Securities regulators on Thursday sued a well-connected Kuwaiti financier whose investment firm is partly owned by Citigroup Inc , saying he reaped millions in suspicious profits after false takeover reports sent shares of two U.S. companies soaring.
The civil lawsuit against Hazem Khalid Al-Braikan is sure to send shockwaves through the Middle East investment community. He is chief executive of Al-Raya Investment Company, which is 10 percent owned by Citigroup, and he is considered a respected member of the Kuwaiti money management world.
The U.S. Securities and Exchange Commission said 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 .
Harman shares briefly soared on Monday after several media outlets reported that a private investment firm called Arabian Peninsula Group (APG) planned to buy it at a big premium. The incident was similar to an alleged offer for Textron in April that never materialized.
The defendants profited from amassing large positions in stocks and options in the two companies, the SEC said in court papers filed in Manhattan federal court.
Other defendants include investment bank United Gulf Bank, and KIPCO Asset Management Co (KAMCO). Both are part of the Kuwait Projects Co. (KIPCO) group, according to the SEC.
Al-Braikan, reached by telephone by Reuters, declined to comment.
KIPCO also declined to comment when contacted by Reuters. The other defendants could not immediately be reached.
The SEC said Al-Braikan is CEO of Al-Raya, which the SEC said purports to be an international asset management company created in 2007 with KAMCO.
Citigroup confirmed it has a stake in Al-Raya but declined further comment.
The lawsuit deepens problems faced by Bahrain's banking sector, one of the biggest financial centers in the Middle East.
Two Bahrain banks were connected to multibillion-dollar corporate defaults in neighboring Saudi Arabia in June that have since shaken the Gulf Arab financial sector and spurred investor calls for more transparency.
Al-Braikan's resume is available online. It says he has served on multiple boards, has several professional degrees and has military experience including serving in operations Desert Shield and Desert Storm.
The resume says he won the U.S. Medal of Honor in 1991 for his work in the Gulf War. The Medal of Honor usually is awarded by the U.S. president for self-sacrifice beyond the call of duty and at risk of one's own life. It also says he won a medal of honor from the president of Kuwait and the King Fahad medal of honor from Saudi Arabia.
The resume says he received basic training with U.S. armed forces at Fort Dix, New Jersey, in 1990.
It lists his memberships on nine boards of directors in Kuwait, the United States and Luxembourg.
Harman shares briefly soared on Monday after several media outlets reported that a private investment firm called Arabian Peninsula Group (APG) planned to buy the high-end audio equipment maker for $49.50 a share -- about double the Friday close of $25.18 -- through a tender offer.
In April, an alleged offer from a United Arab Emirates-Kuwait consortium for Textron sent the diversified manufacturer's shares up 47 percent. No buyout ever happened.
Neither Harmon nor Textron was immediately available for comment on Thursday.
The SEC said Al-Braikan had engaged in an aggressive trading strategy of buying Harman stock and call options in the four trading days before the phony tender offer.
The commission said Al-Braikan and United Gulf Bank liquidated their entire positions in Harman and requested the money in their Citigroup accounts wired to them.
On July 20, 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 $1.15 million.
He sold his entire position of 500 call contracts for a profit of nearly $29,000, the complaint said.
It said United Gulf Bank sold its entire Harman position for a profit of more than $400,000.
The SEC contends that KAMCO's illegal profit on Textron stock on April 9 after false reports about an offer to take over the company was about $377,000. It said Al-Raya made illegal profits in Textron shares of about $147,000.
The SEC can bring civil, not criminal charges. It said it was seeking the disgorgement of ill-gotten gains and penalties from the defendants.
In Washington, SEC Chairman Mary Schapiro, asked by reporters if the agency was cracking down on stock hoaxes, said the issue was always one of concern.
I would not tell you it has become a heightened issue, she said. It has always been an issue of concern.
(Reporting by Martha Graybow and Grant McCool; Additional reporting by Thomas Atkins in Dubai, Ulf Laessing in Riyadh, Robert MacMillan and Jon Stempel in New York and Rachelle Younglai in Washington; Editing by John Wallace, Ted Kerr and Gary Hill)