qaeda.
Among its many depredations, Bank Al Taqwa founded and funded the Islamic Cultural Center of Milan, which the U.S. Treasury Department has described as the “main Al Qaeda station house in Europe [responsible for] the movement of weapons, men, and money around the world.”
Regardless of whether Khashoggi supports his friends in the Grand Jihad, there is no question that he is one of the more destructive financial criminals the world has ever known. BCCI was, of course, a massive fraud, but there are many other examples. To name just one, Khashoggi was implicated in the collapse of Bangkok Bank of Commerce, a catastrophe that precipitated the Asian financial crisis of 1997.
Also implicated in that disaster were two other traders – Sherman Mazur and Rakesh Saxena – who, as of 2001, had gone on to join the Elgindy pack trading through Global Securities.
Rakesh Saxena is also a leader and the principal source of finance for the Marxist Naxalite rebels in India. It might seem counter-intuitive that Marxists and jihadis would collaborate, but there is a significant body of evidence that the Naxalites have had close contact with a number of jihadi groups that are closely tied to Al Qaeda and who share the Naxalites’ desire to cause mayhem in India.
As just one example, Indian officials learned that members of Lashkar-e-Taiyyba (which is, for all intents and purposes, a subsidiary of Al Qaeda with close ties to Pakistan’s ISI) held meetings with Naxalite leaders shortly before Lashkar staged the 2008 terrorist attacks on major hotels and a synagogue in Mumbai with the cooperation of Dawood Ibrahim and his D-Company henchmen.
In addition to serving as a leader of the Naxalites, Saxena planned and funded a coup plot in Sierra Leone. According to a report by Britain’s parliament, Saxena paid British mercenary Tim Spicer of Sandline International to orchestrate a coup to reinstate Sierra Leone’s former president Ahmad Tejan Kabbah, who (allegedly) had agreed to give Saxena a large diamond concession.
Saxena denies the diamond allegation, and says he financed the ultimately aborted coup only for “ideological reasons”. However, he has done business with Ibrahim Bah, a Libyan-trained jihadi who has (as was first reported by Douglas Farah, then the chief Africa correspondent for the Washington Post) brokered diamond deals between Al Qaeda and rebel forces in Sierra Leone. So perhaps diamonds did have something to do with Saxena’s coup attempt.
In 2009, Saxena was deported from Canada to Thailand to face charges for his role in the Bangkok Bank of Commerce disaster, but before that he was one of North America’s most active market manipulators. Whether he committed his crimes for “ideological reasons” or simply to make money, I do not know. But one thing is certain: all of the people in the pack that was trading through Global Securities in 2001 (and who, with a couple of exceptions, remain in business today) have interesting backgrounds.
For example, another Global Securities client was Ali Nazerali. Mr. Nazerali was among the people (along with Kevin Ingram, Michael Milken, Gene Phillips, and others to be discussed) who attended those secret meetings in Costa Rica, where a network of market manipulators planned the destruction of some big companies.
Mr. Nazerali is also the fellow who had worked at high levels for Abbas Gokal before launching the BCCI subsidiary First Commerce Securities with Irving Kott and the Mafia. Nazerali’s relatives, as I have mentioned, were involved with Capcom, the Saudi intelligence outfit that transacted $90 billion in trades through Milken’s shop at Drexel.
After Abbas Gokal (who, we know, was an agent for the Pakistani ISI) served his prison sentence for his role in the BCCI affair, he moved to Tehran, where he is now once again serving as financial advisor to the Iranian regime.
First Commerce Securities was shuttered by Dutch authorities in the late 1980s, after which point Nazerali’s business partner, Irving Kott, gained control of a brokerage called Adler Coleman. The principal function of Adler Coleman was to serve as the clearing firm to Hanover Sterling, a brokerage controlled by Alphonse “Allie Shades” Malangone, a capo in the Genovese Mafia family.
According to the federal government,which indicted a number of Hanover’s brokers and managers in 1997 (but, oddly, allowed Hanover to remain in business), the brokerage manipulated stocks in league with the Colombo organized crime family. Other cases reveal that it manipulated stocks with the DeCalvacante organized crime family, the Gambino organized crime family, and the Russian Mafia.
Hanover Sterling is yet another brokerage that has gone down in history as a “bucket shop,” the implication being that all it did was sell stock in small-time bogus companies. But the history is incomplete. Hanover Sterling’s principal function was to provide “death spiral” finance to good companies, positioning them to be destroyed by affiliated naked short sellers.
One person who was later charged by the government for naked short selling companies that received death spiral finance from Hanover Sterling was Milken crony John Fiero, who had long manipulated stocks in league with other Milken cronies, including Anthony Elgindy. Fiero was one of the traders who orchestrated attacks on Elgindy’s private internet chat site. He went by the screen name “Bond”.
Another trader charged for naked short selling Hanover “death spiral” victims (in league with Fiero) was Phillip Abramo, the DeCalvacante Mafia capo known as the “King of Wall Street”. Nazerali and Kott had gotten to know the DeCalvacante Mafia back in the 1970s when the Mafia tried to kill Kott and Nazerali brokered the deal that prevented another assassination attempt and brought La Cosa Nostra into First Commerce Securities.
Abramo’s right hand man, Phil Gurian, was (recall) the guy who was caught with accounts at Hamas partner Omar Amanat’s Datek Securities under the name Martin Clainey. Gurian is currently being sued by multiple companies for stock manipulation schemes that he allegedly perpetrated with Sherman Mazur, the guy who helped take down Bangkok Bank of Commerce with Khashoggi and Rakesh Saxena.
When the Feds were closing in on Abramo and Fiero, Hanover and Adler Coleman simultaneously declared bankruptcy – which is often what brokerages in this network do when they face scrutiny from law enforcement. Once the brokerages go bankrupt, the Feds stop investigating their broader criminal activities, and their assets (including all of their crooked employees) end up with another company in the network, or are simply reconfigured into a new company with a new name.
In this case, the friendly receiver in the Adler Coleman bankruptcy was Edwin Mishkin, who was the personal lawyer to Russian oligarch Boris Berezovsky. And Berezovsky had been, along with Irving Kott, a silent owner of Adler. At this time, Berezovsky and Roman Abramovich were orchestrating the rise to power of Russian leader Vladimir Putin.
Mishkin handed off most of Adler’s assets to an outfit called JB Oxford, a Mafia brokerage that was also secretly controlled by Irving Kott and Boris Berezovsky. Which is to say, Adler Coleman’s operations remained intact under a new name – JB Oxford. One of JB Oxford’s other principals was the above-mentioned Rafi Khan.
Meanwhile, Ali Nazerali and his brother, Shafiq, launched several death spiral hedge funds, one of which was Valor Invest, which in later years participated in a number of schemes with MIT Ventures, whose proprietor is “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier).
A director of the Nazeralis’ Valor Invest was Pierre Besuchet, a shadowy banker in Geneva who has also served as director of Yasin al Qadi’s Faisal Finance. Indeed, Nazerali and Yasin al Qadi are limited partners in each others’ funds.
Faisal was the vehicle that Yasin al Qadi used to invest in Al Shamal, a bank in Sudan, the founder of which was the Emir of Jihad himself, Osama bin Laden. Al Shamal has also been linked to Benevolence International, the outfit that had contacts with people trying to buy nukes for Al Qaeda.
Meanwhile, Besuchet and Yasin al Qadi held board positions at the massive and secretive financial labyrinth known as Dar al Maal al Islami, or “The House of Islamic Money”. This the same “House of Islamic Money” whose CEO was hosted by Sungard, owner of Assent, the brokerage (recall) whose traders were doing business with Zuhair Karam’s Tuco Trading, Omar Amanat’s Lightspeed, and Carlin Equities, the outfit tied to Arik Kislin.
Carlin’s manager, the above-mentioned Alexander Shvarts, formerly worked for Assent. As you might also remember, Sungard, owner of Assent, not only did business with the House of Islamic Money, but also owned Lava Trading, whose CEO ran Aleo Capital, one of the three outfits that attended the bogus auction for Bernie Madoff’s brokerage.
The Nazeralis also did business with the “House of Islamic Money” and surely they knew this outfit was one of Al Qaeda’s most important sources of funding. Most likely, they knew it in 2001, back when they and the rest of their pack were trading through Global Securities and the future Deep Capture undercover man was monitoring the private internet chat site where Elgindy (who was soon to front run the 9-11 attacks), was discussing his stock manipulation schemes.
Meanwhile, the future Deep Capture man discovered that Elgindy’s private chat site was hosted by a company called Infocom, which the U.S. government would later learn was a front for Hamas, the jihadi outfit that receives support from the Iranian regime and others. One owner of Infocom was Elgindy’s close associate Ghassan Elashi, a Muslim Brotherhood and Hamas figure who was later convicted for trading with Libya and Sudan, and for engaging in prohibited financial transactions with “Specially Designated Global Terrorist” Mousa Abu Marzook. Indeed, Infocom (host of Elgindy’s private chat site) was founded by Mousa Abu Marzook, who is Elashi’s cousin.
As of 2011, Marzook was serving as Hamas’s political chief, based out of Syria. Both of these guys were, of course, closely tied to the Holy Land Foundation, the Hamas front that was funded by some of Elgindy’s other trading partners. And Elashi had been among those Hamas leaders (including Omar Amanat’s partner) who attended the secret 1993 meeting at a Marriot Hotel in Philadelphia. Marzook was also involved in a banking outfit called BMI Inc. with Yasin al Qadi (Osama bin Laden’s favorite financier). BMI, in turn, was one of the founding shareholders of Bank Al Taqwa, which not only set up Al Qaeda’s main operating base in Europe, but also served as one the principal financial institutions that funded the operations of Hamas.
In 1999, the future Deep Capture man was obsessively printing out those transcripts of the discussions on Elgindy’s private internet chat site. By now his home’s principal decorative feature was piles of these transcripts. Most of the discussions in the transcripts concerned schemes to destroy public companies, but at one point Elgindy announced to the members of his chat site that he was in Macedonia, operating under the “protection” of an Albanian “Mafia boss”.
He also told his colleagues that he was working as an “agent” for the Mother Theresa Humanitarian Association, an outfit that was under the command of the Kosovo Liberation Army.
When people started asking questions about this, Elgindy, of course, insisted that he had been in Macedonia only on a charity mission. Meanwhile, though, he had posted a letter in which KLA leader Rexhep Hoti thanked Elgindy for funding his travels to the United States.
This was before anyone knew (as has since been established by the U.S. government) that the KLA and the Albanian Mafia were deeply tied to Al Qaeda. For example, during the same month that Elgindy was in Macedonia working as an “agent” for the KLA outfit, Osama bin Laden’s deputy, Aymen al-Zawahiri, was in Macedonia, personally directing the KLA’s training camps.
The Al Qaeda deputy was conducting this training under the auspices of the International Islamic Relief Organization (IIRO), which was the SAAR Network outfit that would later be named by U.S. government officials as an entity that provides material support to Al Qaeda.
The Phillippines offices of the IIRO, recall, were run by Muhammad Khalifah, who was an Al Qaeda operative and Osama bin Laden’s brother in law. Khalifa used the IIRO to train and fund the Abu Sayyaf terrorist organization until the UN declared the IIRO offices in the Phillippines to be “an Al Qaeda front.”
Recall also that the IIRO was tied to, among other entities, Sana-Bell Inc., owned by “Specially Designated Global Terrorist” Yasin al-Qadi (Osama bin Laden’s favorite financier). And one principal of the IIRO was Mohammad al-Zawahiri, the brother of Al Qaeda deputy Aymen al-Zawahiri.
Another principal of the IIRO was Khaled Elgindy, the brother of none other than — Anthony Elgindy, who, in 1999, was not only an associate of Hamas working as a KLA “agent” in Macedonia, but was also one of the most destructive criminal short sellers ever to operate in the United States until he came under FBI investigation for potential ties to the September 11 attacks.
Rembember also that the Elgindy family sponsored the move to America of Sami al-Arian, the Palestinian Islamic Jihad leader who was taking directions from Iranian agents and stands accused of assisting the 9-11 hijackers. Of course, the Hamas leaders who hosted Elgindy’s private chat site, also receive support from the Iranian regime.
I have referred often to the connections that these characters have to Iran because Iran will figure in my later discussion of the 2008 financial crisis, and because Iran’s ties to Al Qaeda are too often ignored.
Not many people seem to pay much attention, for example, to the fact that the above-mentioned Aymen al Zawahiri, Osama bin Laden’s right-hand man (likely to be named the new leader of Al Qaeda), once worked with the Iranian regime to plot a coup in Egypt. In addition, National Security Administration files reviewed by the 9-11 Commission revealed that at least eight of the Al Qaeda hijackers involved in the attacks on the World Trade Center and the Pentagon traveled to Iran in the months before the plot unfolded. The NSA files also contain indisputable evidence that Iranian officials had made special arrangements for some of the 9-11 hijackers’ trips to Tehran, and that in several cases, senior officials of Hezbollah (Iran’s proxy) were closely monitoring the hijackers’ travels. Three of the hijackers flew to Iran on the same plane as a senior Hezbollah official.
According to some U.S. government officials, after the 9-11 disaster, Osama bin Laden’s son, Saad, and many other Al Qaeda operatives took refuge in Iran for a time. And as of late 2010, Abu Hamza, a top Al Qaeda leader, was residing in a luxury guesthouse in Tehran, a guest of the Iranian regime. He is not the only Al Qaeda leader who has been treated to similar hospitality.
The Iran connection to Al Qaeda was downplayed in the 9-11 Commission’s final report, but Commission investigator Lloyd Salvetti told New York Times correspondent Philip Shenon (who wrote about it in his best-selling book, “The Commission”) that the inference of the NSA files was that “there was implicit collaboration between the [Al Qaeda] jihadists and elements of Hezbollah and Iran.” It might be significant that Anthony Elgindy, a guy who was on close terms with terrorists tied to Iran was, in the lead up to 9-11, destroying American companies with manipulative trading that he transacted through Global Securities, a Mafia-affiliated outfit with a subsidiary tied to Assa Corp, the Iranian espionage company.
It might also be significant that aside from his ties to people like Al Qaeda’s number two and the leader of Palestinian Islamic Jihad, Anthony Elgindy’s brother, Khaled, also co-founded, along with Abdurrahman Alamoudi, an outfit called the American Muslim Council.
I know it is hard to keep track of these names, so I will remind you that Abdurrahman Alamoudi is the Al Qaeda operative who is now serving a 23 year prison sentence for, among other things, leading an Al Qaeda plot to kill the then crown prince of Saudi Arabia. He’s the fellow who was investigated (according to court documents) after customs officials at Heathrow airport caught him with a suitcase in which was hidden $350,000 cash that had been given to him by Libyan dictator Muammar Qaddafi.
Alamoudi is also the fellow who was (according to U.S. Senate investigators) inserting Al Qaeda spies (at least one of whom was indicted for espionage) into the U.S. military, in cooperation with Sheikh DeLorenzo, the guy with ties to a host of jihadi groups and the Pakistani ISI – the guy (recall) who convinced the SEC to let him deploy, in 2007, the financial weapon of mass destruction known as Al-Safi Trust, the apparent purpose of which is to enable naked short sellers to flood the markets with phantom shares.
Deep Capture Chapter 9Edit
It should be clear by now that it is more than plausible that destructive short seller Anthony Elgindy had advance knowledge of the September 11 attacks, just as federal prosecutors claimed. Either that, or it was a coincidence that Elgindy’s family sponsored the move to the United States of Palestinian Islamic Jihad leader Sami al-Arian, who was also suspected of having advance knowledge of Al Qaeda’s 9-11 atrocity. It might also have been a coincidence that Elgindy’s brother, Khalid, co-founded the American Muslim Council with Abdurahman Alamoudi, an Al Qaeda operative currently serving a 23 year prison sentence.
In addition, it might have been a coincidence that Elgindy funded Mercy International (later renamed Mercy USA), whose officials provided logistical support to Al Qaeda’s bombings of U.S. embassies in Africa. And it might have been a coincidence that Mercy’s director was a Hamas operative and deputy to the Hamas political chief whose company hosted Elgindy’s private short selling chat site on the internet.
Also, maybe it was a coincidence that Elgindy was in Macedonia, working (in his own words) as an “agent” for an outfit controlled by the Kosovo Liberation Army, which was then being trained by Al Qaeda’s second in command, under the auspices of the IIRO, where Elgindy’s brother was a director.
And it might be a coincidence that the chief commander of the KLA sent a letter thanking Elgindy for flying him to the United States.
Maybe it is yet another coincidence that days prior to September 11, Elgindy told corrupt FBI agent Jeffrey Royer (who was on Elgindy’s payroll) that there was going to be a terrorist attack on September 11.
It could even be a coincidence that on September 10, Elgindy told his Salomon Smith Barney broker that the market was going to lose more than half its value on the following day, September 11. Maybe it was just luck that Elgindy liquidated all of his accounts on September 10.
Of course, that’s a lot of coincidences. And as MIT professor and statistician Josh Tenenbaum once wrote: “some of our greatest feats of scientific discovery depend on coincidences.”
For the scientists, I offer this statistic: One Egyptian fellow named Amr Ibrahim Elgindy, also known as Anthony Elgindy (though he was “Manny Valasco” on the fake passport he used when he tried to flee to Lebanon after he came under investigation for possible connections to Al Qaeda) maimed or destroyed hundreds of American companies, wiping out local communities, and inflicting serious damage to the U.S. economy.
It seems to me that, statistically speaking, Anthony Elgindy was a financial terrorist of the first order.
And there are more data points, more coincidences: For example, Elgindy worked closely with a pack of market manipulators, a great many of whom had ties to jihadis, the Mafia, or rogue states (such as Iran). Most of these market manipulators (see Chapter 8 for details) were, in 2001, trading through Global Securities, a brokerage with ties to the Mafia and Iran.
At least some of these market manipulators also got lucky on September 11, 2001. Among the lucky were Ali Nazerali and his hedge fund partner Yasin al Qadi, both of whom were members of the Elgindy pack.
Just a few weeks before Al Qaeda took down the World Trade Center towers, Nazerali and Yasin al-Qadi listed a company called Imagis on the Toronto stock exchange.
This was good timing because Imagis was ostensibly in the business of selling face recognition technology to law enforcement agencies looking to catch terrorists.
Of course, Yasin al-Qadi was himself a terrorist. In early 2002, the U.S. government labeled Yasin al Qadi a “Specially Desigated Global Terrorist”. In fact, as we have begun to see, Yasin al Qadi was not just a terrorist hedge fund manager. He was Osama bin Laden’s favorite financier.
When 9-11 occurred, Imagis, the anti-terrorism company, became the world’s hottest stock – Nazerali and Osama bin Laden’s favorite financier cashed in. So did their other partners in that deal, such as Ali Kassam and Treyton Thomas.
Ali Kassam is a man of mystery – I don’t know much about him. All I know is he does a lot of business with Ali Nazerali and his brother, Shafiq Nazerali, who also uses the name Shafiq Sultanali Walji.
One of the Nazerali brothers’ deals was a precious metals mining outfit called Even Resources, which merged with Ali Kassam’s Benchmark Technologies in 2001, at which point the Nazeralis and Ali Kassam took Even Resources public and announced that it had a big deal to develop a copper mine with a company called Alujain.
The chairman of Alujain was Prince Nawaf bin Abdul al-Aziz al Saud, who was appointed as the head of Saudi intelligence just days before Al Qaeda’s September 11 attacks. Prince Nawaf’s appointment to be the head of Saudi intelligence was not greeted with enthusiasm in some quarters because he had been an outspoken supporter of the Grand Jihad and was considered to be friendly with Osama bin Laden.
The date of his appointment is, of course, the stuff of conspiracy theories. I don’t see much sense in pondering too many strange coincidences.
But I will say this – it is likely not a coincidence that the head of Saudi intelligence was running scams with the Nazerali brothers.
And make no mistake: Even Resources was a scam. Alujain announced the mining deal as a gift. The announcement caused Even’s stock price to soar in value and the Nazeralis cashed in, but no mine was ever developed.
Meanwhile, it is true that Imagis, the anti-terrorism company, was listed on the Toronto exchange by Ali Nazerali and Osama bin Laden’s favorite financier just weeks before Osama bin Laden attacked New York and Washington. Again, I don’t see much sense in pondering too many strange coincidences, but…well, that’s a damn strange coincidence!
It is also a strange coincidence that Treyton Thomas, who was responsible for promoting Imagis, was married to the same woman as a guy named Norbert Grupe, whose resume (which I have posted at DeepCapture.com) states that he was the CEO of another anti-terrorism company, this one called Innovative American Technology.
Just because Norbert Grupe and Treyton Thomas were both married at the same time to the same person — a woman named Cheryl Stone — does not necessarily mean that Grupe and Thomas are the same person. It could be a strange coincidence. Or it could be some kind of wife-swapping thing.
But it is certainly the case that Mr. Grupe and Mr. Thomas both do a lot of business with the Nazeralis, and they are both associates of the Mogilevich organization, the Russian Mafia outfit that at least tried to sell highly enriched uranium to Al Qaeda.
At any rate, in 2008, Mr. Thomas’s wife’s other husband, Mr. Grupe, was in the Middle East, cutting deals with Sheikh Mo, the ruler of Dubai – the same ruler whose family members were hunting quail with Osama bin Laden soon after Al Qaeda’s 1998 attacks on the U.S. embassies in Africa.
Mr. Grupe was dealing with Sheikh Mo because he is one of the Nazerali brothers’ closest associates, and because the Nazerali brothers are among Sheikh Mo’s closest associates.
The deals that Mrs. Thomas’s other husband, Mr. Grupe, were cutting with Sheikh Mo had to do with an outfit called El Toro Consult, which was (as has since been revealed by European authorities) a massive Ponzi scheme that was being orchestrated by Mr. Grupe (who, come to think of it, probably is the same person as Mr. Thomas).
After El Toro Consult stole people’s money, it laundered the money through Dubai property with the help of Sheikh Mo.
At the time, Mr. Grupe was a convicted felon wanted in the U.S. for grand theft (his mug shot can be viewed at DeepCapture.com). But the leading lights of Dubai – such as the ruler of Dubai, Sheikh Mo (the same Sheikh Mo, recall, who was protecting Mafia and terror kingpin Dawood Ibrahim and Russian Mafia figure Viktor Bout, both tied to Al Qaeda) – had continued to do business with Grupe, as evidenced by emails that Deep Capturehas obtained (by means we consider to be reasonably legal).
In one email, sent to El Toro Consult, a business partner informs Mr. Grupe that he has “just finished a meeting with Sire Contracting and Rak Bank.” RAK Bank is the largest financial institution in Ras Al Khaimah, which is part of the United Arab Emirates.
In 2003, a soft coup deposed the Ras Al Khaimah crown prince (who was deemed to be overly friendly with the West) and replaced him with royals aligned with the regime in Iran. The Iran loyalists also removed the crown prince from his post as chairman of RAK Bank and replaced him with Iranian proxies who do business with people like Mr. Grupe of the Mogilevich organization.
In the email, Grupe’s business partner adds that he will carry forth the discussion with RAK Bank and Sire Contracting, and that Sheikh Mo himself “will be at the Monday meeting.”
Sire Contracting is a company sponsored by Sheikh Mo. It is in the construction business, but it diversified (as did Norbert Grupe and Sheikh Mo’s confidants, Ali Nazerali and “Specially Designated Global Terrorist” Yasin al Qadi) into a new line of business, investing in a security company called 4C Controls, Inc, which is ostensibly focused on helping law enforcement catch terrorists.
You might recall that Jonathan Curshen (former trading partner of Anthony Elgindy) hosted meetings in Costa Rica, where he and Ali Nazerali (along with Michael Milken and others in their network) discussed ways in which to destroy some big companies (big companies that were, as we shall see, destroyed with help from people who attended those meetings in Costa Rica).
You might also recall that Curshen was involved with Skyway Communications, an outfit that was partnered with Titan Corp, which also got into the anti-terrorism business shortly before 9-11. That, too, could be a strange coincidence, and needless to say, none of these coincidences have been investigated by law enforcement.
However, as we know, the FBI did begin investigating Anthony Elgindy (trading partner of Curshen, Nazerali and friends) soon after Elgindy’s broker reported his suspicions that Elgindy had advance knowledge of the September 11 attacks.
Meanwhile, in the days and weeks following the Al Qaeda attacks, several things occurred. First, Anthony Elgindy helped destroy the largest clearing firm in the United States, dealing a serious blow to the American economy.
Second, Elgindy told the FBI that it was not he, but some of Michael Milken’s other close associates, who had advance knowledge of the 9-11 attacks.
And third, Elgindy threatened and tried to extort a fellow who had access to nuclear bombs.
I will address these events in order of their importance.
First, the nuclear bombs.
Some weeks after the 9-11 attacks, Elgindy asked the corrupt FBI agent Jeffrey Royer to check the FBI computers for dirt on a guy named Paul Brown, who was the head of a company called Nuclear Solutions.
As prosecutors noted in the Elgindy trial, Royer ran the check and passed information on Brown to another corrupt FBI agent. The second corrupt FBI agent, in turn, passed the information to Elgindy, who, in the words of the prosecutors, used the information “to begin his extortion…”
The prosecutors did not reveal what Elgindy was trying to extort from Paul Brown. It is possible that he was only after information that he would use to manipulate Nuclear Solutions’ stock price.
However, according to prosecutors, Elgindy did not just extort information, he also “threatened” Paul Brown. And given Elgindy’s ties to the Grand Jihad and the Russian Mafia, Nuclear Solutions was an interesting target.
In fact, it was a company that had, some months previously, received a contract from the Los Alamos nuclear weapons facility. And in fulfilling that contract, Nuclear Solutions was gaining access to decommissioned nuclear bombs.
Nuclear Solutions was going to destroy the nuclear bombs and convert the radioactive waste into clean energy. It is not clear that the bombs were converted into clean energy, but it might be significant that after the corrupt FBI agent ran his computer check, the other FBI agent seems to have given Elgindy information that Paul Brown was suspected of committing a crime.
At least, Elgindy stated (perhaps exaggerating a bit, as Elgindy tended to do) on his private website that he knew that Brown was a “convicted felon”.
To this date, it remains unclear what (if any) crime Brown committed, but it seems worth noting that soon after Nuclear Solutions got its first contract, Los Alamos was embroiled in multiple scandals involving the disappearance of nuclear secrets and equipment used in the production of nuclear weapons.
Leaving aside the important question of whether Paul Brown was in the FBI’s computers because he had something to do with the vanishing nuclear secrets, it is a matter of natural concern that Anthony Elgindy was in this man’s office, issuing any sort of threat.
That is, it is a matter of concern that a guy with ties to the Grand Jihad and the Russian Mafia was threatening a man who might be a convicted felon, and certainly had access to radioactive materials, and might have had his hands on nuclear weapons technology that had vanished and was unaccounted for. That just does not sound like a stable situation to me. Call me madcap.
At any rate, according to court documents, on the day after Elgindy asked the corrupt FBI agents to check the FBI’s computers for dirt on Paul Brown (the guy who was supposed to dispose of the nuclear bombs), Elgindy asked the corrupt FBI agents to run a computer check on his friend Adnan Khashoggi, the famous, shady arms dealer.
It seemed that Elgindy wanted to know whether the FBI was watching Khashoggi.
I wish I could ask Brown (the guy with the nukes) about all this, but a few weeks after Elgindy was threatening him, Brown died in a car accident. The media reported that he had lost control of his car on icy streets in rural New York.
After this tragedy, Elgindy posted a message on his private internet chat site, notifying his associates that Brown was now: “worm food.”
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It is unclear that Elgindy’s request for FBI information on Khashoggi had anything to do with the nuclear bombs. What is clear is that some weeks earlier – indeed, just days before the September 11 attacks – Elgindy and Khashoggi began to perpetrate a scheme that managed, a few days later, to do considerable damage to the U.S. economy.
In the summer of 2001, Khashoggi was running a little California telemarketing company called GenesisIntermedia, which was, in fact, a scam with little in the way of real business. It was unusual for Khashoggi to be involved in such a small-time scam, considering that nobody was more big-time than Khashoggi.
As I have mentioned, Khashoggi had been the single richest man in the world and a central figure in some of history’s biggest scandals – BCCI, Iran-Contra, the collapse of Bangkok Bank of Commerce, just to name a few.
Khashoggi, as we know, is a close associate of Libyan dictator Muammar Qaddafi (for whom he used to work as a mediator). We can assume that the Elgindy family was also acquainted with Qaddafi, since Abdurahman Alamoudi, the Al Qaeda operative who founded the American Muslim Council with Khalid Elgindy, was arrested at Heathrow when customs officials found, stuffed in a secret compartment of his suitcase, $350,000 in cash that he had received from Qaddafi.
Larry Kolb, Khashoggi’s son-in-law, has written that Dawood Ibrahim, the Al Qaeda money man who was then helping the Pakistani nuclear scientist A.Q. Khan (“Father of the Islamic Bomb”) proliferate nuclear weapons technology to Libya and Iran, once gave Khashoggi a $1 million check simply because Ibrahim was honored to meet Khashoggi.
According to Kolb, Khashoggi told him (Kolb) that he (Khashoggi) did not know who Ibrahim was, and he did not cash the check. Kolb says that after Ibrahim wrote the $1 million check, Kolb escorted Ibrahim to nightclubs in New York, but never saw him again. Kolb seems to be an honest guy, but it is possible that Khashoggi did not tell him the full story.
In any case, Khashoggi was on close terms with AQ Khan. He also had brotherly relations with the regime in Iran. That’s why he was the key figure in the Iran-Contra scandal, which saw Khashoggi scamming the U.S. with a bogus deal under which the Iranian regime was supposed to secure the release of American hostages being held by Iran’s proxies, Hezbollah and Palestinian Islamic Jihad (a leader of which had just been settled in the United States by the Elgindy family).
We can hope Elgindy’s brush with nuclear bombs had nothing to do with Elgindy’s jihadi associates, or with Khashoggi’s vast arms dealing empire, a principal client of which is Iran.
At any rate, the SEC determined that GenesisIntermedia was (what else?) a small-time “pump and dump” fraud. And perhaps owing to Khashoggi’s relationships with the American elite (which tends to swoon for Saudi billionaires, no matter how sketchy they are), Khashoggi was never subjected to any punishment other than a small fine.
Which is a shame, because GenesisIntermedia was, in fact, much more than a small-time fraud. It was a massive fraud that caused the destruction of the largest clearing firm in America, thereby necessitating the biggest payout in the history of the Securities Investor Protection Corporation.
Like many such cataclysms, this disaster was orchestrated with help from others in the Milken network. Khashoggi himself had, of course, been a close associate of Milken since the 1980s, when he was involved (along with Ali Nazerali and his relatives) in BCCI and the Saudi intelligence outfit Capcom, which conducted trading (much of it manipulative) worth $90 billion (an astounding sum at that time) through Milken’s shop at Drexel Burnham.
Anthony Elgindy, as we have seen, was also a close associate of Milken, and was caught destroying at least 20 companies with the son of Edward Thorp, whose hedge fund and brokerage operation had been perhaps the most important component of Milken’s stock manipulation network in the 1980s.
But in orchestrating the destruction of America’s largest clearing firm, Elgindy and Khashoggi had the assistance of other Milken cronies, including a woman named Valerie Red Horse, who had (in the 1980s) been Milken’s office manager at Drexel Burnham.
Others involved in the scheme included Curshen client and Hamas-supporter Ramy al-Batrawi; and Rafi Khan, the son of the Pakistani diplomat (or ISI spy, depending on whom you ask). They, recall, were among the pack who traded through Global Securities.
Rafi Khan, meanwhile, was a pricipal at JB Oxford, the Mafia brokerage founded by Ali Nazerali’s BCCI partner Irving Kott.
Khan was responsible for promoting GenesisIntermedia’s stock during the summer of 2001. Ramy al-Batrawi ran the company’s day-to-day operations. And Elgindy was paid by Khashoggi to naked short sell GenesisIntermedia’s stock, and to trash the company on his private internet chat site (the one hosted by Hamas).
Why would Khashoggi pay someone to naked short sell his own company? That is a good question, and in the answer, we will see the dangers that naked short selling poses to the financial system. We will see how loopholes in the clearing and settlement system make it possible for one little company to bring down America’s largest clearing firm.
The scheme worked like this: Khashoggi and al-Batrawi lent GenesisIntermedia’s stock to Native Nations, a small brokerage owned by Valerie Red Horse, the woman who had been Milken’s office manager at Drexel.
Native Nations, in turn, lent the shares to America’s largest clearing firm, MJK Clearing, where Khashoggi and Red Horse had a cooperative ally named Thomas Brooks, who was later charged by the SEC for helping to create the conditions for MJK’s demise.
Thanks to Brooks’ cooperation, shares in Khashoggi’s little telemarketing company (GenesisIntermedia) now represented a quarter of the assets of MJK Clearing – which, again, was the largest clearing brokerage in America.
Moreover, Brooks had not only paid Native Nations more than $130 million in collateral for those shares, but he had also taken the outrageously strange step of agreeing that Native Nations would not have to pay back any of that collateral if the price of the stock were to decline.
Typically a brokerage that lends shares to another brokerage receives collateral from the borrowing brokerage, but agrees to pay back to the borrowing brokerage “marks”, or a percentage of the collateral, with the percentage depending on how far the stock price falls.
After receiving the GenesisIntermedia shares, MJK Clearing lent them out to other brokerages, most notably Wedbush Morgan (which referred most of its trades to Bernie Madoff’s criminal naked short selling brokerage).
At Wedbush Morgan, the GenesisIntermedia stock was handled by a fellow named Kevin Beadles, who used to work with Khashoggi partner Rafi Khan at JB Oxford, the Mafia brokerage controlled by Nazerali’s BCCI partner Irving Kott.
MJK’s deal with Wedbush and other brokerages to which it lent shares was more typical. MJK would have to pay “marks”, so if the stock price dropped, MJK would have to top up its collateral to Wedbush and the other brokerages, but Native Nations would owe nothing to MJK.
Having established this happy state of affairs, Khashoggi gave the go ahead to Elgindy (who, remember, had been paid by Khashoggi), and Elgindy, along with others in his pack (including the traders who had passwords to his private internet chat site), unleashed a wave of naked short selling, flooding the market with phantom GenesisIntermedia shares.
As a result, of course, GenesisIntermedia’s stock price crashed.
The clueless SEC, of course, said the drop in the stock price was probably the result of the 9-11 attacks, but given that GenesisIntermedia’s stock began to nosedive on September 7 (the Friday before Tuesday, September 11); and given that it lost nearly half its value (far more than was lost by the overall market) in the week after the Al Qaeda attacks; and given that it then dropped to zero, it is a lively possibility that the naked short selling contributed to the death spiral.
And the death spiral left MJK Clearing in the lurch. MJK had to pay out its marks to Wedbush and other brokerages, but got nothing from Native Nations, which, a week after the 9-11 attacks, conveniently went out of business, declaring bankruptcy.
Let me summarize in straightforward English: Native Nations gave $130 million worth of stock to MJK Clearing, and essentially borrowed from MJK $130 million against it, but with a special deal, whereby if the value of the stock dropped, Native Nations did not have to top up its collateral (that is, pay back any of the $130 million it had received). MJK then loaned this “stock” to Wedbush Morgan and others, but without the special deal.
Elgindy then naked short sold the stock from one end while Khasshogi and Ramy al-Batrawi bemoaned Genesis’s imminent demise from the other. The stock price crashed so Wedbush Morgan needed to be topped up by MJK Clearing, who could not do it.
Meanwhile, one step upstream, Native Nations declared bankruptcy. A whole lot of money had been looted from the system, and the companies through which it had been looted had blown up, so no one could tell where it went.
It seemed doubtful that Native Nations was actually bankrupt because it seemed to have been set up specifically to lend GenesisIntermedia’s shares, and it still had MJK’s $130 million.
As I mentioned, the SEC, rather amazingly, never deemed this scheme to be anything more than a simple “pump and dump” fraud. GenesisIntermedia was certaintly pumped by Rafi Khan in the summer of 2001, but no regulator seems to have asked why Khashoggi would have suddenly decided in early September to destroy his own company(GenesisIntermedia) with help from Elgindy.
And while there is no direct evidence that Khashoggi paid off the cooperative employee of MJK, one has to wonder how in the world Native Nations was able to wangle that strange agreement not to pay MJK “marks’ – and why Native Nations conveniently went out of business, ensuring that none of that $130 million would ever be returned to MJK. (Without the bankruptcy, MJK could have received at least a partial refund by buying Genesis shares on the open market before they went to zero, and returning them to Native Nations).
Red Horse says that she went bankrupt because she had paid Khashoggi a similar amount – around $130 million — in collateral for the shares that Khashoggi originally lent to her, and he didn’t give the collateral back. If that is the case, why did she not press charges? And why was Khashoggi not prosecuted for grand theft? My best bet is that Red Horse kept that $130 million as payment for her participation in this scheme.
And, without a doubt, one way or another, someone involved with GenesisIntermedia wangled that deal that made the survival of the largest clearing firm in America entirely dependent on the stock price of one little company (GenesisIntermedia) that didn’t even have a viable product.
Khashoggi, Elgindy and Valerie Red Horse had structured things so that if they wiped out Genesis (a tiny firm), then MJK (the largest clearing firm in the US) would go down with it.
This is a bit complicated, so let me repeat the key facts: A cleverly constructed financial hand grenade (GenesisIntermedia) was inserted into the heart of the largest clearing firm in America (MJK). Then the pin was pulled on September 7, 2001 (the Friday before 9-11).
The scheme was conducted by Khashoggi (rogue Saudi arms dealer with ties to Iran and Arab intelligence agencies); Ramy al-Batrawi (funder of Hamas); Rafi Khan (funder of Hamas, and son of a Pakistani spy or diplomat); and Valerie Red Horse (former office manager for Milken, who once conducted $90 billion in largely manipulative trading for Capcom, the outfit tied to Khashoggi, Saudi intelligence, and Ali Nazerali, partner of Osama bin Laden’s favorite financier).
Also key to the scheme, Amr Ibrahim Elgindy, known as Anthony, an Egyptian who was 1) a key figure among a pack of destructive short sellers; 2) tied directly to the leaders of Palestinian Islamic Jihad, Hamas, and the Kosovo Liberation Army; and 3) the brother of Khalid Elgindy, who co-founded the Muslim American Council with a convicted Al Qaeda operative named Abdurahman Alamoudi while serving as a board member of IIRO, the overseas offices of which were Al Qaeda fronts.
The IIRO office in the Phillippines was managed by Osama bin Laden’s brother in law, a top Al Qaeda operative who trained the Abu Sayyaff terrorist group. The IIRO offices in Kosovo and Macedonia served as cover for Ayman al Zawahiri, who trained the Kosovo Liberation Army and is now Osama bin Laden’s likely successor as the leader of Al Qaeda. Zawahiri’s brother was a top official, along with Anthony Elgindy’s brother at the IIRO.
Elgindy and Khashoggi and their crowd were able to manufacture the MJK Clearing disaster because there was nothing preventing brokerages from lending out infinite numbers of shares. Not only was Native Nations loaning more shares to MJK than actually existed (thereby increasing MJK’s collateral; and thereby ensuring that those shares could never be delivered, or settled, once Native went bankrupt), but Wedbush (through Madoff’s operation) was also selling more shares than actually existed on the orders of its naked short selling clients.
Without strict rules accounting for the number of shares in circulation, and rules ensuring that each share sold is immediately delivered, it is remarkably easy to create a death spiral in a little company. And with all the excess lending of shares, one death spiral can knock out one of the biggest brokerages in the nation.
Why would Khashoggi and Elgindy want America’s biggest clearing firm to destruct just days after the September 11 attacks? It is possible that the scheme was nothing more than a monumentally brazen theft, and Khashoggi, who is worth many billions of dollars, simply wanted another few million in the bank. Maybe he needed one more private airplane.
However, I strongly suggest that we view this at least as a scenario showing how an act of financial terrorism might play out. The fact that the scheme played out in the days immediately before and after 9-11 (an event predicted by Elgindy), and the fact that it knocked out the nation’s largest clearing firm, lends credibility to the notion that this was part of a combination of punches being thrown against the United States.
It is, perhaps, worth recalling that at this same time in September 2001, Irfan Amanat, who is tied to the same Hamas and Palestinian Islamic Jihad operatives who were on such close terms with Elgindy, used his RLevi2 computer program to unleash a massively destructive attack on the overall markets.
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Elgindy was ultimately sentenced to 11 years in prison on charges of market manipulation and bribing FBI agents (GenesisIntermedia did not figure in his charges). But before he was sentenced, and before the Russian Mafia chopped off his finger, Elgindy seemed willing to cooperate with authorities.
By this time he knew that he was suspected of having advance knowledge of the September 11 attacks, and he was telling the FBI that its suspicions about him were wrong. However, he was also suggesting that he knew who did have advance knowledge of Al Qaeda’s plans.
As is revealed in court documents, Elgindy told the FBI that to understand who had such knowledge, the bureau should examine trading in the stock of a Real Estate Investment Trust (REIT) called Vornado Realty Trust.
Most likely, Elgindy was referring to the fact that two weeks before the 9-11 attacks, Vornado, a public company whose stock was closely held by a man named Steven Roth, had hastily issued around $150 million in new shares.
Of course, Elgindy is not the most reliable person in the world. It is entirely possible that Vornado’s stock issuance had nothing to do with 9-11, and that Elgindy was merely trying to distract the FBI from investigating his own depredations.
It is, indeed, strange that Elgindy could say that he had no idea about the imminent terrorist attacks, and at the same time say that he was aware of people who did know.
In any case, it seems to me that all evidence suggests that Elgindy knew what Al Qaeda was planning. And though we cannot take Elgindy’s word that Vornado and Steven Roth had advance knowledge, we can guess with some degree of confidence that Elgindy told people (like his Salomon broker, for example) that something big was coming.
And I will say this – Steven Roth, who is one of Michael Milken’s closest associates, had really good timing.
Not only did Steven Roth sell all those shares in August 2001, but Steven Roth partially owned and served as an investment advisor to Imagis, the anti-terrorism company that “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier) and his pal Ali Nazerali listed on the Toronto stock exchange right before the 9-11 attacks.
Imagis did not announce Roth’s involvement until after the attacks, but he invested on time. The attacks made Imagis the hottest stock on the planet – and Roth (and his terrorist associate) made a bundle.
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Ack…I should have paid attention to what that former spy told me in 2006. It wasn’t just that he told me that Michael Milken and some of his closest associates were planning to take down some big companies, and that this could have implications for the health of the U.S. economy.
It wasn’t just that he told me that these people were having secret meetings in Costa Rica – meetings I now know were hosted by one of Anthony Elgindy’s closest associates, Jonathan Curshen.
It wasn’t just that – it was that the former spy gave me some documents and said that these documents were important to understanding the Milken network’s methods.
I did not take a close look at those documents until it was too late, but when I did take a look at them, I saw that they suggested that members of the Milken network had for the past few years focused much of their energies on buying large blocks of shares in real estate companies, especially so-called Real Estate Investment Trusts, or REITs.
After buying the shares in the REITs, the Milken cronies would then flip the stock amongst each other to manipulate the price. Meanwhile, they would threaten and harass management of the REITs, load the REITs with debt, loot the money, and get the REITs to issue new stock. Sometimes, they would seek to destroy the REITs, no doubt short selling the company on the way down.
This fit the pattern of the Mafia-style “bust-outs” that I have described. As one example, the former spy noted the case of a REIT called Hallwood Realty. In 2000, Hallwood’s management had filed a lawsuit arguing that a pack of closely affiliated investors had secretly sought to gain control over the company in order to loot its cash and manipulate its stock.
The former spy believed that Milken himself was involved in this scheme (the spy was almost certainly right about that), but the lawsuit had not named Milken. Instead, it had named some of Milken’s closest associates – most notably, hedge fund manager William Ackman and Steven Roth, owner of Vornado Realty Trust, the outfit that sold all those shares before the 9-11 attacks.
At the time of the Hallwood Realty lawsuit in 2000, Ackman ran a hedge fund called Gotham Partners. The largest investors in Gotham were Dirk Ziff, who runs a hedge fund called Och-Ziff Capital Management; Martin Peretz, who is best known as the former owner of the New Republic Magazine; and another Milken crony named Andrew Farkas.
Dirk Ziff is one of the few dozen people who are among Milken’s closest associates. SEC filings show that Ziff’s hedge fund regularly trades in league with Milken’s other closest associates, including SAC Capital’s Steve Cohen (the guy who, in the 1980s, helped run the Mafia brokerage Gruntal Securities and was investigated by the SEC for trading on inside information given to him by Milken’s shop at Drexel; and who, as I write in 2011, is the principal target of the FBI’s largest-ever investigation into insider trading).
In 2010, the creditors of Lehman Brothers filed a lawsuit against Ziff’s hedge fund, along with SAC Capital and a hedge fund called Citadel, alleging that the three hedge funds had engaged in manipulative short selling that contributed to Lehman’s collapse in 2008.
They weren’t the only ones who were supsect. Lines Overseas Management, the outfit tied to Ali Nazerali and Ivan Boesky (crony of the regime in Iran, Russian Mafia associate, and Milken’s most famous criminal co-conspirator), was also pounding Lehman. So was the above-mentioned Ackman (who had since shuttered Gotham and was running a new hedge fund). Other short sellers who attacked Lehman will feature prominently in upcoming chapters.
In the 1980s, Peretz (the other Gotham investor) had been a big investor in the hedge fund of Michael Steinhardt (son of the biggest Mafia fence in America, self-admitted funnel for Genovese Mob family money into Wall Street).
Peretz also conducted a significant amount of business with Steinhardt’s other big investors, Marc Rich (the guy tied to the Russian Mafia and indicted for illegal trading with Iran), and the above-mentioned Ivan Boesky. When Boesky was indicted, Peretz vigorously defended him in the New Republic.
Ackman (the guy who was managing Gotham in 2000) now runs Pershing Square, a hedge fund best known for raiding companies in league with Nelson Peltz, who, in the 1980s, was a key figure (along with a select number of Mafia-tied financiers whom I introduced earlier) in Milken’s junk bond merry-go-round.
At the time in 2006 when I first met the former spy, the above-mentioned Farkas was a co-owner of CharterMac, which was then one of the largest mortgage companies in America. Another co-owner of CharterMac was Ivan Boesky’s relative, Stuart Boesky. Stuart might, in fact, be Ivan Boesky’s brother (they bear a striking resemblance), but he refused to confirm one way or another when I contacted him.
Stuart Boesky and Andrew Farkas were not only owners of CharterMac, which generated mountains of bad mortgages for the self-destruct CDOs that would collapse the mortgage and property markets in 2007, but they were also principals at Tricadia, a firm that worked with short sellers in the Milken network to create and market those self-destruct CDOs to, among others, Bear Stearns and other now-deceased banks.
Indeed, Stuart Boesky’s firm, Tricadia, was one of the single biggest generators of self-destruct CDOs. And the firm marketed nothing else. Just CDOs that were deliberately designed to self-destruct.
So to summarize: a single network of close associates contained the financiers who mass produced the leverage (sub-prime mortgages); and packaged up the leverage (mortgage backed securities); and generated the derivatives on the mass produced packages of leverage (synthetic CDOs). And that same network contains the financiers who bet (be selling short) that it was all going to topple. That is what a post-modern bust-out looks like, writ large.
Stuart Boesky and Farkas originally ventured into the real estate business with finance from Steven Roth, the fellow who owned Vornado Realty Trust (and also owned part of the anti-terrorism company listed on the Toronto exchange by “Specially Designated Global Terrorist” Yasin al Qadi and Ali Nazerali).
In 2006, that former spy said the Milken network’s plans to destroy big companies had something to do with mortgages, collateralized debt obligations, and REITs. He specifically mentioned Tricadia and Vornado Realty Trust, the outfit controlled by Steven Roth (the same Vornado named by Elgindy when he started cooperating with the FBI’s 9-11 investigation).
The former spy wasn’t completely clear on how it was all supposed to work, but by 2010, equipped with the above information, and having spent two years investigating the financial crisis, I was beginning to see how it worked, and I was beginning to understand who some of the key players were.
A number of these players (for example, Vornado’s Steven Roth, and “Specially Designated Global Terrorist” Yasin al Qadi’s other partner, Ali Nazerali) were among the people who had met with Milken and Curshen in Costa Rica.
Also at those meetings, recall, was Kevin Ingram, the former head of the Goldman Sachs mortgage-backed securities desk, who had earlier been caught laundering money for an Egyptian arms dealer who was suspected of having ties to Al Qaeda and a Pakistani shopping for nuclear weapons components.
By the fall of 2010, I knew that Ingram had helped mastermind the self-destruct CDO scam. I knew that the Milken network was deeply tied to the Mafia, rogue states, and some jihadi financiers. I was also making headway with Zuhair Karam, the jihadi at Tuco Trading who seemed to have knowledge about a certain Iranian who might have helped take down Bear Stearns.
But I had yet to fully understand the role of REITs such as Vornado Realty Trust. And I still had much more to learn about the jihadi-Mafia nexus, and what this nexus had to do with mortgages, CDOs, synthetic derivatives, manipulative short selling, and the biggest brokerage in America.
That is, I had yet to learn all I needed to know about what the jihadi-Mafia nexus, with the possible assist of some rogue states, had to do with the financial crisis of 2008.
In upcoming chapters, I will tell you what else I learned about 2008 because if the U.S. government doesn’t get its act together, there will be another crisis, and this one will be much worse.