Former Stockbroker Rafi Khan Is Subject of New
SEC Fraud Probe
By David Evans
Los Angeles, April 2 (Bloomberg) -- Rafi Khan, an ex- stockbroker banned
from the securities industry in May, is under investigation for fraud in
promoting shares of four California companies, the Securities and Exchange
Commission said.
Khan allegedly issued ``buy'' recommendations on the companies --
GenesisIntermedia Inc., Aura Systems Inc., Euniverse Inc. and Ontro Inc. -- in
exchange for stock or warrants issued by the companies to Pakistani firms
owned by Khan's brother-in-law, including Aura Private Ltd., according to
documents filed by the SEC in federal court in Los Angeles.
The Pakistani companies also allegedly traded shares of the four companies
and transferred the proceeds to Khan's wife, Rubina Khan, according to the
documents.
Khan and his wife, who live in La Canada, California, were not immediately
available for comment.
The SEC investigation, which began on Nov. 13, became public after the
agency asked a federal judge yesterday to require Rubina Khan to provide
testimony about her bank and brokerage accounts.
In a four-page report last May titled ``The Genie in Genesis Potentially a Mega
Blow for the Shorts,'' Khan suggested a short squeeze would drive up shares
of the money-losing company, which operates now-shuttered Internet kiosks in
shopping malls.
In a short squeeze, investors who have lent shares to others demand them
back. That forces the borrowers to buy shares, driving up the price of the stock
and creating losses for the short sellers, who bet the price would fall.
FBI, SEC Probes
Khan wrote the report after several days of meetings with GenesisIntermedia
executives, said Robert Bleckman, then director of investor relations for
GenesisIntermedia, in an interview at the time. Bleckman denied his company,
controlled by Saudi arms dealer Adnan Khashoggi, paid Khan for the report.
GenesisIntermedia shares soared from $11.48 to $16.25 after Khan's report.
Both the Federal Bureau of Investigation and the SEC are investigating
allegations of stock manipulation and false accounting. GenesisIntermedia
shares now trade for about a penny.
Rafi Khan pleaded guilty in September 1999 to filing a false tax return and was
sentenced to probation.
Last May, Khan was barred from the securities industry after agreeing to a
permanent injunction forbidding him from committing securities fraud in the
future. He neither admitted nor denied SEC allegations that he pocketed
$552,500 by orchestrating two stock manipulations in 1993 and 1995 through
``wildly exaggerated earnings and price projections.'' |
