“It’s very sad news. This crisis has seen a lot of people in the Gulf and across the world fall from grace, and each person is different in terms of their ability to handle pressure.”
- Mohammed Yasin, CEO Shuaa Securities
During the past week, a civil lawsuit against Hazem Khalid Al-Braikan sent shockwaves through the Middle East investment community. Al-Braikan, in his 30’s, was chief executive of Al-Raya Investment Company, which is 10 percent owned by Citigroup. He was a familiar figure at the higher spectrum of Middle Eastern financial functions, always dressed in traditional attire and speaking impeccable English. He was considered a highly respected member of the Kuwaiti money management world.
The U.S. Securities and Exchange Commission said in papers filed in Manhattan federal court that Al-Braikan and entities linked to him in Kuwait and Bahrain earned more than $5 million from well-timed trades in Harman International Industries Inc and Textron Inc.
“We have had a team of six or seven people working around the clock for the last couple of days to gather evidene… This is pretty brazen misconduct.”
- Scott Friestad, SEC enforcement division official
The SEC began an investigation soon after learning about a takeover hoax last Monday (20 July 2009) at the same time that the markets and media outlets began spreading the reports
“Defendants engaged in a deceptive scheme to profit by trading around the fraudulent offers to acquire Harman International and Textron… [Defendants] profited from amassing large positions in stocks and options in the two companies.”
- excerpt from SEC Letter
Harman shares soared that Monday following several media outlets report that a private investment firm called ‘Arabian Peninsula Group’ planned to buy it at almost double its market price. The incident was similar to a phony offer for Textron in April from a UAE-Kuwaiti consortium.
News agencies received a one-page fax on Sunday (one day prior to the spike in prices) announcing the purported Harman bid. The fax number was traced and happens to originate in a Kuwaiti area code. Although the SEC did not specify who sent the fax, or who spread news on the fake bid for Textron.
Al-Braikan was known for being open to discussing market rumors with reporters, a common practice in Kuwait, where businesspeople and traders sometimes leak sensitive company details or questionable information that can move stocks on a market that has no financial regulator.
“There is a major scoop coming… Don’t tell anyone but I will give you a great scoop…”
- Al Braikan speaking to a reporter prior to the imminent bid for Textron before the April hoax.
The SEC claimed that Al-Braikan was engaged in “an aggressive trading strategy” of buying Harman stock and call options in the four trading days before the phony tender offer. Al-Braikan and United Gulf Bank liquidated their entire positions in Harman and requested the money in their Citigroup accounts wired to them.
On Monday, Al-Braikan sold his entire position of 341,000 shares of Harman common stock, including 50,000 shares bought that day, for a profit of about US$1.15 million according the SEC statement. He continued to liquidate his position by selling his entire position of 500 call contracts for a profit of nearly US$29,000, the lawsuit said. During the same day United Gulf Bank sold its entire Harman position for more than $400,000.
REPORTER: Is the SEC cracking down on stock hoaxes?
“I would not tell you it has become a heightened issue… It has always been an issue of concern.”
- Mary Schapiro, SEC Chairman
During the April 9th Textron stock debacle KAMCO made about US$377,000 in illegal profits after spreading false reports about an offer to take over the company. While Al-Raya made illegal profits of about US$147,000 on Textron.
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