Ex-Broker Rafi Khan Is Subject of New SEC Fraud Probe (Update1)
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.
``Rafi Khan may be using a brokerage account held in the name of Rubina Khan in an attempt to conceal his activities,'' SEC attorney Andrew Petillon said in a sworn statement filed with the court.
The SEC probe, which was elevated to a formal investigation 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.
Ontro Allegations
Khan and his wife, who live in La Canada, California, didn't return calls to their home. Officials at GenesisIntermedia, Aura and Euniverse didn't return calls. Kevin Hainley, Ontro's chief financial officer, declined to comment.
Ontro may have illegally concealed Khan's ownership and control of the company, according to the SEC's formal order of investigation, filed with the court.
Ontro's most recent proxy statement lists Aura Private Ltd. as its largest shareholder, with 2.2 million shares, or 27 percent of the Poway, California-based developer of self-heating beverage containers. Khan isn't listed as a shareholder.
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 gained a penny today to $0.011. Euniverse shares fell 95 cents to $4.65, Aura fell 3 cents to 32 cents, and Ontro was unchanged at $1.99.
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.''
Khan has previously said he made clients millions of dollars in the summer of 1993 by recommending companies such as Future Communications and Spectrum Information Technologies Corp. Share prices of both increased four-fold. He also led an unsuccessful battle to oust former Yugoslavian Prime Minister Milan Panic from his post as head of ICN Pharmaceuticals Inc. |
