The Miscreants’ Global Bust-Out (Chapter 13): The Collapse of Refco; the Take-Down of National Heritage Life; and the Day the Mafia-Jihadi Nexus Discovered Penson Financial
Posted on 07 June 2011 by Mark Mitchell
A moment of silence for Solomon Obstfeld, the man who fell over the 9 foot wall surrounding his Park Avenue apartment’s balcony and dropped 19 floors to his death in June, 2010. His death was a tragic loss, for he knew strange things about America’s financial system.
Fortunately, there are others who can tell us things–people like Omar Amanat, who employed Obstfeld as the top trader at Datek Securities before founding an Islamic TV station with Hamas operative Nihad Awad (who plotted the release from prison of the Blind Sheikh, mastermind of the 1993 terrorist attack on the World Trade Center) and Muzzammil Hassan (who chopped off his wife’s head, in California).
Also, Robert Brennan, who financed Datek and was implicated in the Russian government and Mafia money laundering and stock manipulation scandal that centered on the Bank of New York in the late 1990s.
And Datek’s former vice president Frank Petrilli, who bought Bernie Madoff’s brokerage, apparently to help cover up the liabilities (in the form of “securities sold and not yet delivered”) that Madoff had accrued by helping his clients (apparently including Al Qaeda Golden Chain member Sheikh Mahfouz and people with ties to the Russian government) demolish U.S. stock prices.
Also, Datek’s clearing firm, A.R. Baron, which was linked (along with Brennan and the others) to the Bank of New York scandal and indicted for manipulating stocks in league with Felix Sater, a Russian Mafia boss who worked with Russian intelligence in an effort to do an arms deal with Al Qaeda.
And, of course, Michael Milken, who (as I demonstrated in earlier chapters) knows all of these people and is the closest business associate of Gene Phillips, whose Sinex Securities helped the Russian government and the Mogilivech organization (and probably also Bank Al Taqwa, which set up Al Qaeda’s main operating base in Europe) manipulate the markets and launder billions of dollars into the Bank of New York.
We can ask all of those people about the strange workings of the American financial system–strange workings that seem not to have escaped the attention of jihadis and the Russian government, among others.
About these strange workings, we can also ask Solomon Obstfeld’s hedge fund partner, Martin Schlaff, the former Stasi/KGB intelligence agent who is among Russian premier Vladimir Putin’s closest cronies, and who bribed Israeli politicians while financing terrorist Yasir Arafat’s seedy casino in Jericho and later brokered a deal that saw Israel allowing Libyan dictator Muammar Qadaffi to support Hamas.
As we know, Schlaff and Solomon Obstfeld were partners in a hedge fund called LH Financial, which was a unit of an Austrian bank called BAWAG. Schlaff, meanwhile, controlled another BAWAG-affiliated hedge fund called Balmore Investments.
Like most of the hedge funds and brokerages in this network, LH Financial and Balmore were major players in the world of “death spiral” PIPEs finance.
I mentioned “death spiral” finance earlier. A reader wishing to gain a general sense of this obscure (but immensely important) corner of the financial system might read a February, 2007 Forbes Magazine article by Nathan Vardi: “Sewer Pipes – Hedge funds are posting nice returns from deals that may involve ex-cons, stock scammers–even the Mob“.
The Forbes article makes clear how Mobbed-up this type of finance is, naming numerous East Europeans in the process. It also explains that this type of finance (deployed in conjunction with manipulative short selling) is used to destroy American companies. Indeed, many experts estimate (conservatively) that hundreds of companies have been destroyed or seriously hobbled by death spiral finance.
Given the profiles of the people who dominate the death spiral world, it cannot be ruled out that they are motivated by more than money. Indeed, we must seriously consider the possibility that they have engaged in economic warfare against the United States.
The market destruction itself undermines the national economy, but often the destruction affects more than the economy. Many of the victims of death spiral finance have been biotech companies that were developing treatments for deadly diseases. The Department of Defense, which often supports such companies, considers the development of new medical treatments to be vital to America’s national security.
Other victim companies were in businesses more directly related to national security. For example, a company called Force Protection was hit by a death spiral scheme in 2007, right at the time when Force Protection’s principal product was being credited for turning around the war in Iraq.
During the early years of that war, the U.S. military was seriously constrained by road-side bombs, most of them “improvised explosive devices” (IEDs). These road-side bombs killed more American troops in Iraq than almost any other weapon.
But Force Protection had a solution: “Mine Resistant Ambush Protected” vehicles, known as MRAPs. These armored vehicles were generally impervious to IEDs. The U.S. military bought some of them and they were a great success.
As of 2007, there had been nearly 300 IED attacks on MRAPs, but only one death (a soldier was crushed when an explosion caused an MRAP to roll over, but even in that case the vehicle’s armor was not pierced). The Department of Defense determined that these MRAPs were the secret to defeating Al Qaeda and its allies in Iraq, so it ordered more of them.
But Force Protection had done a PIPEs deal in late 2006, and a few months later (beginning in June 2007) it was subjected to waves of manipulative short selling (which is what typically happens in a death spiral PIPEs scheme). As a result, the company’s stock price nose-dived, so it was unable to do a secondary offering to raise new capital.
Without sufficient capital, Force Protection was unable to meet the DOD’s demand for additional MRAPs, no doubt to the pleasure of Al Qaeda and others (perhaps even including the Russian government) who would have liked to see the United States lose the war in Iraq.
Another casualty of death spiral bust-outs was Refco, which until its demise in 2005, was one of the biggest brokerages in America. At the center of the scandal that took down Refco was BAWAG, the Austrian bank that was home to the death spiral hedge funds controlled by Martin Schlaff and Solomon Obstfeld.
Refco helped BAWAG cover up bad loans, many of which were brokered by Martin Schlaff (the former KGB and Stasi agent). For example, Refco covered up a loan that BAWAG made to Schlaff’s business partner, Michael Chernoy (sometimes spelled Cherney), a Russian Mafia figure who, like Mogilevich (another Schlaff business partner) is likely tied to the Russian intelligence services.
Not only does Chernoy operate in Russia with impunity, but he used to be the sponsor of something called The Intelligence Summit, which invited spymasters from around the world to discuss their tradecraft. Former CIA director James Woolsey sat on The Intelligence Summit’s board of advisers until he resigned, citing Chernoy’s ties to the Russian Mafia and various murders.
As a former top Refco executive explained to me, BAWAG was also using Refco to launder money for terrorist groups–first Yasir Arafat’s PLO, and later Hamas. Yasir Arafat, of course, was brought to the table by Martin Schlaff (who got BAWAG to finance Arafat’s casino in Jericho).
It was also Schlaff who brought Hamas to the table. Meanwhile, Schlaff was still funneling bribes (through BAWAG) to successive Israeli prime ministers.
Schlaff (along with Datek client Diamond Joe, Chernoy and other Russian Mobsters with Israeli passports) were also also among the principal financiers of right-wing Israeli politicians, such as Avignor Lieberman, who were nurturing Hamas in hopes of derailing the PLO and undermining peace talks with the Palestinians.
That right-wing Israeli politicians helped create Hamas is a fact, though it is rarely reported. One exception is a Wall Street Journal story titled, “How Israel Helped to Spawn Hamas.”
Schlaff and his hedge fund partner Obstfeld also played a role in developing business relationships between BAWAG and companies in Iran. Meanwhile, BAWAG and a financial institution in Bahrain called Arcapita Bank led a $1 billion debt securities underwriting syndicate for a five year shariah financing facility.
Arcapita is affiliated with the Muslim Brotherhood (which created Hamas and indoctrinated a number of Al Qaeda leaders), and has several interesting people sitting on its board of directors. One of them is a Muslim Brotherhood figure named Taqi Usmani, who has been an strong supporter of violent jihad.
Before the September 11 attacks, Usmani was among a group of religious scholars who traveled to Afghanistan, ostensibly to convince the Taliban to hand over Osama bin Laden. It later emerged, however, that his delegation had quietly encouraged the Taliban to continue protecting the Al Qaeda leader.
Apparently, as Usmani put it in one of his writings: “Killing (by jihadis) is to continue until the unbelievers pay jizyah (tax) after they are humbled and overpowered.”
Of course, BAWAG also did business with the Russian Mafia (Chernoy, Mogilevich, and others). In addition, BAWAG’s clients included oligarchs such Roman Abramovich, who was the right-hand man to Russian prime minister Vladimir Putin.
Recall that Abramovich (another Madoff client) and two of Mogilevich’s henchmen (both linked to the scandal that centered on the Bank of New York) were the masterminds of the Orange Diviner account at that little brokerage in Chicago, Tuco Trading.
As we know, Tuco conducted manipulative trading equal to more than 20 percent of the volume of the largest brokerage on the planet during the month before the 2008 collapse of Bear Stearns.
In the fall of 2010, I was spending a lot of time on the phone with Zuhair Karam, a jihadi who worked for Tuco, because it seemed that Tuco and its partner brokerages had contributed significantly to the 2008 financial crisis.
When I first began talking to Zuhair, I knew that much of Tuco’s massive volume was transacted over several trading platforms. One of these trading platforms was provided by Man Financial, a unit of Man Group, one of the feeders to the Madoff Ponzi fund (which was used, partly, to cover up liabilities Madoff’s brokerage accrued as a result of manipulative short selling).
A RICO case filed in 2007 alleged that the Man Group, which is one of the bigger players in the world of death spiral PIPEs, was also providing clearing services to the Lucchese organized crime family. This is not surprising because the Man Group (as we have seen) is controlled by people who used to work with Michael Milken at Drexel Burnham.
And (as we have seen) Michael Milken probably brought La Cosa Nostra and the Russian Mafia to Wall Street. Milken also brought people like future Al Qaeda Golden Chain member Shiekh Mahfouz (another Madoff feeder) to Wall Street. In addition, he brought Saudi intelligence to Wall Street while his famous criminal co-conspirator Ivan Boesky and other cronies seem to have helped bring the regime in Iran to Wall Street.
I realize that these statements will seem bold and unsubstantiated to people who have not read earlier chapters of this story. The importance of these relationships cannot be understood without reading this story’s many chapters in their entirety. Nonetheless, I am repeating some information because I realize that some people will be reading this chapter in isolation, and because the information can better be understood in light of new information.
An earlier chapter of this story noted that Man Financial transacted massive volumes of manipulative wash trades for an Al Qaeda money man named Naresh Patel. It might also be worth repeating that Man Financial’s vice president of trading control founded an Iranian social club in partnership with an agent of the Iranian regime and a Goldman Sachs managing director whose Iranian charity was swapping cash with the Alavi Foundation, an Iranian outfit indicted for espionage in 2009.
I knew this in the fall of 2010, when I was talking to Zuhair Karam, the jihadi who had worked for Tuco Trading. I also knew that an outfit called Lightspeed had provided Tuco with another of its trading platforms. And the Lightspeed trading platform had been designed by Omar Amanat, founder of Datek Securities and co-founder (with Hamas) of the Islamic TV station whose CEO chopped off his wife’s head.
I was talking to Zuhair and others because I was trying to confirm (among other things) the identity of an Iranian fellow who was responsible for much of the manipulative trading that went through Tuco.
It would be some time before Zuhair would confirm the identity of that Iranian, but as of the fall of 2010, I had information that the Iranian was a partner in a hedge fund with a principal at Carlin Equities, the brokerage financed by Arik Kislin.
Kislin, recall, is a business partner of Iranian intelligence agent Babek Seroush and a “member” (according the the U.S. government) of the gang run by Russian Mafia boss Vyancheslav Ivankov (a.k.a. “Little Japanese), who was assassinated in 2009 after he revealed that he had worked with the Russian intelligence services.
In the fall of 2010, Zuhair was not yet cooperating with my investigation, but I had determined that Tuco and its partner brokerages were part of a tight-knit network that had included Bernie Madoff’s brokerage (purchased in 2010 by Datek’s former vice president) and Refco, the giant brokerage that collapsed in 2005 as the result of a scandal involving BAWAG, home to death spiral funds run by Solomon Obstfeld (formerly Datek’s top trader) and his partner Martin Schlaff (formerly a KGB and Stasi agent).
BAWAG was not only using Refco to launder money for terrorist groups such as Hamas. It also provided clearing services for Refco. And clearing services are quite important.
A brokerage’s clearing firm ensures that securities and derivatives sold by a brokerage are actually delivered. That is, a clearing firm ensures that market manipulators are not selling phantom stock to create artificial supply and drive down stock prices. Short selling phantom stock (and thereby creating what the SEC calls “failures to deliver”) is a key component of any death spiral scheme.
It is unlikely that BAWAG ensured delivery of stock sold by Refco. Indeed, quite to the contrary, BAWAG was transferred money to Refco, and Refco used the money to cover-up its liabilities in the form of “securities sold but not yet delivered.”
That is, BAWAG was helping Refco cover-up “failures to deliver” resulting from the manipulative short selling that Refco was transacting for hedge funds, many of which were perpetrating death spiral bust-outs against public companies in the United States.
As we have seen, this is precisely what Bernie Madoff’s brokerage was doing in cahoots with another Austrian outfit, Bank Medici (which dealt with the same cast of Russians as BAWAG), and others who were feeding the Madoff Ponzi.
All told, Refco had more than $10 billion in liabilities in the form of “securities sold but not yet delivered”. Some unknown fraction of those liabilities would have been the result of legal short selling, since brokerages are allowed three days to deliver the securities they have sold. During that three day window, the undelivered securities are recorded as liabilities, and the liabilities are removed from the balance sheet upon delivery.
However, it is clear that a significant portion of those liabilities were the result of illegal and manipulative short selling. That is, a lot of the securities that Refco sold short “failed to deliver” within the three day window, thereby creating artificial supply and driving down prices.
It is not known precisely how many phantom securities Refco failed to deliver altogether, but the scandal that brought about Refco’s collapse saw Refco CEO Santo Maggio using BAWAG money to cover-up at least $500 million in long-term liabilities resulting from failures to deliver of stock that it had sold short.
That is, Refco had, as of 2005, sold at least $500 million worth of phantom stock. Reporter Judd Bagley demonstrated this clearly in a video that accompanied a Deep Capture story (titled, “Naked Short Selling – Redefining Systemic Risk”).
And that $500 million hole in the balance sheet represents only the amount of “failures to deliver” that Santo Maggio was caught covering up in August, 2005. No doubt, there had been more.
Much of those $500 million in phantom stock liabilities were the result of death spiral bust-outs orchestrated by a hedge fund called Rhino Advisors and a shadowy Panamanian fund called Amro International. When Rhino’s manager, Thomas Badian, was indicted for naked short selling a little company called Sedona, he fled to Austria, where he lives today as a fugitive from US law.
Badian was clearly an important member of the network that Deep Capture wishes to highlight with this story. Prior to his indictment, he perpetrated multiple schemes with others in the network.
For example, Badian was the last of the major investors (the others being Martin Schlaff; Solomon Obstfeld; Mr. Grin/Grinshpon, Gene Phillips; “Specially Designated Global Terrorist” Yasin al-Qadi, and Navigator Asset Management, which employed the Russian spy Anna Chapman) in NCT Group, the outfit I mentioned in previous chapters.
Also implicated in Badian’s naked short selling of Sedona was a brokerage called Pond Equities, which was closely tied to Refco. Pond Equities received much of its financing from death spiral impresario Zev Wolfson, the Milken crony who also funded a host of Mafia brokerages including A.R. Baron and others linked to the 1999 Russian government and Russian Mafia market manipulation and money laundering scandal (often referred to as the “Bank of New York scandal”, since that’s where the laundered money ended up).
A lawsuit filed by Sedona documented that Badian’s scheme to destroy that company also involved Ladenburg Thalmann, then controlled by Milken crony Carl Icahn. As we know, Carl Icahn used to run the Milken-financed Mafia brokerage Gruntal & Co. with host of other Milken cronies, including Russian Mafia boss Felix Sater (later named as an indicted co-conspirator in A.R. Baron’s market manipulation); and Steven Cohen (later of SAC Capital).
Icahn launched his first fund with finance from Milken and the above-mentioned Zev Wolfson. While Ichan controlled Ladenburg Thalman, it was one of the most notorious death spiral outfits on the Street. An investigative report by The Deal, a respected business news publication, found that Ladenburg Thalmann, in cahoots with the shadowy Panamanian fund Amro International, destroyed at least 28 companies.
No doubt, there were far more that The Deal was not able to identify. And it is a near certainty that those companies were destroyed with help from other, affiliated hedge funds that were, like Badian, trading through Refco and affiliated brokerages, such as Pond Equities.
Also named in the Sedona case was Westminster Securities, an outfit that traded in league with White Rock Partners until White Rock (controlled by Russian Mafia boss Felix Sater) was indicted, along with A.R. Baron and the death spiral Mafia brokerage D.H. Blair (also financed by Zev Wolfson).
Westminster, recall, helped the Iranian Hassan Nemazee orchestrate a scam involving $500 million in fake U.S. Treasuries, while Nemazee was wangling meetings at the White House with help from Milken crony Alan Patricof (who was later found dealing with Russian spy Lydia Guryev).
Another Refco client was Mark Valentine, the fellow who had previously run the brokerage Thomson Kernaghan until he was indicted as part of Operation Bermuda Short, which targeted more than 100 market manipulators including some who agreed to launder money for undercover FBI agents posing as members of a Colombian drug cartel.
As we saw in an earlier chapter, Valentine got his job at Thomson Kernaghan with help from Ali Nazerali, and did quite a lot of business with Nazerali’s hedge fund partner Yasin al Qadi (Osama bin Laden’s favorite financier). Valentine (whose specialty was death spiral bust-outs) also did a lot of business with people tied to the Russian Mob and he was a partner in Navigator, the fund that employed Russian spy Anna Chapman.
Refco allowed Valentine to open an account despite the fact that his prior indictment prohibited him from participating in the markets.
It is reasonable to assume that Refco’s clients also included people tied to the Russian government and perhaps the Russsian government itself. Certainly, Refco catered to people like Michael Chernoy and the BAWAG death spiral funds controlled by Martin Schlaff and Solomon Obstfeld.
A clue as to who Refco’s other clients were can be found in the fact that BAWAG’s head of treasury was Thomas Hackl, who also ran another BAWAG death spiral fund called Anstost Anstalt Schlann. In addition, Hackl was an executive at Refco and an investor in multiple death spiral schemes perpetrated by the Milken network.
For example, Hackl was involved with an outfit called Rnetthealth with several other individuals: Peter Berlin of Highborough Services; Mel Lifshitz of BL Squared Foundation; and Martin Chopp, a director of Glen Rose Petroleum, which was funded by Gene Phillips.
All of those people (like Icahn, Badian, Valentine, Wolfson, Obstfeld and Schlaff) are among Michael Milken’s close associates. Gene Phillips, we know, is Milken’s most important business partner and a central figure in the scandal that saw the Russian Mafia and the Russian government manipulating the markets and laundering money through the Bank of New York.
Peter Berlin is a Mogilevich-tied financier and death spiral impresario who was (as we have seen) also implicated in the Bank of New York scandal.
Mel Lifshitz was a death spiral impresario who had worked (along with Milken cronies Lindsay Rosenwald and Zev Wolfson) with the Mafia brokerage D.H. Blair, which was indicted for manipulating the markets with above-mentioned A.R. Baron and Felix Sater’s White Rock Partners. Lifshitz was also an investor in the above-mentioned Pond Equities.
It is probable that this network used Refco to orchestrate death spiral attacks, and then maneuvered to destroy Refco soon after Badian was arrested in 2005. With Badian’s arrest, the network no doubt concluded that authorities would take a closer look at the relationship between BAWAG and Refco, and the liabilities that Refco had accrued as the result of “failing to deliver” stock sold by death spiral hedge funds.
This theory is supported by the fact that Refco itself was subjected to massive volumes of manipulative short selling soon after the brokerage went public in 2005. It is also significant that soon after Refco declared Chapter 7 bankruptcy, the remains of the brokerage were bought by the above-mentioned Man Group, a hedge fund and brokerage giant at the center of the network.
As Fred Lipman, a partner at law firm Blank Rome LLP, has noted (in reference to Man Group’s purchase of Refco’s remains): “In a Chapter 7 filing, you get a court order that pretty much protects the buyer from liabilities of the seller…It’s not perfect, but it’s the most protective way of selling assets in a situation like this.”
Man Group (which was then being sued for a death spiral scheme conducted through Refco) was absorbing (and thereby covering up) the “failure to deliver” liabilities that resulted from Refco catering to the Man Group and others in its network. I’ll remind you again that a similar scenario played out when Datek’s former vice president bought the remains of Bernie Madoff’s brokerage.
Meanwhile, as BAWAG came under closer scutiny, the Austrian bank was purchased by Cerberus Capital Management, another death spiral fund in the network. Recall that Cerberus was controlled by Stephen Feinberg and Ezra Merkin.
Merkin, it was later revealed, was the second largest feeder to the Madoff Ponzi fund, which was used, partly, to cover up “failure to deliver” liabilities. Feinberg was a former top employee of Michael Milken in the 1980s, and later became one of the trader-partners (along with Russian Mafia boss Felix Sater and Steve Cohen) who effectively ran Gruntal & Company, where Carl Icahn presided over the options department.
Whether or not hedge funds in this network deliberately destroyed Refco, it is clear that a death spiral of one little company (Sedona) was, through the magic of leverage, the principal reason for the brokerage’s collapse. Similarly (as we have seen), the death spiral of another little company (GenesisIntermedia) destroyed MJK Clearing, then the largest clearing brokerage in America.
As was the case with MJK, the collapse of Refco should be viewed as a scenario of how an act of financial terrorism might play out. In both cases, major American financial institutions got into bed with the wrong people, and the actions of these people made the financial institutions ripe for destruction.
After purchasing BAWAG, Cerberus quickly fobbed the Austrian bank off on Lehman Brothers. That is to say, the hot potato was passed from player to player to stooge. Less than three years later, as we shall see, those same players put the stooge (Lehman) out of business.
* * * * * * * * *
Of course, it is not only big brokerages that have been destroyed by people in this network. As we have seen, various members of the network have been involved in everything from the take down of Bangkok Bank of Commerce (which precipitated the 1997 Asian financial crisis) to the destructive bust-outs that caused the savings and loan crisis in the 1980s.
Another victim of this network was National Heritage Life, a giant insurance and financial services company that collapsed in 1994. It is worth a taking a quick look at that case because it was good preview of events that would occur in 2008.
In the early 1990s, an investor named Shalom Weiss (who is also an Orthodox rabbi) seized control of National Heritage and proceeded to loot it. Specifically, he loaded the company with self-destruct CDOs and bad mortgages that he purchased from others in his network, including Solomon Obstfeld and Mr. Grin/Grinshpon. (Grin is the Russian fellow who has done business with the Genovese Mafia. He is also, as we have seen, tied to the diamond merchant and alleged foreign intelligence asset Lev Leviev, and to multiple people implicated in the Bank of New York scandal).
According to the Delaware insurance commissioner, National Heritage’s cash was essentially transfered to Obstfeld and Grin/Grinshpon, with Weiss getting a cut. As these characters knew, once the self-destruct-CDOs did in fact self-destruct, it would hobble the company. Others in their network then made money naked short selling the company out of existence.
Weiss was himself a short seller and he was — along with his close friends Anthony Elgindy (tied to the Russian Mafia and Al Qaeda); Rakesh Saxena (Naxalite rebel leader; African coup-plotter), Ali Nazerali (hedge fund partner of Osama bin Laden’s favorite financier); Phillip Abramo (Italian Mafia capo a.k.a “The King of Wall Street”), and others in the pack that I previously described — a key client of Jonathan Curshen at Pacific International.
Curshen, recall, is the fellow who later opened an office in the same building that housed the Israeli embassy in Costa Rica. He was the white knight for YBM Magnex, the Mogilevich Mafia outfit linked to the Bank of New York scandal. And he hosted the meetings (monitored by a former spy) where Milken and some of his close asssociates, including Ali Nazerali and Gene Phillips, discussed ways to destroy some big companies.
Weiss was also (like the others) a client of Mark Valentine (then chairman, thanks to Nazerali and friends, of Thomson Kernaghan); Mr. Dvoskin-Lozin-Kozin-Etc. (then owner of Centex, later alleged to be the ring-leader of Russian spies arrested in the United States); and Global Securities (tied to the Russian Mafia and, possibly, the government of Iran).
Anthony Elgindy (who destroyed MJK Clearing with the Saudi arms dealer Adnan Khashoggi and a few others, including Valerie Redhorse, Michael Milken’s former office manager) was, as I have noted, an important player in this pack, regularly relied upon to engage in manipulative short selling that supported death spiral bust-outs.
In previous chapters, I have catalogued Elgindy’s close ties to the leaders of multiple jihadi terrorist groups, and I noted that he once told people on his private internet chat site that he was in Macedonia working as an “agent” for an outfit controlled by the Kosovo Liberation Army. He also said that he was working in Macedonia under the “protection” of an Albania “Mafia boss.”
Egindy’s boasts make sense if we remember that the Kosovo Liberation Army was closely affiliated with the Albania Mafia. (Remember also that Naresh Patel, the Al Qaeda money man who dealt with Man Financial, was laundering money for the Albanian Mafia. And recall that the KLA received training from Al Qaeda under the auspices of the IIRO, where Elgindy’s brother was a director).
As it happened, while Elgindy was in Macedonia working (in his words) under the “protection” of an Albanian “Mafia boss”, Rabbi Weiss was in New York, meeting with the Albanian Mafia.
It was 1999, and the good rabbi was an owner, along with the Genovese Mafia family, of Scores, which is a famous New York nudie bar. Scores had some alluring naked ladies, and while Elgindy was on his Macedonia adventure, Weiss and some of his Albanian Mafia friends were living it up at Scores.
When Scores closed for the night, Rabbi Weiss and the Albanian mobsters proceeded to a cocaine-fueled after-hours party, at which point things disintegrated. That is, the Albanians got into a dispute with a Scores bouncer. So they murdered him.
A couple of days later the Genovese Mafia’s point man at Scores, a mobster named Michael Sergio, was thinking of killing the Albanians, and Weiss was trying to mediate. Weiss’s lawyer, Michael Blutrich, was trying to mediate, too — and the Feds had Blutrich wired.
The Feds were listening when Blutrich said that it was already bad enough that Scores was going to be exposed in the press for its ties to the Mafia, so “we don’t want the next story being revenge slaying for past killing.”
Blutrich succeeded at preventing another murder, insisting that the “maniac Albanians” would get theirs in the next life.
But things didn’t turn out so well for Shalom Weiss. He was soon indicted for his role in the $400 million bust-out of National Heritage Life.
A year later, in 2000, Weiss was tried, convicted, and sentenced to 845 years (a long time) in prison, and he spent his last week of freedom snorting cocaine around the clock. He also hired a posse of hookers to follow him around, and the day before he was to show up for prison, he loaded the hookers into a helicopter.
Yes, Rabbi Weiss filled a helicopter with hookers. Then he took off, and began snorting more coke. The hookers snorted more coke, too. They were having a blast – a helicopter ride.
Soon enough Weiss and the hookers were flying at top speed over Manhattan, snorting more coke. This was really a hell of lot of fun, and the hookers cried, “Faster!” But surprisingly, it all ended badly: Rabbi Weiss ran out of coke and illegally landed (indeed, nearly crashed) the helicopter full of hookers on top of a Manhattan skyscraper.
Then Weiss went away to prison to serve a term that runs until the year 2845.
Arguably, the judge was trying to say something with that sentence. If so, here is a good way to think about it. It is generally accepted that the early medieval period in Europe ended around 1166 A.D. Someone going to prison for 845 years at the end of the medieval period would be getting out this year, 2011.
Of course, that is a fanciful way to think of it, but it speaks to the judge’s view of the seriousness of Weiss’s crime–a crime that would be repeated by others in his network.
However, most of the others in this small world of murderous criminals, bust-out artists, and market manipulators remain on the loose.
And as should be clear by now, it really is small world. It’s a small world where coke-snorting Orthodox rabbis, Albanian maniacs, Marxist Naxalites, Catholic Mafia dons, Russian mobsters, Saudi arms dealers, shady diamond merchants, Africa coup-plotters, rogue spies, financial felons, Islamic jihadis and coked-up hookers all rub shoulders.
It’s the small world that we used to call the underworld, except that it’s not the underworld anymore, it’s the overworld, or at least it is a world that also currently includes the managers of some of the world’s biggest and most respected hedge funds, and the people who run some of the world’s biggest brokerages.
In 2005, as we know, some of Shalom Weiss’s friends were responsible for the collapse of Refco, one of the biggest brokerages on the planet. And having destroyed Refco, it was, of course, necessary to find other brokerages willing to engage in manipulative, death spiral short selling.
That, as it happened, was the main topic of conversation at another wild party, this one held in early 2006.
* * * * * * * *
The year is 2006. The place is the Cala Di Volpe, a hotel on the Sardinian coast developed by His Highness the Aga Khan, the hereditary Imam, son of Prince Aly Ay Khan.
This hotel was featured in the James Bond movie, “The Spy Who Loves Me”, and in real life, it provides over-the-top opulence to Russian oligarchs, Saudi princes, and people who represent the American elite — people like Ivana Trump, who is a frequent guest.
It’s early 2006, and in a suite on the fifth floor of this hotel, there’s a party going on – Russian hookers, Champaign, fat Cuban cigars, Shafiq Nazerali, and the most fearsome Mafia outfit the world has ever known.
Shafiq Nazerali is a market manipulator. He is best known for small-time “pump and dump” scams, but he is involved in much bigger schemes — the sorts of destructive schemes that I have already described, such as bust-outs, death spiral finance, and naked short selling.
Shafiq, like his brother Ali Nazerali, is a hedge fund partner of Yasin al Qadi (Osama bin Laden’s favorite financier). He has working relationships with the Gokal family (of BCCI fame), members of Al Qaeda’s Golden Chain, the regime in Iran, Pakistan’s ISI, the chief of Saudi intelligence, the ruler of Dubai, the royals of Abu Dhabi, La Cosa Nostra, the Russian Mafia, and others in the Milken network.
At this time in 2006, the Nazeralis are being investigated by Canadian authorities for some schemes they have going with the Belzberg brothers – Sam and Hymie (who, say Canadian and U.S. authorities, have done business with Genovese Mafia capos). The Belzberg’s once employed short seller David Rocker, whose attack on Patrick Byrne inspired Patrick to embark on a crusade against market manipulators who seemed to threaten the stability of the financial system.
That crusade eventually led Patrick to found Deep Capture (the website that is publishing this story), but back in 2006, the crusade is already in full-swing.
Meanwhile, in 2006, David Rocker, is attacking the mortgage company Novastar with help from Kevin Ingram (the former chief of mortgage backed securities at Goldman Sachs, and, we know, a former money launder for a suspected Al Qaeda operative who was selling weapons to a Pakistani who was looking for nuclear weapons components).
Before coming to the Cale di Volpe, Shafiq Nazerali attended a meeting with Milken’s famous co-conspirator Ivan Boesky at the Bermuda offices of Lines Overseas Management. And now Lines Overseas has some new clients: the Nazeralis, Boesky, the Russian spy Christopher Metsos, and the people with whom Shafiq Nazerali is now having a party in his fifth-floor suite at the Cala Di Volpe hotel.
Nazerali pours some more champagne into Vitali Leiba’s glass. He offers some Champagne to one of the Russian hookers, but she says, “No”.
Nazerali laughs, and he laughs some more. He thinks it’s really funny that the hookers aren’t drinking. He says the girls keep their heads clear, good for them – they’re smart. They’re so smart, and they’re always plotting their next move — always plotting, always plotting. Shafiq Nazerali keeps saying the hookers are plotting. He won’t shut up about it.
Vitali Leiba is a member of the Mogilevich organization, best known for his role in YBM Magnex, the company that was controlled by the big boss himself, Semion Mogilevich, until the FBI started investigating YBM, at which point Nazerali’s pal, Jonathan Curshen, tried to take the company over.
But, of course, the YBM Magnex scam was the least of the Mogilevich organization’s endeavors. The Mafia outfit is involved in much bigger things – like trying to sell nukes to Al Qaeda; and other things that require face-to-face discussions among Shafiq Nazerali, Vitali Leiba, and the other Russian Mafia boys who are now in Nazerali’s suite at the Cala di Volpe.
Indeed, Mr. Leiba has gone out of his way to meet Mr. Nazerali, flying to Sardinia from Toronto, where (in 2006) he owns a heavily fortified marblesque mansion fronted by fountains and Greek statuary, with armed guards at the gate and security cameras peering down from every corner.
Mr. Leiba will later move back to Moscow, but in 2006, he is one of the overlords of the Mafia in Canada. He can often be found meeting with bosses of both the Russian Mob and La Cosa Nostra at the Dynasty, an unassuming Chinese restaurant on the outskirts of Toronto.
Now, though, Mr. Leiba is at the luxurious Cala di Volpe to talk about endeavors. But first, of course, Mr. Leiba and Mr. Nazerali must talk about hookers. To be a respected member of this club (that is, the elite club of market manipulators with ties to the Mafia and jihadis), it is necessary to be seen with Russian hookers at your side, or at least to be able to speak knowledgeably about Russian hookers – to know their temperament and the little idiosyncrasies that differentiate them from, say, Moldovan hookers.
Stuffy, law-abiding types have their Labrador Retrievers. Market manipulators have their Russian hookers.
“Always plotting, always plotting”, says Nazerali. And Vitali Leiba says, “Yes, my friend, you are learning, you are learning from the best.”
You see, Mr. Nazerali is “married” to “the best” hooker of them all. It’s a common law marriage, there was no wedding, there was just a night out at the King’s Club in Zurich, a place that has some character (which is to say that it is perhaps not a destination for the whole family, but it is a must visit for anyone wishing to meet frigid poll-huggers who offer “special” services behind the velvet curtain, with rates starting at 150 Francs Suisse for the half-hour).
It is also a good place to meet Russian Mobsters and fall in love with a hooker. Not long before this meeting at the Cala di Volpe, Shafiq Nazerali, who is based out of Zurich and Dubai, went to the King’s Club to meet Vitali Leiba and his colleague, the Russian Mafia boss Felix Sater (the fellow whose ties to Russian intelligence allowed him to attempt an arms deal with Al Qaeda).
On that night, Nazerali met his “wife”, and by 2006 this wife is giving him endless problems. That is, she is emptying his bank account. But Nazerali says he likes it, he likes the abuse, he likes the games she plays. Always plotting, always plotting – that’s what he says, in the proud-weary tone of a man who has experienced war.
Vitali Leiba says, “Yes, it is so, always plotting.” And Vitali speaks dreamily of his ambition to operate a “modeling agency” that would recruit and pimp the elite of the elite, the most dangerously beautiful and charmingly conniving girls that Mother Russia has to offer. Vitali Leiba is really excited about this idea. In fact, he says he is thinking about getting out of the stock manipulation business and focusing all of his energies on Russian hookers.
Which seems to unsettle Nazerali, who says, “Vitali, look, we have a deal in the pipeline, Sheikh Mohammed bin Rashid Al Maktoum, he’s just been named the ruler of Dubai…”
Vitali says, “Yes, I know Sheikh Mohammed.”
“Right,” says Nazerali, “and we have a fund called Star Soft, Sheikh Mohammed is on board, and we’re going to bring in the Al Abbar brothers…”
Note to reader: the Al Abbar brothers are Mohammed and Mufti Al Abbar. Mohammed owns a high profile real estate contracting business in Dubai. He has done work on the Burj Khalifa, currently the tallest skyscraper in the world. His brother, Mufti, lives entirely in the shadows. One will not find his name on the internet. But he is an important player in the world of stock manipulation. He is also a semi-undercover agent of the Libyan government (this is before 2011, when Libya will disintegrate into civil war).
In fact, Mufti Al-Abbar holds the honorary rank of colonel in the Libyan armed services. When Libyan dictator Muammar Qaddafi wants to play the markets, or when he wants to damage the markets, he turns to Mufti Al-Abbar. As to why Muammar Qaddafi would want to damage the markets, perhaps he does it for geopolitical advantage, perhaps he does it simply to be a pain in the ass to the Americans. Or maybe he just wants to make money.
A person who is on close terms with Nazerali says of the Al Abbar brothers: “These are Qaddafi’s men in the markets. These are the guys Qaddafi uses to manipulate the markets.” The Al Abbar brothers and, of course, Martin Schlaff, who brokered the deal enabling Qaddafi to support Hamas.
And the Al Abbars were perfectly capable of moving markets, not only because they had a lot of money, including the full backing of the Libyan state, but also because they worked with a powerful network that included many of the hedge funds that operate under the purview of Sheikh Mo in Dubai. Also some of the Saudi billionaires in Al Qaeda’s Golden Chain, and the Nazeralis, and Yasin al Qadi (Osama bin Laden’s favorite financier), and the Mogilevich organization, and the friends of Michael Milken.
At any rate, Vitali Leiba and Nazerali discuss Star Soft, they say they could hit some stocks, they’ll start with these tickers — IVNE, MMGC, SGGV, and STSF. But they are going to need some help, so here is the plan: they’ll set up some anonymous accounts at banks in Dubai, wire money through Werner Wagemann at the Serasin Bank in Zurich, and from there to the off-shore accounts of some corrupt brokers, who will then be working, in effect, for Nazerali and the Mogilevich organization.
Specifically, the brokers will 1) agree to buy any and all shares from the stock manipulators, regardless of the price; and 2) permit the Nazeralis and the Mogilevich organization to engage in naked short selling, flooding the markets with shares that they do not possess – phantom shares.
Of course, Nazerali and the Mogilevich organization have been operating this way for some time, but now the scam has grown to dangerous dimensions. Now it is possible to take out bigger and bigger companies, because now there is a good network in place in the United States.
In the past, their naked short selling had to be discreet. It was necessary to focus on smaller companies so as not to attract too much attention. They conducted much of their trading through Canada, where regulations were even weaker than they were in the United States, and where they had stronger relationships with cooperative brokerages: Mr. Dvoskin-Lozin-Kozin’s Centex, Global Securities, Mark Valentine’s Thomson Kernaghan, and Jonathan Curshen’s Pacific International.
By 2006, those Canadian brokerages had been forced out of business or were under closer scrutiny. Refco, which catered to this same crowd, was gone. But a new network of criminal brokerages in the U.S. had opened the gates wide open to market manipulators. And most of these brokerages were able to engage in naked short selling because they have found cooperative market makers and clearing brokerages.
The job of a clearing brokerage, I noted, is to make sure that shares that have been sold are quickly delivered to their buyers. That is, the job of the clearing brokerage is to make sure that the executing brokerages and clients of these brokerages have sold real stock that can be quickly delivered, as opposed to phantom stock that floods the markets with fake supply and drives down prices.
If market manipulators and their executing brokers have a cooperative clearing brokerage, they can push the sell buttons on their computers as often as they like, even if they do not possess the stock they are selling. Having sold this phantom stock, the market manipulators’ brokerages simply fail to deliver to the cooperative clearing brokerage, which then fails to deliver into the clearing and settlement system (the DTTC).
The SEC, we know, calls this “failure to deliver”, and by definition, it is phantom supply (which the SEC insisted did not exist or was no big deal right up until the day in July 2008 when the heart of the US financial system was vaporizing, at which point the SEC passed an unprecendented Emergency Order to prevent the thing they had been saying did not exist when it was only happening to small public firms without juice).
At the Cale di Volpe hotel in 2006, Shafiq Nazerali says that there’s a good network of Mafia brokerages in place. And they have a cooperative clearing brokerage. This cooperative brokerage is an obscure, little outfit in Texas.
Yeah, says Shafiq Nazerali in 2006, it’s this little brokerage in Texas – a brokerage called Penson Financial.
Penson Financial: an obscure brokerage that essentially put a shingle on the door announcing that it will cater to criminals and destructive market manipulators. An obscure brokerage that in 2006 had caught the attention of Shafiq Nazerali, the Russian Mafia, and the rest of their crowd.
An obscure brokerage that will soon become by volume the single biggest brokerage on the face of the planet Earth.
To be continued…