Officials In Tenn. File Suits To Recover Money From Closed Firm
By Rebecca Buckman
Staff Reporter
NEW YORK -(Dow Jones)- Three months
after shutting down the infamous
Genesis International Financial
Services Inc., Tennessee insurance
regulators are filing civil lawsuits to
recover money they contend was
misappropriated in a complex,
still-unfolding fraud scheme.
Officials already have filed suit
against one former Genesis official,
and more legal action is planned, said
Jeanne Barnes Bryant, the
state-appointed receiver overseeing the
liquidation of Genesis's assets.
Meanwhile, federal authorities
continue with a criminal investigation
into the operations of the now-defunct
Genesis, a volatile penny stock that
stung scores of investors who heard
about it over the Internet.
Federal law enforcement agents and
U.S. customs officials remain on the
lookout for any sign of the company's
former chairman, Mohamed Khairy Mohamed
Zayed II.
Zayed, already a thrice-convicted
felon, has eluded the authorities since
mid-May, when a federal grand jury
indicted him on 17 counts of money
laundering and wire fraud in connection
with the alleged insurance and stock
scam run through his company. Shortly
before the indictment, Zayed told Dow
Jones he was in South America trying to
close a business deal.
Zayed is still wanted by the Federal
Bureau of Investigation, said Gary
Humble, the assistant U.S. attorney in
Chattanooga, Tenn., who is prosecuting
the criminal case.
"Mr. Zayed is still a fugitive, and
we are still investigating," said
Humble. He declined to provide further
details about the search for Zayed or
any future indictments that could come
from the grand jury.
In the weeks since Genesis closed
its doors, more details about the tiny
holding company and some of its
associates have emerged - including
many that should be of interest to
angry investors who lost money on
Genesis stock.
Shares of Genesis previously traded
on the over-the-counter bulletin board
but haven't been active since April 30,
when the Securities and Exchange
Commission halted trading in the stock
for 10 days. That was two days after
the state closed down the Chattanooga
company, alleging it was running an
unlicensed surety-bond operation backed
by questionable assets.
Bryant continues to sift through
Genesis' books and those of its main
unit, Congress Re-Insurance Corp. Two
weeks ago, she reported that "any
recovery concerning most of the assets
previously listed by the Congress
Entities is doubtful."
In SEC reports filed last year,
Genesis said it had around $140 million
in assets. But subsequent reports filed
by the receiver, as well as the
indictment lodged against Zayed, said
most of those assets were of dubious
value. Authorities even allege some of
the assets were leased from
white-collar criminals.
Bryant said in the report filed July
24 that she hopes to recover about
$100,000 from selling Zayed's house and
three cars, including a Ford Taurus
used by Zayed's mother and a 1986 Rolls
Royce.
Bryant alleges that Zayed used
company funds to buy the house and the
cars.
But even if those funds come
through, Bryant wrote, they will be
used first to pay expenses incurred by
her office in the liquidation. So far,
the receiver's office has racked up
bills totaling $44,921; the state has
spent nearly $27,000 on the effort, and
an outside law firm is owed more than
$41,000.
That means that unless the state can
win back money through civil lawsuits,
presumably against company officials
and other associates of Genesis,
bondholders and shareholders with
claims against the company may be out
of luck. Claims from bondholders, which
would be addressed before shareholders,
might be as high as $30 million.
The state already has filed suit
against Gary Emery, a Crossville,
Tenn., businessman who recently was
listed on company documents as a senior
vice president and director of Genesis.
He also held at least 5 million shares
of Genesis stock, according to the
state's complaint.
The suit, filed June 26, alleges
that Emery, Zayed and other
unidentified people devised the
surety-bond scam and used corporate
assets for their personal use. The
state is asking for unspecified
compensatory and punitive damages.
William Gibson, a Nashville lawyer
helping the state with its case, said
he isn't sure how much money Emery
allegedly took from the company, "but
it's huge."
Emery didn't return a call seeking
comment.
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