Re: 10/8/01 - [GENI] Bloomberg: GenesisIntermedia's CEO Quits; SEC, Nasdaq Begin Probes
GenesisIntermedia's CEO Quits; SEC, Nasdaq Begin Probes
By David Evans
Van Nuys, California, Oct. 8 (Bloomberg) -- Ramy El-Batrawi resigned as chief executive of GenesisIntermedia Inc., amid investigations by the Securities and Exchange Commission and Nasdaq into trading of the telemarketing company's shares by Saudi arms dealer Adnan Khashoggi and others.
The company also fired 60 employees, or 15 percent, of its 397 employees since August, said vice president Robert Bleckman, in a telephone interview.
Nasdaq is probing trading in the company's shares by Khashoggi's Ultimate Holdings, an investment company based in Bermuda, and the SEC has launched a formal investigation, the company said. Ultimate is a Bermuda-based company that controls 75 percent of GenesisIntermedia.
The Nasdaq Stock Market halted the stock on Sept. 25, the same day the shares played a role in the largest failure of a U.S. brokerage firm in at least 30 years. MJK Clearing Inc. was seized by the Securities Investors Protection Corp. after defaulting on a $60 million payment on a loan of 7.2 million shares of GenesisIntermedia.
Khashoggi's Ultimate Holdings is the only entity that owned as much as 7.2 million shares. The default by MJK came after the company's shares plunged 65 percent in the seven trading days following the terrorist attacks in New York and Washington. MJK, which cleared accounts for 175,000 customers with $10 billion in assets, was liquidated last week. Southwest Securities Group Inc. of Dallas took over clearing its accounts.
Khashoggi is wanted by police in Thailand on suspicion of loan fraud in connection with the collapse of the Bangkok Bank of Commerce in May 1996, according to the Economic Crime Division of that nation's police.
Missing Money
The money was owed by Native Nations Securities Inc. of Jersey City, New Jersey to MJK Clearing Inc. of Minneapolis, then a unit of StockWalk Group Inc. MJK, which performed clearing services for 175,000 customers, was taken over by Southwest Securities Group Inc. of Dallas. Native Nations, which halted operations on Sept. 21, had lent the 7.2 million shares to MJK.
That money is now missing. Native Nations says a rogue employee falsified documents to conceal the identity of the source of the GenesisIntermedia shares.
``Khashoggi is the only person who could have loaned 7.2 million shares to Native Nations,'' said Frank Partnoy, professor of securities law at the University of San Diego Law School, after reviewing regulatory filings.
The Securities Investors Protection Corp. said the failure of MJK has so far cost SIPC about $42 million. The 7.2 million shares had previously been loaned by Native Nations to MJK Clearing Inc. in exchange for $125 million, said Matthew Kyler, vice president of Stockwalk Group, MJK Clearing's parent before it was taken over by SIPC.
The losses don't end with Native Nations and MJK. That's because MJK re-loaned the GenesisIntermedia stock to additional firms receiving back a total of $125 million, which it forwarded to Native Nations, according to Kyler. As GenesisIntermedia plunged to $9, MJK complied with its mark-to-market obligation, and sent those firms a total of $60 million.
``This is yet another example of the daisy-chain problem associated with counter-party risk,'' said Partnoy.
Stephen A. Weber, a director, was named interim chief executive of GenesisIntermedia, which is 85 percent owned by El- Batrawi and Khashoggi.
GenesisIntermedia, which had a market value of about $137 when it last traded on Sept 25 at $5.90, had a negative net worth of $9.3 million as of June 30.
The company's loss widened to $15.7 million in the first half of 2001, from $12.5 million a year earlier. Sales rose to $24.9 million from $14.8 million.
GenesisIntermedia lost $33.5 million in 2000, on sales of $42.3 million.
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