The Miscreants’ Global Bust-Out (Chapter 18): Penson Financial’s Strange Clientele

The Miscreants’ Global Bust-Out (Chapter 18): Penson Financial’s Strange Clientele

Posted on 24 June 2011 by Mark Mitchell 

Zuhair Karam is (as he told me) “just one of the little guys.” Really, I feel almost guilty for including him in this story. I have no evidence that he himself has committed any crime. I have no evidence that he himself traded large volumes at Tuco Trading, the little Chicago brokerage that employed him in 2008.

I also have no evidence that he is a violent jihadi. I know only that he has produced jihadi propaganda. Perhaps he’s just an angry man, and not immediately dangerous.

But some of the people Zuhair knows are definitely dangerous. So I will, at this point, review some of Zuhair’s associations that have been covered in earlier chapters of this series.

For example, Zuhair knows “Specially Designated Global Terrorist” Yasin al Qadi, who was Osama bin Laden’s favorite financier, and who founded Global Chemical, a company that was (according to government forensic experts) warehousing explosives and chemical weapons, in Chicago.

Zuhair knows the Chicago proprietors of Benevolence International, the Al Qaeda front that (per the DOJ) had contacts with people who were trying to buy nukes from organized criminals in Russia.

In addition, Zuhair knows Sheikh Rajhi, the Al Qaeda financier who was a client of Penson Financial, which suddenly became the largest brokerage on the planet in 2008, by virtue of the new volume (most of it manipulative short selling targeting the pillars of the American economy) that it transacted that year.

In addition, Zuhair knows Ali Nazerali, another client of Penson Financial. Nazerali (as earlier chapters noted) was a hedge fund partner of the Russian Mafia and “Specially Designated Global Terrorist” Yasin al Qadi. He was also a former top employee of Abbas Gokal, a Pakistani intelligence asset who currently lives in Tehran, where he serves as a financial advisor to the Iranian regime.

And Zuhair knows Omar Amanat, the fellow who designed one of Tuco’s trading platforms (Lightspeed) and also founded an Islamic television station, Bridges TV, in partnership with Hamas. The CEO of Bridges TV, recall, cut off his wife’s head in an apparent honor killing, in California.

As of December 2010, I was pretty sure Zuhair also knew the Iranian behind the two Tuco accounts (one of which held more than 2,000 sub-accounts based in China) that traded 2 billion shares through Tuco, onto the Lightspeed platform, which cleared the trades through Penson Financial.

Those 2 billion shares (all transacted in the month before the 2008 collapse of Bear Stearns) accounted for around 20 percent of the volume that had then made Penson the largest brokerage on the planet.

Before the Iranian fellow was aware that I suspected that he was responsible for that trading, he told me that the Russian government was also involved with Tuco. He promised me (by email, in writing) to tell me more about the Russians.

He also promised (by email, in writing) to introduce me to his cousin, Anoush, who, I now know, employed two Iranian government agents, one of whom was indicted for his role in a Hezbollah terrorist attack, another of whom was arranging delivery of sophisticated weaponry to Hezbollah and Palestinian Islamic Jihad.

Perhaps the Iranian fellow is not the most guilty party. Perhaps he didn’t intend to get himself into this mess. In any case, I will tell you his name and provide more details about him in an upcoming chapter. But I want to give him a few days to explain himself and fulfill his promises to be helpful to my investigation.

But this much I will tell you now: the Iranian fellow’s family works at high levels for the Revolutionary Guard in Tehran. And his family is on extremely close terms with the leadership of Palestinian Islamic Jihad.

It is probably no coincidence that all of the above-mentioned individuals–Shiekh Rajhi, Zuhair Karam, Yasin al Qadi, Omar Amanat, Ali Nazerali and the proprietors of Benevolence International–were also extremely close associates of Palestinian Islamic Jihad leader Sami al Arian, who (according to the DOJ) took directions from Iranian government agents operating out of the UN headquarters in New York.

That’s why I kept calling Zuhair. And with each call, I got a bit further. I would tell him what I had learned since our previous call, and he would fill in some blanks.

For example, I told Zuhair I knew that Tuco Trading was owned by another outfit called GLB Trading, which had been founded by a guy named Robert Lechman. Zuhair confirmed for me that Robert Lechman once worked for Talat Othman, who was a director of the Bridgeview Mosque, run with help from Zuhair’s family.

In addition to being a director at a mosque that has funded terrorist outfits (including Benevolence International and Palestinian Islamic Jihad), Othman controlled a brokerage called Crescent Securities, which employed Lechman until Lechman founded GLB Trading with a guy named Gus Katsafaros, who had some other names — like Gus Constantinos and Gus Peter.

Mr. Katsafaros-Constantinos-Peter-Etc. had previously been a principal at Sort Securities, which was another brokerage owned by Omar Amanat.

As Zuhair knew, Amanat’s partner in the Islamic TV station was Nihad Awad, yet another close associate of Palestinian Islamic Jihad leader Sami al Arian (who, according to some FBI investigators, not only took directions from Iranian agents, but also provided logistical support to the September 11 hijackers)

Awad is also a close associate of Anwar al-Awlaki, an American Muslim cleric who (according to U.S. government officials) certainly provided support to some of the September 11 hijackers, and who is now a leader of Al Qaeda’s operations in Yemen.

After the September 11 attacks on the World Trade Center and the Pentagon (but before the U.S. government was aware of that these people were terrorists), Awad and Awlaki met with U.S. Department of Defense officials at the Pentagon, in a conference room just a few steps from the gaping hole that Awlaki’s co-conspirators had created by turning an airplane into a giant missile.

The U.S. government should have at least known that Awad was not to be trusted. As early as 1993, the FBI had secretly recorded a Philadelphia meeting attended by Awad and other Hamas leaders, including Omar Ahmad. At the time Awad was the deputy director of a Hamas front organization called the Islamic Association of Palestine, while Ahmad was the director.

As the the FBI knew, Ahmad had provided free housing (specifically, a bedroom in Ahmad’s own home) to the Blind Shiekh, who was at the time masterminding the 1993 terrorist attack on the World Trade Center and the subsequent (but ultimately foiled) “Day of Terror” plot to blow up multiple New York landmarks.

The Blind Sheikh is now serving a life sentence at the Butner Federal Correctional Institution in North Carolina. But he continues to be the most important spiritual inspiration for Al Qaeda. He was also the first terrorist to issue (in 1993, from his prison cell) a fatwah commanding jihadis to destroy the American economy.

Which might have seemed like nothing more than terrorist vitriol at the time. But as we now know, the Blind Sheikh had some friends who were certainly capable of doing harm to the U.S. markets.

These friends included the short seller Anthony Eligindy, whose family settled Palestinian Islamic Jihad leader Sami Al Arian in the United States. In the years leading up to his 2002 arrest, Elgindy plotted the destruction of more than 100 U.S. companies on his private internet chat site (which was hosted by a company owned by Hamas leaders who attended that Philadelphia meeting, one purpose of which was to discuss strategies for securing the Blind Shiekh’s release from prison).

As we have seen, it is almost certainly the case that Elgindy had (as his prosecutors argued) ties to Al Qaeda and advance knowledge of the September 11 attacks. He, fortunately, is now serving an 11 year prison sentence for market manipulation and bribing FBI agents.

But others in this network remain at large, and are perfectly capable of doing more damage. One of them, of course, is Omar Amanat, who (like the Hamas leader who co-founded Amanat’s Islamic TV station) is a close associate of the Blind Shiekh.

Amanat, as I mentioned, designed the Lightspeed trading platform, used by the two Tuco accounts (set up by the Iranian fellow) to transact manipulative short selling that accounted for 20 percent of the volume that had suddenly made Penson Financial (which cleared the trading) the largest brokerage on the planet in the month before the 2008 collapse of Bear Stearns.

In addition, Amanat and his brother, Irfan Amanat, founded most of the major Electonic Communications Networks (ECNs) in the United States. ECNs are essentially mini-stock exchanges that provide traders direct (and completely anonymous) access to the markets.

Experts at a 2010 hearing held by the House Committee on Homeland Security warned that ECNs could be deployed by terrorists or rogue states wishing to wage economic warfare against the United States. Multiple experts (and, in its initial assessments, the SEC) also pointed to ECNs as possible culprits in the May 6, 2010 “Flash Crash” that saw the Dow Jones Industrial average lose 900 points in a matter of minutes.

Back in September 2001, recall, Irfan Amanat used one of his ECNs (Market XT) and a high-frequency, algorithmic trading program called RLevi2 to pummel the markets (focusing specifically on ETFs to do maximum damage) with huge volumes of wash trades. This was around the same time when Amanat’s associate Anthony Elgindy was helping to destroy MJK Clearing, the nation’s largest clearing brokerage.

Earlier chapters of this story provided many examples of Al Qaeda’s ties to Iran, and it proxies, including Palestinian Islamic Jihad. A number of top national security officials have said that there is evidence that when the Blind Shiekh masterminded the 1993 World Trade Center attack, he was (like his associate, Sami al Arian) working in cahoots with Iranian government agents stationed in New York.

Meanwhile, the Iranian regime has, like Al Qaeda and other jihadi outfits, expressed a desire to do harm to the U.S. economy. Therefore, it seems prudent to closely examine any ties that might exist between Iran, U.S. based short sellers, and market manipulating brokerages.

Having spent a considerable amount of time doing just that, I can say that any such investigation inevitably leads to brokerages, including Tuco Trading, Lightspeed and others that were, in 2008, clearing their trades through Penson Financial (the largest brokerage on the planet by volume) or Wedbush Morgan (whih was the second largest brokerage in 2008, and referred much of its trading to Bernie Madoff’s criminal brokerage).

All of these brokerages should be viewed as a single operation–one that was likely utilized by the same set of clients. Certainly, most of the trading through Penson Financial and Wedbush (and from Wedbush to Madoff’s brokerage) was, in 2008, short selling directed at the pillars of the American economy. Data provided to Deep Capture shows that this trading correlated almost precisely (the same companies were targeted at the same times), suggesting that it was part of coordinated attack on the financial markets.

Another brokerage in this network was Terra Nova Financial, which cleared massive volumes of manipulative short selling through Penson Financial. Terra Nova’s subsidiary, MB Trading, also provided Tuco with one of its trading platforms.

In 2008, the CEO of Terra Nova was a guy named Michael Nolan. Up until 2007, in addition to his duties at Terra Nova, Nolan had been running a gold mining outfit called MIT MinMit, that was partly controlled by “Specially Designated Global Terrorist” Yasin al Qadi (Osama bin Laden’s favorite financier).

Yasin al Qadi, we know, was a close associate of Palestinian Islamic Jihad leader Sami al Arian. Both men figured prominently in what U.S. government investigators have called the “SAAR Network” of charities and financial firms that funded terrorism.

One of Terra Nova’s largest shareholders, meanwhile, was a massive investment fund called Wellington Management. Back in 2001, the Boston office of the FBI investigated Wellington Management because it suspected that Wellington traded on advance knowledge of Al Qaeda’s 9-11 attacks.

According to a briefing that the FBI sent to the 9-11 Commission, the FBI had received a credible tip that “Wellington Management allegedly held an account on behalf of Usama bin Laden, with a value of $100 million.”

The briefing says that the FBI concluded that Wellington certainly held an account for “other members of the bin Laden family, who invested through an offshore company.” But it said it did not find evidence that the account was “linked to Al Qaeda or terrorism.”

The FBI might have been mistaken. The offshore company was the Saudi Investment Corporation, which was based in Geneva and had subsidiaries in the Cayman Islands and other tropically opaque locales. The company was run by Yeslam bin Laden, who (by his own admission) was managing money for his brother, Osama bin Laden.

After the September 11 attacks, Swiss authorities raided Yeslam’s Geneva offices, and hauled away boxes of documents. They never filed charges, but lawyers for the 9-11 victims sued Yeslam and a few other bin Laden family members involved with the Saudi Investment Corporation, stating that Yeslam “provided substantial material support and assistance to Al Qaeda.”

And there is no doubt that Yeslam supported Al Qaeda’s mission. He had even suggested that Osama bin Laden ought to be named the family patriarch. Yeslam was also involved with Al Shamal Bank, the financial institution in Sudan that was founded by Osama bin Laden with finance from Yasin al Qadi.

That’s Yasin al Qadi, the Al Qaeda financier and “Specially Designated Global Terrorist” who was in business with the CEO of Terra Nova Financial, a brokerage located in Chicago, just a few blocks away from Yasin al Qadi’s former chemical weapons and explosives factory.

The odds are good that Yasin al Qadi was a Terra Nova client, just as his former hedge fund partner, Ali Nazerali, was client of Terra Nova’s partner brokerage, Penson Financial. It is also reasonable to assume that Wellington Management (which seems to have relationships with Al Qaeda financiers) was another Terra Nova client.

But we will never know for sure. And regulators have little chance of finding out. This is because Terra Nova Financial and Penson Financial are the two brokerages that invented so-called “sponsored access”, which gives clients anonymous direct access to the exchanges.

This was a real financial innovation: it made it possible to manipulate the markets with little chance of being discovered. If, say, Iran, wanted to attack the financial markets, it would surely conduct its manipulative trading through this particular network of brokerages.

As it happened, in 2008, Terra Nova Financial was the only U.S. brokerage ever to have been caught illegally doing business with Iran. A little more than a year before the SEC shut down Tuco Trading by “Emergency Order”, the Commission sent Terra Nova a letter that opened: “Regarding the account Terra Nova opened for a resident of Iran, a country identified as a state sponsor of terrorism…”

The letter continued by asking Terra Nova to provide “information regarding the specific nature of any products and services [Terra Nova] sold into Iran, and whether products or services were provided to the government of Iran”. The SEC was particularly interested in MB Trading, the Terra Nova subsidiary that provided Tuco with one of its trading platforms.

It is likely no coincidence that MB Trading is staffed and managed largely by the former principals of Dickinson & Co. a brokerage that was, in the early 1990s, targeted in Operation Sour Mash, a famous FBI investigation into financial firms suspected of laundering money for the Mafia and drug traffickers.

Another former principal of Dickinson was Monem Abdul Salam, the fellow who runs Saturna Brokerage, a Muslim Brotherhood outfit that is a subsidiary of ISNA, which has been implicated (by the DOJ and the Treasury Department) in the financing of jihadi terrorism.

One of ISNA’s founding directors was Palestian Islamic Jihad leader Sami al Arian. In addition, ISNA was named (along with Omar Amanat’s Hamas partner Nihad Awad) as an unidicted co-conspirator in the government’s case against the Holy Land Foundation, which was another front for Hamas.

One of Saturna Brokerage’s board members was Sheikh DeLorenzo, who, in 2007, set up the Al Safi Trust, which does nothing other than engage in naked short selling that puts downward pressure on U.S. stock prices. Recall that Shiekh DeLorenzo spent his formative years working with the Pakistani intelligence services to set up madrassahs for the training of jihadi paramilitaries.

Later, Sheikh DeLorenzo was a board member at the American Muslim Council. The other board members at that outfit: short seller Anthony Elgindy’s brother, Khalid Elgindy, and Abdurahman Alamoudi, an Al Qaeda operative who is now serving a 29 year prison sentence.

Recall that Sheikh Delorenzo and Alamoudi, the Al Qaeda operative, also ran GSISS, an outfit that was inserting Al Qaeda spies (disguised as Muslim Army chaplains) into the U.S. military.

Sheikh DeLorenzo is, of course, a close associate of Palestinian Islamic Jihad leader Sami al Arian, Hamas leader Nihad Awad, and affiliated market manipulators, such as Omar Amanat. And it is probably significant that Delorenzo’s associate, Monem Abdul Salam, was formerly a principal (along with the future proprietors of MB Trading) at Dickinson, the outfit targeted in Operation Sour Mash.

Also targeted in Operation Sour Mash was Delta National Bank, whose offices were in the building owned by the Assa Corporation, the Iranian government outfit indicted for espionage in 2009.

Meanwhile the Assa Corporation’s executives were involved with a significant number of unregistered stock brokerages and investment firms, including Tamarack Funds Trust, Voyageur Asset Management, Bach Group, Prime International Dealers, Liberty Clearing, and GW Management & Trading.

One name attached to most of these brokerages is Wilson Carvajal, who was arrested in 2010 for smuggling large quantities of heroin and cocaine. Which is not surprising, given that Iran has long been suspected by the U.S. government of trafficking in drugs, and its proxy Hezbollah is one of the world’s bigger narco-trafficking mafias.

Since Delta National Bank was charged with laundering drug money and was housed in the Assa Corp. building, it might be investigated for potential ties to Hezbollah or the Iranian regime. Outfits like MB Trading (tied to Iran, and staffed entirely by former prinipals of a brokerage investigated for ties to the drug trade) deserve similar scrutiny.

When the SEC began asking questions about MB Trading’s ties to Iran,Terra Nova replied that it had only one customer in Iran. Perhaps it did have only one customer in Iran who was officially on the books. But as I mentioned, it would be impossible to know how many customers in Iran were deploying Terra Nova’s “sponsored access” innovation.

At any rate, the SEC took Terra Nova’s reply at face value, and ended its investigation. It asked no more uncomfortable questions about Terra Nova’s ties to Iran.

Meanwhile, Terra Nova’s Head of Trading Operations, an Iranian fellow named Behruz Afshar, was running, along with his relatives, an outfit called Afshar, Inc., which was loading precious metals onto a Condor Air cargo plane parked on a remote Illinois runway.

And one of Afshar Inc.’s partners, Ghazaros Ghazarossin, was running an outfit called the Lebanese American Foundation, which has close ties to Hezbollah, the jihadi terrorist organization that was founded and continues to be directed by the regime in Iran.

Indeed, Hezbollah leader Hassan Nasrallah’s son, Issam Nasrallah, is regularly feted by the Lebanese American Foundation, and one of the foundation’s board members, Wafa Hoballah, is a relative of Hassan Hoballah, who is the head of Hezbollah’s international relations bureau.

Another board member, James Kaddo, who hails from Zgharta, a small town in Lebanon, is a close associate of Hezbollah’s top leader, and was, for a time, regularly hosting members of the Nasrallah family at his house in the United States.

It is unclear where Afshar’s cargo plane full of precious metals was headed, but it never left the runway, because Afshar and Condor Air got into some kind of legal dispute. Court summaries of the case indicate that precious metals were loaded into Condor Air cargo planes, but the details of the legal dispute have not been made public.

Around the same time that the Condor Air flight was waiting on the runway, Afshar Inc’s founding partner Hamayoun Afshar (a relative of Behruz Afshar, Terra Nova’s head of trading operations) was charged with money laundering. The case is sealed, so it is not known precisely what Hamayoun Afshar was up to, but he did jail time.

And we do know that precious metals (not to mention manipulative short selling at brokerages that provide sponsored access) are often used to launder money. In addition, we know that Hezbollah is one of the world’s premier money laundering outfits.

This is not necessarily an accusation. I do not have smoking gun evidence that Terra Nova was doing business with Hezbollah. I wish merely to note that it is a bit odd that the head of trading operations at a destructive, naked short selling brokerage with ties to Iran and a “Specially Designated Global Terrorist” was loading cargo planes full of precious metals with a money launderer who has direct ties to Hezbollah, one of the world’s leading jihadi outfits.

It is also not typical for financial professionals in Chicago to try to overthrow the government of Afghanistan. But that’s what Terra Nova’s executive board member Chritian Doloc (who was also Terra Nova’s chief technology officer in charge of sponsored access) tried to do in his previous capacity as a principal with Ritchie Capital Management.

In the late 1990s, the head of Ritchie Capital Management, Joe Ritchie, had held meetings with the Taliban in order, he says, to gain permission to set up small companies in Afghanistan. But Ritchie’s relations with the Taliban soured, and in early 2001, he financed, organized, and led an effort to have an Afghan warlord named Abdul Haq invade Kabul and topple the Taliban regime.

Alas, before the plan could be implemented, the September 11 attacks occurred, the U.S. invaded Afghanistan, and Abdul Haq was assassinated, reportedly by Taliban gunmen.

Thanks largely to Ritchie’s efforts, Abdul Haq had sometimes been named by the Western media as being a potential leader of Afghanistan. Abdul Haq, like the Taliban and a large percentage of the Afghan population, was a Pashtun, and the theory was that he could have united the Pashtuns and formed a government that would have been somewhat less radical than the Taliban regime.

Back in the 1980s, when the mujahadeen was still fighting the Russians, and America was on the side of the mujahadeen, Abdul Haq had extensive contact with the CIA, and was considered a valuable source of information about the war.

But if Abdul Haq had ever become a leader of Afghanistan, it would not have been in the best interests of the United States. For one, he was, like many Afghan warlords, a major league heroin trafficker. Worse, he was the former deputy to a warlord named Yunus Khalis.

It was Yunus Khalis and another warlord, Gulbuddin Hekmatyar, who first gave sanctuary to Osama bin Laden when bin Laden moved Al Qaeda headquarters from Sudan to Afghanistan in 1996. And when the U.S. invaded Afghanistan in 2001, Yunus Khalis’s troops (in cahoots with D-Company, the mafia-jihadi outfit that was, recall, manipulating the markets through Tuco partner Man Financial in 2008) helped Osama bin Laden escape.

During the Afghan war with the Soviets, the CIA funded the mujahadeen, but did so through the Pakistani ISI, which chose the warlords who received the most cash and weapons. Hekmatyar was Pakistan’s favorite warlord and many in the U.S. government figured he was the most capable of fighting the Soviets.

But even back in the 1980s, there were serious concerns about Hekmatyar because he was the most radical of the jihadis, and he was rabidly anti-American.

In fact, Hekmatyar is widely considered to be even more dangerous than Osama bin Laden was. While the Al Qaeda leader seemed at least to be a rational actor, Hekmatyar is a genuine lunatic — a psychopath who is hateful to the core, a man who loves to kill for the sake of killing.

Osama bin Laden was a modest man who chose his targets carefully. Hekmatyar is a ranting egomaniac who has indiscriminately slaughtered countless civilians, driven stakes through the heads of his enemies, and ordered his troops to stone to death otherwise good Muslims who have done nothing worse than listen to Afghani pop songs.

Hekmatyar is also the most ardent advocate for an offensive nuclear attack on the United States.

Osama bin Laden sometimes said that Al Qaeda already had nukes, and that he had a right to use them “defensively”. That word “defensively” had a broad interpretation. The September 11 attacks, for example, were “defensive”, according to bin Laden.

However, on the one occasion when he was asked by an Arab journalist specifically under what circumstances he would use nukes, the Al Qaeda leader said he would use them if America were to use them against him. Which seemed, in its own way, vaguely level-headed.

Hekmatyar, by contrast, says the jihadis have to go on the offensive and use nukes to annihilate Americans, even if they’re cowering or prostrating themselves at the jihadis’ feet. If they are infidels, they must be exterminated. Period. That’s Hekmatyar’s line.

Before the Taliban came to power, Abdul Haq had tried to put together a shadow government to rule Afghanistan and had excluded Hekmatyar, so it was assumed that the two warlords were no longer friendly. But by 2001, the nature of the relationship between Hekmatyar and Abdul Haq was less clear. By the same token, it was not clear whether Abdul Haq still maintained ties with Osama bin Laden.

But when the Chicago stock trader Ritchie and Abdul Haq were planning their coup, there was no doubt that Abdul Haq was still on close terms with Yunus Khalis, the warlord who would (with the help from Man Financial client D-Company) soon help bin Laden escape U.S. troops.

In any case, Abdul Haq no longer had much contact with the CIA, which had come to mistrust him. Meanwhile, Abdul Haq had developed brotherly relations with Russia and Iran.

Indeed, Abdul Haq owed his new-found status as an independent warlord to the support that he received from his principal state sponsor, Iran. At the time, Iran was not on friendly terms with the Taliban, and it was supplying weapons and money to a number of warlords, including Abdul Haq and Hekmatyar, who had presented themselves as possible alternatives. (After the U.S. invaded Afghanistan, Iran began to lend support to Al Qaeda and the Taliban, along with Hekmatyar).

It is likely that Ritchie’s plot to topple the Afghan government had to do with his relations with the Iranian regime and the Russian government. Ritchie’s ties to Russia went back to Soviet days, when Mikhael Gorbachev’s then chief economic advisor, Abel Aganbegyan, remarked that “my dear friend Joe Ritchie is able to use socialist principals and still make a profit.”

Aganbegyan is widely praised for being the architect of Perestroika. But he was also (according to diplomats and NGO officials whom I interviewed when I was occasionally writing about Eastern Europe for The Wall Street Journal editorial page) a business partner of the Armenian Mafia. Moreover, he was the chief instigator, with Iran, of Armenia’s war with Azerbaijan over Ngorno Karabakh.

Ever since, the Armenian Mafia and Aganbegyan have had close relations with Iran. Indeed, the Armenian Mafia is essentially a proxy of the Iranian regime.

All of which might be of mere biographical and historical interest, but it should be noted that Terra Nova Financial – an outfit that seems to be one step removed from Iran, Hezbollah, the world’s most maniacal jihadi, and Osama bin Laden’s favorite financier – is also an important player in the U.S. financial markets.

Indeed, Terra Nova founded Archipelago, which is America’s largest online stock exchange.

In 2005, the New York Stock Exchange bought Archipelago from Terra Nova, and it is now known as NYSE Arca, but Terra Nova’s founder, Gerald Putnam, still runs it. The SEC initially named Archipelago as being a contributing factor in the famous “Flash Crash” that caused the U.S. markets to lose 900 points on May 6, 2010.

TheStreet.com reported at one point that Terra Nova Financial was being investigated because authorities believed that Terra Nova’s strange trading was principally responsible for triggering the Flash Crash.

The SEC ultimately blamed the Flash Crash on a big trade in e-minis by a single trader at a firm called Waddell & Reed, but that conclusion has been thoroughly ridiculed by the Chicago Board Options Exchange and by a highly regarded firm called Nanex, which noted that the Flash Crash occurred before Waddel’s e-mini trade.

I have not been able to confirm the veracity of the story in TheStreet.com, but one indication that Terra Nova was concerned about an investigation into its potential role in the Flash Crash is that it was sold just days after TheStreet.com article was published. This, we know, is the usual cure – as soon as a financial firm comes under investigation, it is quickly sold to another in its network.

In this case, Terra Nova was flipped to Lightspeed, the outfit founded by Omar Amanat (partner of Hamas in an Islamic TV station). The purchase was announced on June 16, 2010, and we can assume it was in the works shortly after the Flash Crash.

* * * * * * * *

It is worth recalling that this network of brokerages also has important ties to Russia. This fact might not be unrelated to the brokerages’ ties to jiahdis and Iran, one reason why I want to give that Iranian fellow a few days to full his promise to tell me what he knows about the Russian government’s involvement with Tuco Trading.

As we already know, the owners of a Tuco account called Orange Diviner included a member of the Mogilevich organization (which is tied up with the Russian intelligence services) and the top henchmen of Roman Abramovich (who helped orhestrate Russian prime minister Vladimir Putin’s rise to power).

Tuco was shut down by an SEC “Emergency Order” on March 9, 2008, but it is more than likely that the Orange Diviner account continued to trade through Tuco’s partner brokerages, including Man Financial (which, like the others, cleared most of its trades through Penson Financial)

Indeed, Man Financial, which provided Tuco with another of its trading platforms, probably introduced the Orange Diviner account to Tuco in the first place. It is, in any case, a fact that Man Finacial had a key partnership with the Moscow-based BrokerKreditServis (BKS) whose “head of international” Alexei Ivin set up the Orange Diviner account.

As noted in earlier chapters, BrokerKreditServis is tied to the Russian intelligence services. It is run by Dmitry Peshnev Podolskiy, former head of Alfa Bank, which has been an important financier of Iran’s nuclear program.

Man Financial, as I mentioned, is the brokerage that transacted massive volumes of wash trades for Naresh Patel of D-Company, an Al Qaeda affiliate. Man Financial’s vice president of trading control (the person who would have had oversight over those Al Qaeda trades) was a woman named Neda Nabavi.

Nabavi co-founded an Iranian social networking club called “Shabeh Jomeh” with Tamilla Ghodsi, a Goldman Sachs executive whose Razi Health Foundation was funneling money to the Alavi Foundation, the Iranian government outfit that was (like Palestinian Islamic Jihad leader Sami al Arian) taking orders from Iranian agents working out of the UN headquarters in New York.

The Alavi Foundation and its subsidiary, the above-mentioned Assa Corporation, were indicted by the DOJ in 2009 for espionage and funding Iran’s nuclear program.

Recall that the Manhattan District Attorney’s office suspected that the Assa Corporation had traded through secret accounts at Credit Suisse, which referred the trades to U.S. brokerages that have not yet been named (a former employee of the DA’s office is still investigating).

In 2009, Credit Suisse was fined $500 million for conducting trading on behalf of Libya and Sudan, and for transfering $1 billion directly to Iran’s nuclear weaspons and ballistic missiles programs.

As I mentioned in an earlier chapter, Credit Suisse was introduced to the Iranian regime by Leon Black’s Apollo Management, which is one of Credit Suisse’s most important clients.

Meanwhile, Apollo’s co-founder, Rene-Thierry Magon del la Villehuchet was among the key feeders to the Madoff Ponzi fund. Recall that the other key Madoff feeders included: Man Group (owner of Man Financial); Sheikh Mahfouz (who, according to the Treasury Department, set up an Al Qaeda front called the Muwafaq Foundation, with “Specially Designated Global Terrorist” Yasin al Qadi); Marc Rich (indicted for trading with Iran while he was working out of a New York building owned by the Assa Corporation); and the former finaciers of Ivan Boesky (who was doing business with the Iranian regime while working out of the Assa Corporation building).

In addition, the Austria-based Bank Medici (whose clientele was comprised almost entirely of Russians with ties to Vladimir Putin) was feeding the Madoff Ponzi scheme. And as we know, Madoff was using a significant portion of the Ponzi money to cover-up “failures to deliver” liabilities that he had accrued as a result of conducting manipulative short selling for his clients (no doubt including the people who were feeding him the money he used to cover up his illegal trading).

Apollo (co-founded by one Madoff’s biggest feeders) was also a partner of Bayrock, the money laundering outfit run by Felix Sater, a member of the Mogilevich organization with close ties to the Russian intelligence services. The other key Bayrock partner was Russian Mafia boss Tamir Sapir, who once ran a company that sold high-tech electronics equipment to KGB operatives in New York.

Sapir’s partner in that operation was Semyon Kislin, said by the DOJ to be a “member” of the gang that was led by Vyacheslav Ivankov, a Russian Mafia boss who was assassinated on a Moscow street in 2009, shortly after revealing that he had been employed by the Russian intelligence services.

Semyon Kislin’s nephew, Arik Kislin, also said by the DOJ to be a member of the Ivankov gang, is a former business partner of Babesh Seroush, an Iranian arms dealer and intelligence asset. Kislin is also the financier of Carlin Equities, whose principals were, in 2008, operating through Tuco Trading.

As we will see in an upcoming chapter, one Carlin principal is a hedge fund partner of the Iranian fellow who set up the two accounts that sold short 2 billion shares (transacted over the Lightspeed platform) in the month before the collapse of Bear Stearns.

These people, not incidentally, are all on close terms with Omar Amanat, the jihadi-tied market manipulator who designed the Lightspeed trading platform. Recall that Amanat also founded Datek Securities with finance from Robert Brennan, who was implicated in the 1999 scandal that saw the Russian government and the Russian Mafia (especially the Mogilevich organization) manipulating the U.S. markets and laundering more than $7 billion through the Bank of New York.

Brennan was eventually indicted for manipulating stocks through A.R. Baron, which was the clearing firm for Omar Amanat’s Datek Securities. In 2001, A.R. Baron was indicted for manipulating stocks in league with five members of La Cosa Nostra and White Rock Partners, which was controlled by the above-mentioned Felix Sater, who escaped jail by offering to use his Russian intelligence and Al Qaeda contacts to help the U.S. government relieve Osama bin Laden his Stinger missile arsenal.

* * * * * * * * *

After the collapse of Bear Stearns, the CEOs of multiple Wall Street banks complained loudly that manipulative short selling was causing their stocks to go into death spirals. The SEC responded in June, 2008 by issuing an “Emerency Order” banning naked short selling of stock in 19 major financial instutions, including Lehman Brothers and other titans of Wall Street.

Stock prices soared in value until August 12, 2008, at which point the SEC lifted its “Emergency Order” under pressure from the hedge fund lobby. On August 13, the manipulative naked short selling resumed, and stock prices began to plummet. SEC data shows that “failures to deliver” (resulting from manipulative short selling) occured in massive volumes from August 13 until September 18 when the SEC was forced to issue a new “Emergency Order” this one banning all short selling.

That “Emergeny Order” was written in somewhat impenetrable bureaucratic language, but it is worth quoting at length. I will translate after I have quoted it.

It said that the SEC had been concerned since July of that year about “artificial price movements based on unfounded rumors regarding the stability of financial institutions and other issuers exacerbated by naked short selling…”

The SEC continued: “Recent market conditions have made us concerned that short selling [that is, abusive short selling] in the securities of a wider range of financial institutions may be causing sudden and excessive fluctuations of the prices of such securities in such a manner so as to threaten fair and orderly markets. Given the importance of confidence in our financial markets as a whole, we have become concerned about recent sudden declines [of stock prices].”

The SEC explained further what was at stake: “Such price declines can give rise to questions about the underlying financial condition of an issuer [the issuer being the company targeted by abusive short selling], which in turn can create a crisis of confidence, without a fundamental underlying basis. This crisis of confidence can impair liquidity and the ultimate viability of an issuer, with potentially broad market consequences…As a result of these recent developments, the Commission has concluded that [abusive short selling]…could threaten fair and orderly markets.”

In other words, the SEC, in its “Emergency Order” of September 2008, described the situation precisely as I have described it. It said that abusive short selling was “impair[ing] liquidity and the ultimate viability” of major financial institutions. That is, abusive short selling had sent stocks into “sudden declines” (read: death spirals), making it impossible for the banks to raise new capital (“liquidity”, in the SEC vernacular), and threatening the banks’ “viability.”

In fact, by September 18, some banks, such as Lehman Brothers, had already been made “unviable.” Which is to say, they were gone.

Since the U.S. banking system had by that time evolved to include leverage of 30:1, and much of that leverage rolled over every 91 days, no bank could survive without access to capital. We at Deep Capture deplore the fact that our nation’s banking system was permitted to leverage up its “borrow short and lend long” business model, but it was what it was.

Either way, the question remains: would the banks have survived if it were not for the manipulative short selling? The answer is a definitive “yes.” The SEC made this clear in September 2008, despite having long denied that abusive short selling was a problem.

And make no mistake: when the SEC said in its “Emergency Order” that abusive short selling had “threatened fair and orderly markets” and the “viability” of America’s biggest banks, what it really meant was that abusive short selling was collapsing the American financial system. That’s why it was an “Emergency.”

And as U.S. Treasury Secretary Henry Paulson made clear at the time, the collapsing financial system was threatening the survival of the nation. As you might recall, Secretary Paulson was moved to utter the word–“apocalypse.”

Perhaps the US Treasury Secretary was prone to exaggerations. Who knows? But plenty of people at the time agreed (and with good reason) that the disaster had the potential to wipe out the US financial system. The fear was that the stable and prosperous America we had long known could come to an end.

It is thus fairly amazing that the SEC and DOJ, as of June 2011, have yet to prosecute a single person who engaged in that abusive short selling during 2008.

Let me state that more clearly. In September 2008 the SEC said, in essence, that manipulative short selling had almost destroyed the United States. And as of June 2011, the SEC and DOJ have yet to charge anyone for it. The Feds have not nailed a single one of the naked short selling brokerages that stand accused (along with their market manipulating clients) of almost wiping out the nation.

This is not an exaggeration: The SEC issued an “Emergency Order” because it concluded that criminals had destroyed Lehman Brothers and were about to end the “viability” of many other financial institution. The criminals, the SEC concluded, had brought the nation to the brink. And since then, the SEC has let every one of those criminals run free.

Moreover, judging by its current silence with regards to abusive short selling, the SEC seems inclined to let the criminals (or, say, prospective financial terrorists) do it again. The worst a naked short selling brokerage can expect is a disciplinary action from the Financial Industry Regulatory Authority (FINRA), which is literally owned and operated by the brokerages themselves.

Typically, FINRA fines the offending brokerage around $15,000, about the cost of a one trader’s typical night out in Vegas.

So who were the criminals? Well, we have begun to understand who they were. They were the jihadi and Mafia-tied clients of the nation’s bigggest brokerage, Penson Financial (which violated the SEC’s 2008 “Emergency Order” banning naked short selling, and received from FINRA a fine of around–$15,ooo).

And they were the Mafia-tied and jihadi clients of Bernie Madoff’s Mafia-infested brokerage, which covered up the liabilites it accrued as a result of trading that was referred to it (in sigificant quantities) by Wedbush Morgan (which violated the 2008 “Emergency Order,” and received a FINRA fine of around — $15,000.)

As the Feds began to take a closer look at Penson, FINRA leveled a bigger fine, $450,000, for Penson’s failure to implement mechanisms meant to prevent market manipulation and money laundering by terrorists and the Mafia. The SEC apparently concluded that this fine was serious enough punishment and (so far as is publicly known) is conducting no further investigations of Penson.

Most of the other brokerages that violated the “Emergency Order” cleared their trades through Penson Financial. One was Lightspeed, the outfit founded by the jihadi and Mafia-tied Omar Amanat. For engaging in activity that helped bring about the near total collapse of the financial system, Lightspeed received a FINRA fine of around–$15,000.

Meanwhile, FINRA determined that Terra Nova Financial had allowed a client named Hsu Tung Lee to use a high-frequency algorithmic computer to generate massive volumes of what FINRA called “erroneous” short sales–which were, in fact, naked short sales.

That is to say, a high-frequency algorithmic computer was churning out massive volumes of stock that simply did not exist. This deluge of phantom supply was likely not “erroneous”. After all, one can turn off a computer before the volumes it generates reach the level where they are “massive.”

Hsu Tung Lee’s massive volumes (ultimately cleared, of course, through Penson Financial) occurred in September 2008, the month when the markets collapsed, taking with them Lehman Brothers and other large financial institutions. Mr. Lee was certainly not the only person pummeling the markets with naked short selling in 2008 (we will meet more), but given what we know so far about the others who were doing so, Mr. Lee’s background seems interesting.

I tried to ask Terra Nova about Mr. Lee, but its executives didn’t return my calls. Maybe they were busy orchestrating another coup with some maniacal jihadi, opening a uranium mine with “Specially Designated Global Terrorist” Yasin al-Qadi, or dealing with another Hezbollah-linked Air Condor shipment of precious metals.

At any rate, they wouldn’t answer, so all I can do is report what I know, which is that there are many people named Hsu Tung Lee, and most of them are plumbers, architects, and other people in engaged in professions that would seem to have nothing to do with computer-generated high-frequency trading and short selling of phantom shares.

As for people with that name who might have access to a high-frequency trading program, I have been able to find only one – a certain Hsu Tung Lee who is also known as Thomas Lee.

For a time, this Mr. Lee worked for Refco, the criminal naked short selling outfit that was tied to BAWAG, the Austrian bank whose clients included the Mogilevich organization and people like Roman Abramovich (Vladimir Putin’s right hand man). This was the same BAWAG whose death spiral hedge fund divisions (which naked shorted through Refco) were run by Martin Schlaff and Solomon Obstfeld.

Recall that Martin Schlaff, a former KGB asset who worked with Vladimir Putin in East Germany, is a close associate of Muammar Qaddafi and the leaders of Hamas (who were, with Schlaff’s help, laundering money through Refco).

Obstfeld, recall, was previously the top trader at Omar Amanat’s Datek Securities. He was later tied to Global Securities, along with the Iranian Assa Corporation, Felix Sater (Russian Mob boss and intelligence asset), Anthony Elgindy (tied to Al Qaeda), Ali Nazerali (hedge fund partner of “Specially Designated Global Terrorist” Yasin al Qadi) , and Yvgeny Dvoskin-Lozin-Kozin-Etc (who, recall from early chapters, was the alleged ring-leader of 10 Russian spies arrested in 2010).

Before Refco, Mr. Lee worked for the Depository Trust and Clearing Corporation, the important quasi-regulator responsible for “settling and clearing” trades. In fact, while at the DTCC, Mr. Lee patented a mechanism that was designed specifically to settle and clear short sales.

This mechanism of Mr. Lee is among those still used by the DTCC ostensibly to ensure that stock sold short is actually real stock, and not, say, computer-generated “erroneous” short sales of phantom stock that will not be “settled” (that is, “delivered”).

Mr. Lee’s mechanism woud have been put in place by Diran Kaloustian, then president of the DTC (the subsidiary that merged with NSCC to become DTCC). As an earlier chapter noted, Kaloustian was a business partner of Solomon Obstfeld and a whole cast of other naked short selling characters who were close business associates of Felix Sater, the Russian Mafia boss with ties to the Russian intelligence services and Al Qaeda.

To be clear: Mr. Lee’s mechanism was put in place when the DTCC was effectively in the pocket of Russians with ties the Russian government’s intelligence apparatus. As crazy as it sounds that the most important institution on Wall Street was in the pocket of the Russian Mafia, and possibly Russian spies, it is, unfortunately, the truth.

If you doubt this, please return to: Chapter 14: How the Russian Mafia Captured the DTCC — and the American Financial System.

At any rate, judging by the fact that upwards of two billion shares “failed to deliver” at the DTCC every day in the months leading up to the financial crisis of 2008, it seems that Mr. Lee’s mechanism (among others) did not work.

If this is indeed the same Mr. Hsu Tung Lee who was in September of that year using a high-frequency algorithmic computer to generate massive volumes of phantom stock, it is possible that Mr. Lee did not want that stock to be delivered because he wanted to generate fake volume that would drive down prices.

There are those who might say it is even possible that Mr. Lee designed his patented DTCC mechanism so as to have flaws that could be exploited at a later opportunity. However, some people have accused Deep Capture of having an overly suspicious and conspiratorial turn of mind, so we will not opine on that possibility.

However, we do feel obliged to note that aside from his DTCC patent, Mr. Lee has one other patent. It is for something called “volumetric ultrasound imaging using 2D CMUT arrays.” I do not know what that is, but Mr. Lee invented it with Roman Maev, whose name appears with Mr. Lee’s on the patent.

Before going into the volumetric ultrasound business with Mr. Lee (this business is apparently quite profitable), Roman Maev was a military scientist and Soviet government official with duties involving the Soviet Union’s nuclear weapons and ballistic missiles program.

In 2008, Mr. Maev was appointed Russia’s Honorary Consul to Canada.

At any rate, Mr. Lee’s massive volumes of “erroneously” manipulative short sales at the height of the 2008 financial crisis earned Terra Nova a FINRA fine of around–$15,000.

Mr. Lee himself was fined — $0.

To be continued…

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