Insider Trading Can Now Touch Many Corners of the World
By LANDON THOMAS Jr. and MICHAEL J. de la
Published: June 20, 2007
Life in the great
Friends said that Mr. Rahim, an admirer of Warren E. Buffett, often talked of how he had become a "rupee billionaire" from investments in Pakistani stocks, real estate and a recent winning streak in the American market.
Then, in late February, it all imploded. Stock in TXU, the
Within weeks, Mr. Rahim left
In May, prosecutors charged Mr. Rahim with 26 counts of insider trading in
Now, fearing that his Pakistani origins might be enough to land him in an American jail, Mr. Rahim has returned to his hometown,
Mr. Rahim's lawyer, Spencer C. Barasch, declined to comment on his client's whereabouts, saying only that Mr. Rahim was not hiding but was "letting the legal process work itself out." Mr. Barasch said his client was innocent and would fight the charges against him.
The circumstances are more dire for Mr. Naseem, the former banker at Credit Suisse who is accused of feeding Mr. Rahim inside information on at least nine deals. Released on bail of $1 million, his passport confiscated and his assets frozen, Mr. Naseem remains confined to his home in
While the Pakistani locale may be unusual, the story of Mr. Rahim and Mr. Naseem revolves around themes of hubris and aspiration that are timeless. And it is one in a recent spate of such incidents. While many have involved Americans, others have spanned the globe, from Hong Kong to
Mr. Rahim is one of a new generation of market players who have seen their fortunes soar as a wave of capital has propelled emerging markets to new highs, from
Far removed from the insider trading scandals of the 1980s, these investors have become enthusiastic speculators on overseas markets. But, as they have taken on more risk, regulators say that some are violating American securities laws, prompting the authorities to range far and wide to try to catch them.
Since the attacks of Sept. 11, $10 billion in American aid, a stream of money from oil rich investors and a pro-economic reform government supported by
This year the market is up 35 percent, shrugging off suicide bombs in
While there is no evidence that Mr. Rahim used inside information in the local market, legal specialists in
"There is a culture of noncompliance in
Mr. Rahim, 44, and Mr. Naseem, 37, could not be more different from each other.
Known for his love of Cuban cigars and sleek automobiles, Mr. Rahim seems a caricature of the classic Wall Street deal maker. His social network extended deep into
As the markets boomed, so did his wealth. "How much do you think I'm worth," his associates recall him asking during a recent dinner party. "$30 million," guessed one. "Higher, higher," Mr. Rahim responded, according to one person who was there.
Mr. Barasch, the defense lawyer, says that while people have tried to guess his client's wealth, Mr. Rahim has never talked specifically about his net worth.
Mr. Naseem, the son of a civil servant, had little of his mentor's panache. He came to know Mr. Rahim while the two worked at American Express in
Insider Trading Can Now Touch Many Corners of the World
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At the time Mr. Naseem left Pakistan, Mr. Rahim's fortunes were at a low ebb. American Express was closing its operations in Pakistan, and Mr. Rahim had suffered deep losses from his investments in plummeting American technology stocks.
In 2002 he got a break, landing a job at Faysal Bank, a small commercial bank majority owned by the Dar al-Maal al-Islami Trust, an Islamic investment conglomerate in Geneva founded by Prince Muhammad al-Faisal al-Saud, a senior member of the Saudi royal family and an advocate of Islamic-based finance principles.
A spirited man who sports a French beard and enjoys a glass of whiskey, Mr. Rahim stood out among his more conservative colleagues within the Dar al-Maal al-Islami group, the slogan of which is "Allah is the purveyor of all success."
People who know him say that he always envisioned himself as a market-savvy deal maker, and when capital began flowing into Pakistan after Sept. 11, Mr. Rahim, put in charge of managing Faysal Bank's stock portfolio, became an influential investor in the local market.
He was promoted to head of investment banking in 2005 by Faysal's chief executive, Farook Bengali.
Feeling flush with success, Mr. Rahim burnished his public image by financing the building of a hospital in Karachi, named after his mother. And in 2006, he led the bank's push into real estate by investing in development projects in Lahore and Islamabad.
Unlike many investors in Pakistan who stick to the market they know, Mr. Rahim fancied himself a global investor, regardless of his losses in 2000, say people who know him.
In April 2006, according to the government's complaint, he began an extraordinary investment run by taking positions in nine American companies just before they were involved in takeovers or deals that allowed him to cash out quickly, culminating in the TXU trades in February.
In each case, the government accuses Mr. Naseem, who had joined Credit Suisse in March 2006, of tipping off Mr. Rahim that these companies would be taken over. He is accused of illegally retrieving the information from a database of Credit Suisse, which was an adviser in each deal.
"Let the fun begin," Mr. Naseem wrote in an e-mail message that he sent to a brokerage house in Karachi, asking to open up an account, according to the complaint.
A lawyer for Mr. Naseem, Michael F. Bachner, said that his client "denies all allegations that he engaged in any wrongdoing," and that he would contest the charges in court.
For his defense, Mr. Rahim is expected to argue that before the TXU trades, he had read a UBS research report, which said the stock sell-off represented a buying opportunity. People briefed on his defense strategy say that he also consulted a report on the Motley Fool investor Web site, as well as several articles on The Street.com.
Indeed, while the chronology of telephone calls and stock purchases seems persuasive on the surface, Judge James C. Francis IV, in Federal District Court in Manhattan cast some doubt on the government's case at a recent hearing, calling the evidence "plainly inferential."
Arif Habib, a prominent investor in the Pakistan market, says that Mr. Rahim was known for his propensity to pass along stock tips, although Mr. Habib says that he himself never acted upon them.
"He used to say that there were good opportunities in international markets," said Mr. Habib, the chairman of a securities firm that bears his name. "He had the habit of talking about everything."
In its complaint, the Security and Exchange Commission contends Mr. Rahim passed along Mr. Naseem's tips to "certain of his associates in Pakistan, including bank officers, bank directors and brokerage officials," and that these people also traded before the merger announcements.
While it is unclear if any further Pakistani executives will be named, Mr. Rahim's web of relationships reached all corners of the country's business world, and such a prospect has created anxiety in a financial community that has not been exposed to any serious regulatory scrutiny.
Reached on his cellphone, Mr. Bengali, the head of Faysal Bank, said that Mr. Naseem had never passed on any overseas stock tips to him and that Mr. Rahim had never used Faysal's capital to trade illegally.
He was adamant in saying that Mr. Rahim's days at the bank are over. It is a reality that is underscored by the swift disappearance of Mr. Rahim's picture from the bank's Web site, where he was once featured standing next to the man who had given him a second lease on his career.
"He has resigned and he is no longer with us," Mr. Bengali said. "None of us are aware of such happenings. It's a complete shock."
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