The Global Bust-Out Series (Chapter 3): The BCCI Enterprise and The Financial Jihad

The Global Bust-Out Series (Chapter 3): The BCCI Enterprise and The Financial Jihad

This is Chapter 3 of a multi-chapter series. On your right is a Table of Contents to all chapters so far published.

* * * * * * * * * *

In Chapter 2 of this series, we began to discuss an outfit called the Bank of Credit and Commerce International (BCCI)  which collapsed in 1991, at which point the Manhattan district attorney called it “the biggest banking fraud in world financial history.”  It will be useful for us to further review the amazing history of BCCI because most of BCCI’s former principals and their former partners in crime remain in business today. Moreover, we will see, they have, along with some new and younger players, built a financial network that presently poses a significant threat to the stability of the global financial system.

Unfortunately, the public knows little about the BCCI scandal other than what was published by the major news organizations during the brief period after the scandal broke in 1991, and according to the major U.S. news organizations, BCCI’s most significant crime was to have secretly acquired  a financial institution called First American Bankshares in contravention of rules prohibiting foreign ownership of American financial institutions. The major U.S. news organizations also reported that a few BCCI executives were indicted for laundering money that belonged to Colombian drug cartels, but the media left the public to believe that this was not evidence of any larger conspiracy on the part of BCCI and its partners (which I will refer to as the “larger BCCI enterprise”).

The major U.S. news organizations did transcribe the Manhattan District Attorney’s statement that BCCI was the “largest banking fraud in world financial history,” but most U.S. media failed to properly quantify the magnitude of the fraud or the damage that had been done to the global financial system. So far as the fraud was concerned, the major U.S. news organizations reported only that BCCI’s executives had failed to properly account for a few billion dollars, while BCCI’s depositors had lost a total of around $20 billion when the bank collapsed.

Not only that, but some reports suggested that unlike other major financial institutions, BCCI had pursued a mission that was largely “philanthropic” in nature. According to this narrative, the founder of BCCI, a Pakistani businessman named Aga Hasan Abedi, ascribed to the same  “mystical” brand of Sufi Islam that was favored by some American hippies, and guided by these “mystical” religious beliefs, Abedi and other BCCI executives set out to eliminate global poverty and contribute to the economic advancement of the world’s disenfranchised nations, though a few billion dollars had apparently vanished into the ether of this ultimately misguided and “mystical” mission.

By contrast, Yossef Bondansky, who served as director of the House Task Force on Terrorism and Unconventional Warfare during the years 1988-2005, reported (in his 2000 seminal book on Osama bin Laden) that BCCI’s “philanthropic” mission included the following:  “providing ‘special services’ in support of worthy causes—from laundering money for terrorists, Muslim intelligence services, and mujahedeen; to clandestinely funding deals for conventional weapons, weapons of mass destruction…to shipping around and laundering huge sums embezzled by corrupt leaders.” Bodansky continued: “In the process of sponsoring these Islamist ‘causes,’ the BCCI’s management not only did not keep any books…[but also] BCCI had become a hollow entity with a lot of unaccounted for and dirty money moving around the world…”

In fact, the mission was grander than all that, and to understand the larger mission, we must recall that leaders of the Muslim Brotherhood presently speak of a mission called “The Financial Jihad.”  To some extent, the “Financial Jihad” involves Muslim Brotherhood banks providing “special services” to jihadi terrorist organizations, but a report prepared for the Department of Defense (see chapter 1 of this series) suggests (as do other experts) that the “Financial Jihad” has two additional objectives: 1) to build a global financial empire that can serve as an alternative to the prevailing financial order dominated by the West; and 2) to deploy financial weapons of mass destruction to undermine the prevailing financial order dominated by the West.

The financial institution that spearheaded the “Financial Jihad” was BCCI. It was not known as the “Financial Jihad” back then, but there can be no doubt that BCCI’s mission had little to do with a “mystical” mission to eliminate global poverty. It was true that BCCI founder Aga Hassan Abedi ascribed to a “mystical” brand of Sufi Islam, but it was also true (contrary to the media reports that the Muslim Brotherhood was an entirely Sunni outfit) that some key Muslim Brotherhood figures, including several of the people who originally founded the Brotherhood, ascribed to the “mystical” brand of Sufi Islam. Although it is  not known whether Abedi himself was a member of the Muslim Brotherhood, he and other BCCI executives had relationships with Muslim Brotherhood leaders, and it is clear that he and the Muslim Brotherhood had a common vision of what they referred to at the time as “Islamic finance.”

BCCI also counted among its founding shareholders and top executives current and former officials of governments that were among the Muslim Brotherhood’s principal state sponsors. One of the largest shareholders of BCCI was the ruler of Abu Dhabi (in the United Arab Emirates), and other key shareholders included the ruling families of Dubai (also in the UAE) and Oman. In addition, the Saudi royal family had close involvement with BCCI, and one of BCCI’s most important shareholders (and a key hands-on executive of the bank) was Sheikh Kamal Adahm, who was chief of the Saudi intelligence service at the time when BCCI was founded in 1972 until he retired from that position in 1977.

When Sheikh Adahm resigned as chief of Saudi intelligence, he was replaced by Prince Turki bin al-Faisal, who was also closely involved with some of BCCI’s important initiatives. Meanwhile, many of BCCI’s top executives were “former” top officials of Pakistan’s intelligence service, the ISI, which itself had extensive ties with the Muslim Brotherhood, while other BCCI executives were among the closest associates (including the son) of Muhammad Zia-ul-Haq, who was the leader of Pakistan until his death in 1988. Some accounts of the BCCI enterprise described BCCI as being effectively an arm of both the Saudi intelligence service and the Pakistani intelligence service (with Pakistan’s government being, to some significant extent, a proxy of the Saudis).

All of these governments had been engaged in a program (a program that continues to this day) to grow the Muslim Brotherhood into a powerful and global political movement. An important component of this program was (and is) to help the Muslim Brotherhood build an impressive financial empire, and as of the 1980s, a centerpiece of this financial empire was an outfit called Faisal Islamic Bank, which was one of BCCI’s most important affiliates. BCCI itself might properly be regarded as having been an important component of the Muslim Brotherhood financial empire, and this was especially the case in the 1980s, when a Saudi billionaire named Sheikh Khalid bin Mahfouz became BCCI’s largest shareholder and an executive director of the bank.

As we know from Chapter 2 of this series, Sheikh Mahfouz had extensive ties to the Muslim Brotherhood, and he was later a key sponsor of the terrorist organization that we now know as “Al Qaeda.” He was, in fact, one of the select few billionaires whom Osama bin Laden referred to as his “Golden Chain.” And, of course, Osama bin Laden was himself a prominent Saudi billionaire, so it should surprise nobody to learn that Osama bin Laden himself was also involved with the BCCI enterprise.

It has been reported that Osama bin Laden was a mere client of BCCI, and perhaps he was nothing more, but it is important to understand that Osama bin Laden was not just the leader of a violent terrorist organization, but also a sophisticated financial operator. In addition,  as Yossef Bondansky (then director of the House Task Force on Terrorism) reported in his 2000 book on Osama bin Laden, soon after BCCI collapsed in 1991, a Muslim Brotherhood leader named Hasan al-Turabi assigned Osama bin Laden to help lead a Muslim Brotherhood initiative to replace the BCCI enterprise with a similar banking network that could serve the jihad. Also involved with this effort was Omar Abdul Rahman, otherwise known as the Blind Sheikh, and he was one of Osama bin Laden’s closest associates.

Presently, the media reports that the Blind Sheikh is a fringe fanatic and terrorist who was jailed for his involvement in the 1993 bombing of the World Trade Center. However, the Blind Sheikh is also a leader of the Muslim Brotherhood and he was (prior to his arrest on terrorism charges) an eminently prominent banker who co-founded several major  financial institutions, including an outfit called Faisal Islamic Bank, which (recall) was BCCI’s most important affiliate (delivering much of its depositors’ money to BCCI, with BCCI looting some significant portion of that money).

The Blind Sheikh and Osama bin Laden were not the only terrorists who had involvement with BCCI. Another was Abu Nidal, leader of a terrorist organization called Black September (among other names). Abu Nidal was the most notorious terrorist of his era, and according to numerous reports, including one in Time magazine, Abu Nidal worked for a while out of BCCI offices in London.

Abu Nidal, too, was reportedly a mere client of BCCI, but his terrorist organization was closely intertwined with a transnational organized crime (and terrorism) syndicate operated by a global terrorist and mobster named Monzer al Kassar, and al-Kassar played a role in brokering some of BCCI’s important business ventures. (Aside from being a global terrorist and mafia kingpin, Monzer al Kassar was a prominent businessman and oligarch often referred to as “The Prince of Marabella” because of the lavish parties he held at his mansion in Marabella, Spain).

Rachel Ehrenfeld, now director of the Economic Warfare Institute, has written that the  “religious convictions of the founders of BCCI coincided with those of the Muslim and Arab leaders who sponsored terrorism. It was also the extension of this belief that led [BCCI founder] Agha Hassan Abedi to immerse BCCI in terrorist activities.”  Ehrenfeld continued: “Funding revolutions, terrorism, and other subversive activities is expensive and difficult. An Iranian web of international financial institutions was created, with BCCI as one of the most prominent strands. The bank not only facilitated direct contact between terrorist networks, it also provided cover and deniability for the sponsoring states.”

All true, but more than that, the BCCI enterprise (contrary to the notion that its “mystical” mission was to eliminate global poverty) contributed to the further impoverishment of the world.  Not only did the BCCI enterprise steal billions from its depositors (many of whom were citizens of poverty-stricken nations), but BCCI also helped numerous kleptocratic government leaders “bust out” (i.e. loot and destroy) the economies of destitute nations in Africa and Latin America. In addition, the BCCI enterprise “busted out” a significant chunk of the American economy, which is to say that it achieved one objective of what is now known as the “Financial Jihad.”

However, it should be noted that the BCCI enterprise perpetrated much of its destructive crime in partnership with prominent figures of the American establishment.  And presently, Muslim Brotherhood financial institutions  (many with links to former BCCI principals, or operated by former BCCI principals) count among their important business partners some of Wall Street’s most notable (and notorious) brokerages and investment houses. In other words, Swiss author and political scientist Richard Labeviere (who is one of the world’s more astute observers of the jihad and the Muslim Brotherhood) was correct to report (in 2000) that the jihad and political Islam (led by the Muslim Brotherhood)  “is less likely to produce a ‘clash of civilizations’…than to consolidate mafia channels of organized crime and the far-reaching networks of businesses built under globalized capitalism.”

Another astute (and independent) observer of the jihad is Robert Dreyfuss, who has spent much of his long career in the Middle East, and who has served as national security correspondent for Rolling Stone magazine, which is mostly about hip music bands, but which is, unfortunately for civilization, the only major U.S. media outfit that consistently publishes in-depth stories (see also stories by Matt Taibbi and Greg Palast) that approximate the truth on important subjects such as Wall Street, Washington, the jihad, and other things that make the world the way it is. Dreyfuss, who has studied the Muslim Brotherhood since the 1970s, and is the author of two excellent books (one on Iran, the other on political Islam) has correctly observed that the “real Muslim Brothers are the secretive bankers and financiers…whose genealogy places them in the oligarchical elite…”

Dreyfuss has also reported (correctly) that: “the Muslim Brotherhood is money. Together, the Brotherhood probably controls several tens of billions of dollars in immediately liquid assets, and controls billions more in day-to-day business operations in everything from oil trade and banking to drug-running, illegal arms merchandising, and gold and diamond smuggling. By allying with the Muslim Brotherhood, the Anglo-Americans [i.e. the oligarchical elite of the West] are not merely buying into a terrorist-for-hire racket; they are partners in a powerful and worldwide financial empire that extends from numbered Swiss bank accounts to offshore financial havens….”

Dreyfuss continued: “Need a few hundred million dollars to bail out [a] bank? Try the Muslim Brotherhood. Is a major London conglomerate seeking partners to invest a few billion in an African raw materials extraction venture? Try the Muslim Brotherhood. Does an Anglo-American bloc of banking houses want to start a run on the French franc? Try the Muslim Brotherhood.”

* * * * * * * * *

While the major U.S. news organizations regularly cited $20 billion as being the extent of the BCCI fraud, that figure represented only the sum that BCCI’s depositors lost when BCCI collapsed. By perpetrating a host of other destructive financial crimes (i.e. financial terrorism), BCCI and its partners looted far more—at least two trillion dollars—from the global financial system. Some of this looting was accomplished by a global network of BCCI-affiliated brokerages that specialized in perpetrating so-called “pump and dump” schemes, and we will see in later chapters that  most of those brokerages were not only linked to BCCI, but also operated by prominent financial operators (e.g. a fellow named Thomas Quinn) with ties to La Cosa Nostra and other organized crime syndicates.

See Chapter 1 of this series for a fuller description of “pump and dump” schemes, but the basic idea is that miscreants gain control over the stock of a publicly listed company, and sometimes gain a degree of control of the company itself. The miscreants then “pump” the share price, and as the share price rises in value, the miscreants lure in ordinary investors. Once the share price reaches sufficient heights, the miscreants then “dump” shares into the market, meanwhile bombarding the stock with manipulative short selling that causes the stock to go into a death spiral from which the stock does not recover.

Sometimes the companies targeted in these schemes are fraudulent companies to begin with, at other times the companies are legitimate until such time when the miscreants seize control of the companies and begin manipulating their stock, meanwhile looting their cash. Either way, the end result is aways the same: the companies are “busted out” (i.e. destroyed) and the death spiral caused by the “dump” and the manipulative short selling ensures that the stock price hits zero before ordinary shareholders have the opportunity to exit the stock and recoup some of their losses.

The global network of BCCI-linked brokerages “busted out” mostly small to medium sized companies, but the larger BCCI enterprise used similar methods to “bust out” some important American savings and loan banks. In later chapters of this series, we will see that BCCI also played a key role in the operations of Michael Milken, then the most powerful man on Wall Street. In addition, we will see, BCCI helped Milken and some of his closest associates “bust out” Lincoln Savings and Loan, then one of the most important financial institutions in the nation. Indeed, BCCI and the Milken operation were major contributors to the savings and loan crisis that began in the late 1980s, and which ultimately cost U.S. taxpayers billions of dollars in bailouts—a portent of bigger and better things to come.

In 1993, when a few BCCI principals were brought to trial, the presiding judge correctly noted that the BCCI had singlehandedly “shattered the integrity of the global financial system.” And perhaps it is no coincidence that the Blind Sheikh (co-founder of a key BCCI’s affiliate, Faisal Islamic Bank, which had played an important role in shattering the integrity of the global financial system) not only was linked that same year to the bombing of the World Trade Center (i.e. the first attempt to topple the twin totems of the global financial system), but also subsequently issued one of the most famous of all fatwahs–a fatwah that was cited by Osama bin Laden in his declaration of war against the United States, and a fatwah that is quoted with admiration by Muslim Brotherhood leaders everywhere.

The Blind Sheikh’s fatwah (issued from his jail cell) was the first fatwah (or, at least, the first fatwah issued by a terrorist who was also a prominent banker) to publicly suggest that it would be good idea for his fellow jihadis (and fellow bankers?) to “tear down the edifices of capitalism.” And, to be sure, the Blind Sheikh was no friend of “capitalism” as that noble idea was formerly understood, with free and fair markets unfettered by a ruling oligarchy and governed by a minimal rule of law. To the contrary, the Blind Sheikh was a criminal oligarch.  And though the World Trade Center was no doubt one “edifice of capitalism” that the the Blind Sheikh wished to “tear down,” the Blind Sheikh made it clear in his fatwah that the objective was not merely to destroy a building in the heart of the New York financial district.

The Blind Sheikh stated that there was a larger objective. This is the objective we now know as “The Financial Jihad,” but back then, the Blind Sheikh did not mince his words. He stated it emphatically. He stated it bluntly. He stated it as a formal command:  “Destroy their [our] economies…”

To be continued…Click here to read Chapter 4

Mark Mitchell is a journalist who spent most of his career working for mainstream media publications before joining DeepCapture.com.

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The Global Bust-Out Series (Chapter 2): The “Money Weapon” and The Jihad Bigger than Bin Laden

The Global Bust-Out Series (Chapter 2): The “Money Weapon” and The Jihad Bigger than Bin Laden

This is Chapter 2 of a multi-chapter series. On your right is a Table of Contents to all chapters so far published.

* * * * * * * * *

Al Qaeda’s supporters are “aware of the cracks in the Western financial system as they are aware of the lines in their own hands.”

– Osama bin Laden, in a 2001 interview with a Pakistani Journalist

* * * * * * * *

In the summer of 2003, customs agents at London’s Heathrow airport inspected the luggage of a man named Abdurrahman Alamoudi and found hidden in a secret compartment of one of his suitcases a total of $350,000 in cash. Mr. Alamoudi failed to adequately explain why he was hauling large stacks of $100 bills in a secret compartment, so there was an investigation. This investigation yielded some interesting facts.

Mr. Alamoudi, a member of a wealthy family in Saudi Arabia, had been a long time resident of the United States, where he was among the most prominent members of the Muslim community. He was also a leader of the Muslim Brotherhood, and an outspoken supporter of Hamas and Hezbollah. In addition, he counted among closest friends and business associates people like Sami al Arian, a leader of Palestinian Islamic Jihad, and Mousa Abu Marzook, political chief of Hamas.

Some people believe that groups like Palestinian Islamic Jihad, Hamas, and the Muslim Brotherhood are focused on faraway lands, but all of these groups (we will see) have ties to Al Qaeda, and all of them are united in their hostility to the United States. Moreover, they pay close attention to the U.S. markets – and they see the economy as key to undermining American power.

When the financial crisis hit in 2008, Hamas leaders reacted with glee and issued an official statement proclaiming that the economic cataclysm marked the “End of the American Empire.” Meanwhile, leaders of the Muslim Brotherhood regularly preach the glory of Al Jihad bi-al-Mal, or the “Financial Jihad.”

A report (see Chapter 1) commissioned by the Defense Department’s Irregular Warfare Support Program suggests that the “Financial Jihad” has two key objectives: 1) building a global financial network that can serve as an alternative to the prevailing financial order dominated by the West; 2) perpetrating destructive financial crimes that can be described as “financial terrorism” because the crimes are, to some extent, politically motivated and meant to undermine the global financial system, which is viewed by leaders of the Financial Jihad as being a product of the West.

Muslim Brotherhood leader Hamud bin Uqla al-Shuaibi implied as much when he stated in 2007 that jihadis must resist the West, but do not necessarily need to do so with violence. He suggested that “Financial Jihad” was a viable alternative to violence and was indeed “more important than self sacrificing [in armed battle].” He did not specify what he meant by “Financial Jihad” but he was certainly not talking about giving to charity. Rather, he said, “Money is a weapon of Jihad.”

Similarly, Muslim Brotherhood spiritual leader Yussuf al Qardawi has spoken of the need for Muslims to deploy  Silah al Naft – i.e. “the weapon of oil” – against the U.S. economy. This was precisely in line with the thinking of Osama bin Laden, who stressed  “the absolute necessity to use the oil weapon.”

In another typical manifesto, Osama bin Laden and his deputy wrote that “it is very important to concentrate on hitting the U.S. economy through all possible means.” In 2007, bin Laden released a video on which he taunted the U.S. for having too much mortgage debt.

Although Osama bin Laden is dead, his words remain important. Indeed, among jihadis, the words of the fallen “martyr” might have more resonance than ever. And the jihad is bigger than bin Laden. It is a global movement that has clearly articulated its goals, and remains intent upon achieving them.

Al Qaeda and many other outfits have repeated over and over that jihadis should wage economic warfare any way they can. They don’t mean knocking down buildings – they mean wiping out the markets. As Al Qaeda operative Monin Khawaja wrote in 2003, “We have to come up with a way that we can drain their economy of all its resources, cripple their industries, and bankrupt their systems…”

Then there is the Muslim Brotherhood document, which is quoted all too frequently, and often to the wrong purposes. It says that Muslims “must understand that their work in America is a kind of Grand Jihad in eliminating and destroying the Western civilization from within and `sabotaging’ its miserable house by the hands of the believers…”

When I say that the document is quoted to the wrong purposes, I am referring to those who point to it as evidence that radical Islamism is taking over America, which it is not. Certainly, we should not be hysterical about Muslims calling America a “miserable house”, which is an accurate description of our current state of affairs. However, it is possible that jihadis are, in fact, “sabotaging” our miserable house from within.

As early as 2003, the Department of Homeland Security warned that Al Qaeda  was interested in infiltrating American financial institutions, and that Al Qaeda operatives possibly had already obtained jobs at American brokerage houses and banks. Said DHS spokesman David Wray: “There is new intelligence that indicates specific interest [on the part of Al Qaeda] in financial services and indirect indication…that led us to believe that threats could come from within as well as without.”

Osama bin Laden, meanwhile, liked to brag (as he did in the statement with which I opened this chapter) that his supporters understand the weaknesses in the American financial system. In another statement, he was even more explicit, saying not only that his supporters knew how to “exploit” the “cracks inside the Western financial system”, but also that the “faults and weaknesses are like a sliding noose strangling the [American economy].”

Which brings us back to Mr. Alamoudi, the fellow caught with $350,000 stuffed in his suitcase. Mr. Alamoudi was a central figure in what FBI investigators used to call the SAAR Network, or sometimes the Safa Group, a complex web of companies, investment funds, banks and charities alleged to have funded a host of jihadist outfits, including Al Qaeda. Shortly after the 9-11 attacks in 2001, the SAAR Network became the principal target of Operation Green Quest, the U.S. government’s effort to shut down the flow of money to terrorists. (Operation Green Quest led to few indictments and was disbanded in 2003, but its findings remain relevant).

One SAAR Network outfit was called the Ficq Council, where Mr. Alamoudi served as a trustee. The founder of the Ficq Council, Taha Jaber Al-Alwani, was named as an “unindicted co-conspirator” in the government’s case against Mr. Alamoudi’s friend, Sami al-Arian, who was himself a central figure in the SAAR Network until he was jailed for his activities as U.S. leader of Palestinian Islamic Jihad. (Sami al-Arian was also suspected of providing support to the 9-11 hijackers, but he was never charged for doing so).

The secretary and board director of the Ficq Council was a man named Sheikh Yusuf Talal DeLorenzo, who is another one of Sami al Arian’s close associates. Sheikh DeLorenzo and Mr. Alamoudi (the fellow with the suitcase full of cash), meanwhile, co-founded a SAAR Network outfit called the Graduate School of Islamic and Social Sciences (GSISS).

Sheikh DeLorenzo himself has not been implicated in the funding of terrorism, and for a time, GSISS had a contract from the U.S. Department of Defense to screen and hire Muslim Army chaplains, some of whom accompanied U.S. troops to Afghanistan. That, however, was before Mr. Alamoudi was caught at Heathrow with $350,000 in cash hidden in a secret compartment of his suitcase. The investigation that ensued revealed that Mr. Alamoudi had received the cash from Libyan dictator Moammar Qaddafi, and that he planned to use it to finance a plot that he had hatched to assassinate then Crown Prince Abdullah of Saudi Arabia. In 2004, the Treasury Department issued a press release stating that Mr. Alamoudi had ties to Al Qaeda and was one of Osama bin Laden’s most important funders.

After it became clear that Mr. Alamoudi (who is now serving a 23-year prison sentence) had ties to Al Qaeda, the U.S. Senate held a hearing to discuss how it came to be that GSISS (the outfit co-founded by Mr. Almoudi and Sheikh DeLorenzo) was hiring chaplains to accompany American troops to Afghanistan. Echoing the words of most everyone else at that hearing, Senator Jon Kyl of Arizona said that it was pretty “remarkable” that  “people who have known connections to terrorism are the only people to approve these chaplains.”

The Defense Department also concluded that it was remarkable, and ultimately concluded that the GSISS had probably been inserting Al Qaeda spies into the U.S. Army. At least one of the chaplains that GSISS hired for the Army was eventually charged and convicted for passing U.S. military secrets to Al Qaeda. Other GSISS clerics were suspected of espionage and merely fired.

Three years later, a lot of people still thought it was “remarkable GSISS (co-founded by Mr. Alamoudi, a key funder of Al Qaeda) had managed to insert spies into the U.S. military. but that didn’t stop GSISS’s other co-founder, Sheikh DeLorenzo (a sophisticated financier) from seeking permission from the Securities and Exchange Commission to set up a trading platform called Al Safi Trust, the ostensible purpose of which was to enable Muslim traders to engage in short selling without violating shariah law.

In 2007, the SEC granted permission, which is pretty “remarkable” because Al Safi Trust creates precisely the sort of “crack” in the financial system that would likely be exploited by people looking to crash the markets.

Traders who engage in legal short selling (as opposed to naked short selling) first borrow stock, then sell it, hoping the price will fall. This is a legitimate practice when it is not meant to intentionally manipulate the markets. The stock that is borrowed and then sold is real stock; it is not phantom stock that artificially increases supply and drives down prices. When Sheikh DeLorenzo set up Al Safi Trust, however, he explained that Muslim traders cannot borrow stock because shariah law prohibits paying interest.

This claim is, to begin with, not entirely true. Shariah law (by a strict reading of the Koran) does not ban interest. It merely warns against “excessive” interest, or usury. Nobody in modern times ever said that Muslims cannot pay interest until the Muslim Brotherhood’s “Financial Jihad” began to take off in the 1970s. This is about politics, not religion. Regardless, the interest problem could have been resolved in any number of ways. For example, Al Safi Trust could have worked out a fee structure whereby the prime broker, rather than the traders themselves, paid the interest on the borrowed stock.

Instead, Al Safi Trust provides an altogether novel service, known as Arboon, the amazing feature of which is that nobody locates or borrows any real stock. The clients of Al Safi Trust can simply sell as much stock as they like even if there is no stock available to sell.

Of course, if there is no stock available, they are not selling actual stock. They are simply hitting the “sell” buttons on their computers, indicating to the markets that stock has been sold, and creating phantom supply that drives down prices. According to Sheikh DeLorenzo, Al Safi Trust’s short sellers enter into an agreement to eventually buy stock so that they can deliver what they have sold.  But an agreement to buy stock  at some indeterminate point in the future is a far cry from having actual stock before selling it.

Presumably, Al Saft Trust’s clients do fulfill their agreements by eventually purchasing stock and delivering it to whomever bought it. But by that time, the phantom stock that was sold would have already done its damage to the markets. With the damage done, Al Safi Trust’s traders can buy shares at lower prices, deliver them, and then unleash another blast of phantom stock, further driving down prices.

In short, Al Safi Trust is nothing more than a cloak for another form of naked short selling, embroidered in Islamic jurisprudence so that regulators will not see through it. Because it is condoned by regulators, there is no evidence that Al Safi Trust itself has broken any laws. However, criminals  (or, for that matter, financial terrorists) looking to inflict damage on the markets now have a service, Al Safi Trust, that would enable them to conduct their mischief without fear that American regulators would pay even the least bit of attention to what they are doing.

I shudder to think who the clients of Al Safi Trust might be, but we should probably consider the possibilities. And towards that end, maybe we should know more about Sheikh DeLorenzo’s background.

* * * * * * * *

Sheikh DeLorenzo was born in Massachusetts as Anthony DeLorenzo, the son of upper-class parents, and the grandson of Italian immigrants from Sicily. At the age of twenty, he dropped out of Cornell University, and converted to Islam. Soon after, he moved to Pakistan, gradually making his way to Karachi, where he spent several years receiving religious training at Jamiah Ulum Islamia, a maddrassah led by scholars who, like the Taliban, subscribe to the strict Deobandi school of Islam.

According to the International Crisis Group, a well-known non-profit organization that studies war zones and political conflict, the Jamiah Islamia maddrassah has “carried the mantle of Jihadi leadership,” since the days of the Soviet invasion of Afghanistan, and now serves as “the fountainhead of Deobandi militancy countrywide.”

The International Crisis Group notes further that the Jamiah Islamia “boasts close ties with the Taliban” and has played a “major role in helping to establish and sustain” Pakistan’s most violent jihadist outfits, including Harkat ul-Mujahideen, Jaish-e-Mohammed, and Sipah-e-Sahaba. All of these groups have close ties to Al Qaeda, and Jaish-e-Mohammed, along with the intimately affiliated Lashkar-e-Tayiba, have become, for all intents and purposes, Al Qaeda subsidiaries.

As evidence of this, investigators note, as just one example, that Omar Sheikh, a leading member of Jaish-e-Mohammed, wired money to Mohammed Atta, the ring-leader of the Al Qaeda hijackers who carried out the 9-11 attacks. Omar Sheikh was also responsible for kidnapping Wall Street Journal reporter Daniel Pearl, who was subsequently killed, his head sliced off with an ornate, Yemeni knife and held up to be filmed for a jihadi propaganda video. Khalid Sheikh Mohammed, the mastermind of the September 11 attacks, has said that he committed the murder himself.

This was a great tragedy because Daniel Pearl was one of the few journalists to understand the threat to the United States is not just Al Qaeda, but a much larger, complex web of interlinking jihadist groups, shady financiers, agents of rogue states, narcotics smugglers, nuclear weapons traffickers, and Mafia kingpins. We’ll dig into that web in future chapters, but I’ll note now that Jaish-e-Mohammed, one of the outfits spawned by Sheikh DeLorenzo’s madrassah, has been implicated in multiple terrorist plots, including one to fire Stinger missiles at passenger planes in New York.

This is not to suggest that Sheikh DeLorenzo himself is a terrorist.  But there is no question that Sheikh DeLorenzo — who is also known as Usama DeLorenzo, and Usama a-Ali, and Usama Ashraf Ali, and other names – is on familiar terms with jihadist groups. Indeed, in the 1980s, Sheikh DeLorenzo worked as a key advisor to Zia ul-Haq, who was then the leader of Pakistan, and Sheikh DeLorenzo’s job was to help implement the Pakistani government’s most pernicious program — the further development of the country’s network of madrassahs in order to strengthen relationships between the government and jihadist paramilitaries, including many that are now plotting the demise of the West.

As part of Sheikh DeLorenzo’s program, many of these jihadist groups became closely intertwined with Pakistan’s spy agency, Inter-Services Intelligence (ISI). It should be said that the madrassah program also received support from the U.S. government, which was then hoping that the jihadist movement would serve as bulwark against the Soviet Union. But nowadays, of course, the jihadist paramilitaries are enemies of the United States, and their entanglements with the ISI cause endless problems for U.S. government officials who rely on Pakistan as an American ally.

The nexus between the ISI, the jihadis, and also key Mafia figures (such as the Indian Mafia kingpin Dawood Ibrahim, who lives under the protection of the ISI and is a key money man for Al Qaeda, according to multiple U.S. government reports) is a genuine threat to global stability, and to the financial system that underlies the American economy. Ibrahim himself is a serious threat. Aside from being involved in multiple violent terrorist attacks, he is reportedly the biggest trader on the Karachi stock exchange. Forbes Magazine ranks Ibrahim as one of the 50 most powerful people in the world.

The extent to which Sheikh DeLorenzo remains part of the Pakistani nexus is unclear, but his experience in Pakistan might be less worrying than his time in America, where he came to be on close terms not only with Sami al-Arian (a leader of Palestinian Islamic Jihad) and Mr. Alamoudi (his Al Qaeda-tied partner in  GSISS) but many other important jihadis, most of them key figures in the SAAR Network of alleged terrorist financiers. Indeed, though Sheikh DeLorenzo has never been charged with any crime, he held key positions with multiple SAAR Network organizations, and it should be stressed that all these organizations were operated by the Muslim Brotherhood, and all were said (by U.S. law enforcement agencies) to have ties to terrorist organizations (e.g. Hamas, Palestinian Islamic Jihad, Al Qaeda, and others) that were spawned by the Brotherhood.

For example, in addition to his high-level positions with the Ficq Council, Sheikh DeLorenzo was a board member at the International Institute of Islamic Thought (IIIT), another outfit identified by FBI investigators as being part of the SAAR Network. Other top officials of IIIT have been linked directly to Al Qaeda and provided logistical support to at least two of Al Qaeda’s biggest achievements – the 1998 simultaneous attacks on the U.S. embassies in Tanzania and Kenya; and the bombing, in 2000, of the USS Cole, an American destroyer that was parked at the Yemeni port of Aden. One IIIT officer, Tarik Hamdi, hand delivered the satellite phone that Osama bin Laden used to order the assault on the USS Cole. The IIIT was also the largest “donor” to the World and Islam Studies Enterprise, which simply handed the money over to Sami al-Arian’s Palestinian Islamic Jihad and other terrorist groups.

After Sami al Arian’s arrest, the secretary general of the Palestinian Islamic Jihad, Ramadan Shallah (who was once a professor, along with Sami Al-Arian, at the University of South Florida, and is now based in Syria) identified IIIT as the Palestinian Islamic Jihad’s most important source of funding. In 2000, Youseff Bondansky, then director of the House Task Force on Terrorism, published a book reporting that Shallah and other terrorists had attended meetings with Osama bin Laden to plan a “spectacular” terrorist attack inside in the United States. (Again, Sheikh DeLorenzo himself has not been implicated in terrorism, but his relationships with some terrorists might be pertinent).

Sheikh DeLorenzo was also a top executive (and continues to serve as a consultant for) a large SAAR Network investment fund called the Amana Trust, which is interesting on several levels. For one, the Amana Trust was founded by a Muslim Brotherhood figure named Yaqub Mirza, who was the most important U.S.-based operative in the SAAR Network of terrorist financiers. In 2001, U.S. government agents raided the offices of not just Mr. Mirza, but also at least three other Amana Trust officials because they (and Amana Trust) were suspected of funding terrorism. (Neither Mr. Mirza nor any other Amana Trust officials were ever charged with any crime, and nor were most of the other key figures in the SAAR Network who were targeted by Operation Green Quest investigators).

After raiding Mr. Mirza’s offices, U.S. law enforcement officials said that Mr. Mirza was the incorporator or manager of more than a dozen SAAR Network hedge funds, charities, and financial entities, including Mar-Jac Investments, Mena Investments, Sterling Management Group, and Reston Investments. In addition, Mr. Mirza ran the SAAR Network’s centerpiece, an outfit called the SAAR Foundation, which advertised itself as a charity, but was allegedly an important vehicle for laundering money raised in the United States for jihadist groups. (Again, no convictions were forthcoming, and Mr. Mirza is innocent until proven guilty, but I will report the allegations of government investigators, and let readers make up their own minds).

In 1998, the SAAR Foundation reported that it had an astounding $1.8 billion in annual revenue. After the 9-11 attacks, when the authorities began investigating the foundation for alleged ties to jihadist terrorist groups, the foundation (as first reported by terrorism expert Steve Emerson) issued new books that stated that it had zero income. In other words, $1.8 billion simply vanished, and officials suspected (though never proved) that the money ended up in the hands of terrorist outfits. In another instance, the SAAR Foundation transferred $9 million to an off-shore account held in the name of Humana Charitable Trust, an entity that did not exist.

Mr. Mirza has also been named by FBI investigators and terrorism experts as the principal U.S.-based bagman for Yasin al-Qadi, a Saudi billionaire and Muslim Brotherhood leader who was one of a select number of people labeled (in 2001-2002) by the U.S. government as a “Specially Designated Global Terrorist.” Yasin al Qadi ran an “Al Qaeda front” called the Muwafaw Foundation, which was, according to the U.S. Treasury Department, one of Osama bin Laden’s sources of funding.

However, the U.S. government has refused to hand over evidence to prosecutors and Yasin al Qadi has yet to be convicted of any crime. This has been lamented by some investigators, including former FBI special agent Robert Wright, who insists that Yasin al Qadi was “Al Qaeda’s banker” and that the U.S. government has failed to go after him and others in deference to the government of Saudi Arabia. The U.S. Treasury Department no longer refers to Yasin al Qadi as a “Specially Designated Global Terrorist.” Instead, he and thousands of others are referred to as “Specially Designated Nationals” who are suspected of financing terrorism.

In the late 1990s, Yasin al-Qadi was a major investor, along with a man named Sulaiman al-Ali, in a Chicago company called Global Chemical, which was ostensibly involved in warehousing chemicals for the manufacturing of soap. But when Global Chemical was raided in 1997, government experts said that the chemicals were likely for use in manufacturing explosives or even chemical weapons. (Again, Yasin al Qadi was not charged).

The president of Global Chemical was Mohammed Mabrook, who used the alias Mohamed Elhazeri, and who was, in the 1990s, the director of an outfit called Mercy International. One of Mercy’s board members was Mr. Alamoudi (Sheikh DeLorenzo’s GSISS partner), and Mercy International has been linked to 1) the terrorists who carried out the 1998 bombings of two U.S. embassies in Africa); 2) the masterminds of both the 1993 World Trade Center bombing and the September 11 conspiracy; and 3) Osama bin Laden himself.

Meanwhile, Global Chemical co-investor Sulaiman al-Ali incorporated, along with Yasin al-Qadi’s bagman, Mr. Mirza (Sheikh DeLorenzo’s partner in Amana Trust), a company called Sana-Bell Inc. Sana-Bell’s principal purpose, according to government investigators, was to generate and manage money for the U.S. arm of the International Islamic Relief Organization (IIRO). Mr. Alamoudi was one official of the IIRO in the U.S.

Among the principals of the IIRO’s overseas offices was Mohammed al-Zawahiri, the leader of the military wing of Egyptian Islamic Jihad (which has since merged with al Qaeda). Mr. al-Zawahiri is also the brother of Ayman al-Zawahiri, who was Osama bin Laden’s deputy, and is now the new leader of Al Qaeda. Ayman al-Zawahiri trained jihadi paramilitaries in the Balkans under the auspicies of the IIRO.

Given these connections, it should not be surprising to learn that IIRO  has been identified by authorities as an organization that funds terrorism. The United Nations, at one point, officially declared that the IIRO’s branch offices in the Philippines and Indonesia were Al Qaeda subsidiaries. For a long time, the Philippines office was directed by Mohammad Jamal Khalifa, a high-ranking Al Qaeda figure who was Osama bin Laden’s brother in law.

The IIRO, meanwhile, is a subsidiary of the Muslim World League, which Osama bin Laden identified (in a recorded conversation with Al Qaeda lieutenant Jamal Ahmed al-Fadl) as one of his primary sources of funding. The Muslim World League, which was (according to government investigators) also a big backer of Sami al Arian’s Palestinian Islamic Jihad, Hamas and other jihadist outfits, was incorporated in the United States by Yasin al-Qadi’s bagman, Mr. Mirza. (Despite the official accusations, the IIRO and the Muslim World League have not been convicted of any crimes, and remain in operation today).

While Mr. Mirza handled affairs in the U.S., the Muslim World League’s Peshawar office was managed by Wael Jalaidan, one of Al Qaeda’s founding members. The Muslim World League’s vice president in the U.S., Hassan Bahfazallah, was a member, along with Mr. Mirza, of Sana-Bell’s board of directors.

Mr. Bahfazallah, meanwhile, was also the executive director of an outfit in Chicago called Benevolence International, which received considerable support from Yasin al-Qadi. Benevolence’s overseas offices, including its office in Chechnya, were reported by U.S. officials to be “Al Qaeda fronts” directed by top Al Qaeda operatives, and the DOJ accused the Benevolence office in Chicago (including Mr. Bahfazallah) of having contacts with a Chechen organized crime (and terrorism) syndicate that was trying to obtain nuclear bombs for Al Qaeda.

Nuclear bombs are weapons of mass destruction.

Sheikh DeLorenzo’s Al Safi Trust naked short selling platform is a financial weapon of mass destruction.

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I do not know whether Yasin al-Qadi, Mr. Mirza and the other alleged terrorist financiers are clients of Al Safi Trust, but they have been in other lines of business with Sheikh DeLorenzo, and their relationships deserve scrutiny, just as we should scrutinize business relationships between gun dealers and the mentally disturbed. The difference here being that Yasin al Qadi (“Al Qaeda’s banker”) and Mr. Mirza (Yasin al Qadi’s bagman in the United States) are not mentally disturbed. They are sophisticated hedge fund managers with experience in the U.S. market, and they might be of service to the “Financial Jihad.”

Both Sheikh DeLorenzo and Mr. Mirza were also involved with an outfit called Saturna Capital, and tax returns show that Saturna Captital was a funder of the Holy Land Foundation, named by U.S. prosecutors as the principal U.S. front for Hamas. Prosecutors in the Holy Land Foundation trial were the first to unveil the document outlining a “grand jihad in eliminating and destroying Western civilization…”

Sheikh DeLorenzo also helped run (and continues to serve as a consultant to) the Saturna Brokerage, which, like Saturna Capital, was a unit of the Islamic Society of North America (ISNA), a Saudi funded outfit tied to the Muslim Brotherhood.  Amana Trust also operates under the ISNA umbrella, as does the NAIT investment bank and (see chapter 1 of this series) trader Zuhair Karam’s Bridegview Mosque, whose directors help run the operations of all of these financial entities.(The mosque was also a contributor to the Holy Land Foundation, according to those tax returns).

As of 2010, the president of Saturna Brokerage was Monem Abdul Salam, who was formerly a principal at Dickinson & Co., a brokerage that was a unit of the Stotler Group, which received a pile of subpoenas in 1989 as part of Operation Sour Mash and Operation Hedge Clipper – two famous FBI investigations into financial firms suspected of laundering money for narcotics kingpins and organized crime.

Mr. Salam was not directly implicated in those investigations, but there is no doubt that Dickinson was a dubious brokerage. Several of its leading traders left to found MB Trading, which never bothered to register itself with the authorities until it became the first brokerage ever sanctioned by the U.S. government for catering to a customer in Iran in violation of laws that prohibit doing business with state sponsors of terrorism.

As of 2008, the president of ISNA (the outfit that controls NAIT, Saturna, and Amana Trust) was Muzammil Siddiqi, who also served as president of the Ficq Council, where Sheikh DeLorenzo served as secretary and as a director of the board.  Mr. Siddiqi has since been named as an unindicted co-conspirator in the Holy Land Foundation terrorist financing case.

There are many other reasons to be concerned about the brokerages and other financial outfits operating under the ISNA banner, one of which is that ISNA was co-founded by Palestinian Islamic Jihad leader Sami al Arian, who (we know) has been accused of (though never charged for) providing support to the 9-11 hijackers, and was (according to court documents) taking directions from agents of the Iranian regime operating out of the UN headquarters in New York. This is one reason why NAIT, the multi-billion dollar investment outfit, was named as an unindicted co-conspirator in the government’s case against Sami al-Arian.

ISNA, meanwhile, was named as an unindicted co-conspirator in the government’s case against the Holy Land Foundation. According to United Press International, U.S. government investigators also believed that ISNA had transferred money directly to Al Qaeda, but ISNA has not been charged on that account and likely won’t be charged, perhaps in deference to the Saudi government, which is one of ISNA’s big donors and would be embarrassed by any association with Al Qaeda. The best the FBI can do, apparently, is occasionally mention ISNA officials as  “unindicted co-conspirators” in cases related to Al Qaeda.  As one example, former ISNA vice president Siraj Wahhaj was named by the U.S. government as an “unindicted person who may be alleged” to have participated in the 1993 “Day of Terror” plot, hatched by a diverse assortment of jihadis, all with ties to Al Qaeda.

The mastermind of both the “Day of Terror” plot and the 1993 bombing of the World Trade Center was a religious scholar and Muslim Brotherhood cleric named Omar Abdel Rahman, otherwise known as the “Blind Sheikh” – and he is one of the most important people in the world because his words, more than those of any other Islamic clerics, have inspired the actions of Al Qaeda and other leaders of the grand jihad. He was, before his arrest, also a sophisticated financial operator, and he had co-founded several major financial institutions. For example, he was a co-founder (with Mr. Alamoudi, Mr. Mirza, Yasin al Qadi, among others) of an outfit in Geneva called Bank al Taqwa, which established the Milan Cultural Center said (in 2001) by the U.S. Treasury Department to have been “Al Qaeda’s main operating base in Europe for the movement of men, weapons, and money around the world.”

The Blind Sheikh was until his imprisonment the leader of Al-Gama’a al-Islamiyya, an Egyptian terrorist group. It was long assumed that Al-Gama’a al-Islamiyya was a fierce rival of Egyptian Islamic Jihad, led by Ayman al-Zawahiri, who merged his outfit with Al Qaeda (and is now leader of Al Qaeda). To be sure, al-Zawahiri and the Blind Sheikh had their differences when it came to tactics and strategy (especially with regard to Egypt), but they were nonetheless united in their hatred for the United States. Meanwhile, many jihadis (including Mr. Alamoudi, who often gave speeches calling for the Blind Sheikh’s release from prison) are united in their admiration for the Blind Sheikh because his PhD. from Egypt’s prestigious Al Azhar University, the fount of Muslim Brotherhood thought, gives his fatwahs legitimacy.

Moreover, his fatwahs are bolder than those of any cleric, and they have a particular ring to them. “Tear the Americans and Jews to pieces!  And kill them wherever you find them. Ambush them. Take them hostage…Kill these infidels! Until they witness your harshness. Fight them, and God will torture them…”

And so on…

In his most famous fatwah, the Blind Sheikh was the first to call for the use of airplanes as weapons. In this same fatwah (issued from his prison cell after the 1993 attack on the World Trade Center) the Blind Sheikh was also the first prominent jihadi to publicly declare that jihadis the world over should  join forces to attack the American economy.

The lengthy fatwah is worth a read, but one line can give you a general idea. The Blind Sheikh began with the usual command to “tear [the Americans and Jews] to pieces”. He then specified how this could be done: “destroy their economies, burn their corporations, destroy their peace, sink their ships, shoot down their planes and kill them on air, sea, and land.”

At the 1998 press conference where Osama bin Laden announced his declaration of war against the United States, the Al Qaeda leader gave the assembled journalists laminated cards printed with a photo of the Blind Sheikh and a few words of his famous fatwah – namely, the words that I quoted above. Meanwhile, many other polished jihadist financiers in the SAAR Network had advocated for the Blind Sheikh’s release from prison.

That was in the 1990s, and nobody paid much attention. Given what we now know, however, maybe the SEC or somebody should pay attention to jihadist financiers who might, indeed, be working to  “destroy [our] economies” and “burn [our] corporations” – not with fire, but with the weapons of high-finance.

Again, this is not to suggest that Sheikh DeLorenzo or others in this story are guilty by virtue of their relationships, some of which are once removed. The point is not that Sheikh DeLorenzo himself is a terrorist. It is that some terrorists would likely be aware of Sheikh DeLorenzo’s phantom stock machine, also known as Al Safi Trust, and all the financial entities under the ISNA umbrella. But to the extent that the SEC does pay attention to ISNA (or to the former ISNA officials who are alleged accomplices or associates of Al Qaeda and the Blind Sheikh), it is only to give the SEC stamp of approval to ISNA’s financial empire.

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The leaders of the jihad are often portrayed as primitive bumpkins who live in caves and are armed with nothing more dangerous than a few maniacs willing to blow themselves up. This is to ignore the power of the jihadist ideology, which is articulated with great eloquence by countless people who are eminently learned scholars of both Islam and global politics. It is also to ignore the jihad’s fighting capabilities. The jihadis have done much more than dispatch a few terrorists here and there. They have organized and commanded insurgent armies with thousands of soldiers. And these armies have fought, with considerable success, two all-out wars (Afghanistan and Iraq) against the world’s most powerful military.

Perhaps even more important, the notion that jihadis are backward thinkers right out of the seventh century grossly underestimates the jihad’s sophistication as a modern-day global financial operation. And it is not just sophisticated; it is a massive criminal undertaking that has, according the United Nations, laundered more than $1 trillion through the global banking system in the last five years alone.

As one report prepared for the French Directorate of Military Intelligence explains, “the financial network of [Osama] bin Laden, as well as his network of investments, is similar to the network put in place in the 1980s by BCCI [Bank of Credit and Commerce International] for its fraudulent operations, often with the same people…The dominant trait of bin Laden’s operations is that of a terrorist network backed up by a vast financial structure.” [Italics are mine.]

For those who do not know, the Bank of Credit and Commerce International (BCCI) was a massive and complex financial institution, founded by a Pakistani wheeler-dealer named Agha Hasan Abedi in partnership with Sheikh Zayed bin Sultan al-Nahyan, then leader of Abu Dhabi. Among the other key figures in BCCI and its satellites were the Gokal family of Pakistan; Kamal Adham, former head of Saudi intelligence; a close-knit network of Saudi billionaires (some later known to be funders of Al Qaeda); and the ruling family of Dubai, which is (like Abu Dhabi) part of the United Arab Emirates.

In 1991, BCCI was forced to close its doors after New York District Attorney Robert Morgenthau declared that it was the “largest bank fraud in world financial history.” Eventually, prosecutors demonstrated that it had done illegal business with everyone from La Cosa Nostra and Colombian drug cartels to shady arms dealers, terrorist groups, and foreign intelligence agencies. BCCI, as we will see, was also a player, along with “legitimate” U.S. financiers, in the savings and loan “bust-outs” that wrought havoc on the U.S. economy in the late 1980s. Meanwhile, several of BCCI’s affiliates specialized in manipulating the U.S. markets.

We will discuss BCCI at greater length in later chapters of this series, but for now it is enough to know that it is a tenet off both Salafi Islam (the brand of Islam subscribed to by many of the sheikhs involved with both BCCI and the Muslim Brotherhood) and Shiite Islam (subscribed to by a number of BCCI’s key executives) that Muslims should fight their enemies by “plundering their money.” And regardless of  what the motives of BCCI’s founders were in the past, it is clear that most of them are, to this day, major players in the global financial system. They have more than enough firepower to inflict damage on the U.S. markets. And, as the report for French intelligence noted, “directors and cadres of the bank [BCCI] and its affiliates, arms merchants, oil merchants, Saudi investors” have been among the most important financial supporters of America’s Enemy Number One – Al Qaeda.

By way of introducing just a few former BCCI figures who have supported Al Qaeda, I need to relate a story about Benevolence International, the Al Qaeda front that was accused by the U.S.. government of having contacts with people trying to obtain nuclear weapons for Osama bin Laden.

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In 2002, U.S. soldiers stationed in Sarajevo raided the local offices of Benevolence International and found a document that referred to the “Golden Chain” – an elite club of twenty Saudi billionaires whom Osama bin Laden had identified as his most important financiers. These financiers not only delivered large sums of money to the prospective nuclear weapons proliferators at Benevolence International, but can correctly be understood to have been among Al Qaeda’s founding fathers.

Some highly regarded authors, such as Steve Coll, who is otherwise reliable, have suggested that the Golden Chain members funded Al Qaeda only in its early years. This is false. Most of them continued to support Al Qaeda after bin Laden declared war against the United States, and there is evidence that at least one of them was funding Al Qaeda as of this writing in 2013.

Regardless of the degree to which they continue to fund Al Qaeda today, it can be safely assumed that the Golden Chain billionaires remain hostile to the United States. It is possible that, for the time being, they no longer financially support violent terrorism against the United States, but there should be no question that they are entirely supportive of the arguably more important “Financial Jihad” and other components of the non-violent “grand jihad in eliminating and destroying Western civilization…”

The Golden Chain document has, meanwhile, received virtually no attention from the media, perhaps because it would seem a bit “crazy” to suggest that the jihad’s most important operatives are not rag-tag fringe fanatics living in caves, but rather the crème de la crème of Saudi society – the people who control much of the world’s oil wealth, the people who own the most powerful manufacturing conglomerates, and the biggest Saudi banks, and the biggest hedge funds, and the biggest stock brokerages, and the Saudi stock exchange itself.

There is something in the wiring of American brains that makes it impossible for even the smartest people in this nation to accept surprising or unpleasant realities. There are a few exceptions, such as Glenn Simpson, who was once The Wall Street Journal’s finest investigative reporter, and who did write about the Golden Chain. But Simpson has left The Journal, and the newspaper has since failed to investigate Saudi ties to terrorism. In fact, it has failed to investigate much of anything at all.

In any event, there is a vast body of additional evidence that most of the people identified as members of the Golden Chain have actively participated in the movement of radical jihad on multiple fronts. And the Golden Chain document has been confirmed to be authentic by, among others, American intelligence officials, multiple FBI agents, Al Qaeda’s most reliable defector Jamal al-Fadl, and the nation’s most learned terrorism experts, including Steve Emerson of the Investigative Project for Terrorism, which possesses the world’s largest non-governmental database of intelligence on Al Qaeda and other jihadist outfits. (Much of the information in this chapter about the “SAAR Network” can be found in various of Emerson’s excellent books).

So we must know more about Al Qaeda’s Golden Chain. For starters, we must understand that these extremely wealthy financiers are bound together by the sorts of relationships that many Americans do not understand. These are not mere business relationships. They are the bonds of brotherhood and blood. They are the bonds of fervor and ancient grievances. They are, moreover, the bonds between people who are united in their disdain for the prevailing order, and whose financial activities have, in many cases, helped subvert that order.

One billionaire member of the Golden Chain, according to the Benevolence International document, was Sheikh Khalid Bin Mahfouz, who had been among the key shareholders of BCCI, and had paid more than $200 million to settle charges for his role in that massive criminal enterprise. Sheikh Mahfouz, who passed away in 2009, had also founded National Commercial Bank, which is the single largest financial institution in the Middle East.

Some of Sheikh Mahfouz’s companies – such as Al Khaleejia, SEDCO, and the Saudi Sudanese Bank – have done business directly with companies that were founded by Osama bin Laden. And it was Sheikh Mahfouz who originally set up the Muwafaq Foundation, the outfit that was managed by Yasin al-Qadi until the U.S. government declared Muwafaq to be an “Al Qaeda front” and labeled Yasin al-Qadi as a “Specially Designated Global Terrorist.”

While he was alive, Sheikh Mahfouz denied any involvement with Al Qaeda, and filed lawsuits against journalists and researchers (including the prominent Rachel Ehrenfeld, now director of the Economic Warfare Institute, and author of an excellent book, “Funding Evil”) who reported his ties to the Muwafaq Foundation, Benevolence International and other Al Qaeda fronts. After the lawsuits, Sheikh Mahfouz’s name rarely appeared in print.  Meanwhile, some American pundits claimed that Saudi billionaires like Sheikh Mahfouz had donated to Al Qaeda only to avoid being attacked, like frightened shop owners paying protection money to the local Mafia thug. These pundits misunderstand the nature of Saudi society, the two most important features of which are Salafi Islam (one of the foundations of the jihadist ideology) and the inviolability of personal relationships.

Sheikh Mahfouz  not only believed in the grand jihad, but his relationship with the bin Laden family went back decades. Osama bin Laden’s father, Mohammed, and Sheikh Mahfouz were best friends, and it was Sheikh Mahfouz who provided the original finance that allowed Mohammed to build Saudi Arabia’s largest construction company. When Sheikh Mahfouz filed lawsuits against the few journalists who sought to expose his ties to Al Qaeda, the families of the victims of the 9-11 attacks filed lawsuits against Sheikh Mahfouz for providing financial support to the people who killed their loved ones.

And I am thinking I might file a lawsuit against Sheikh Mahfouz’s estate seeking damages for all the stress that I have endured as a result of learning that Sheikh Mahfouz and his friends not only were (and, in most cases, still are) among the world’s destructive financial criminals, but also had billions of dollars, some of which ended up in the hands of people like  Mohamed Loay Bayazeed, who tried, according to the FBI, to “obtain uranium for Osama bin Laden for the purpose of developing a nuclear weapon.”

* * * * * * * *

Another member of the Golden Chain was Sheikh Saleh Abdullah Kamel, owner of Dallah Albaraka, a conglomerate involved in banking, stock trading, construction, and jihadist media. In addition, Sheikh Kamel, who is linked to the Muslim Brotherhood and has financed Sami Al-Arian’s Palestinian Islamic Jihad, owns the powerful Saudi al-Baraka Bank, which, according to U.S. government investigators, provided much of Al Qaeda’s financial infrastructure in Sudan during the 1990s. Sheikh Kamel also gave Hamas, the jihadist outfit that controls the Gaza strip, more than $20 million so that Hamas could open a bank of its own.

The new Hamas financial institution, which is called al-Aqsa Bank, quickly formed a joint venture with Citibank. That joint venture was quite lucrative for Citibank, which may have been willing to turn a blind eye to illicit financial transactions. In 2001, the U.S. Treasury Department advised Citibank that it was operating a joint venture with a bank controlled by Hamas, and the U.S. Treasury Department advised Citibank that it might want to disband this joint venture. Citibank, however, ignored the advice. (Neither Sheikh Kamel nor any other Golden Chain billionaire has been charged with any crime related to the financing of terrorism).

U.S. authorities have taken no substantive action against Sheikh Ibrahim Muhammad Afandi, a Golden Chain billionaire who owns some of Saudi Arabia’s most influential businesses, including the Saudi Industrial Services Company, the Great Saudi Development & Investment Company, and the Arabian Company for Development and Investment Limited. Sheikh Afandi also controls BSA Investments, a big private equity fund active in the U.S.

Then there is Abdel Qader Faqeeh, a member of the Golden Chain club and chairman of major corporations and financial institutions, including Bank Al Jazeera and the Savola Group, which recently merged with Azizia Panda to become Saudi Arabia’s 13th largest company. A business partner of Sheikh Faqeeh is Golden Chain member Sheikh Saleh al-Din Abdel Jawad, who is the CEO of the blue chip General Machinery Agencies manufacturing company in Jeddah.

Sheikh Faqeeh also had a joint venture business with the above-mentioned Sheikh Mahfouz. Indeed, each Golden Chain member has some sort of business partnership with each of the other Golden Chain members – one reason why I say that these people need to be viewed as not just a club, but as a family. I will not bore the reader with a long recitation of every financial transaction that ties these jihadist financiers together, but I will mention a few, just to erase any question as to whether the relationships exist.

For example, National Commercial Bank, owned until recently by Sheikh Mahfouz, is a partner in a multi-billion dollar investment outfit called the Middle East Capital Group, which is partly controlled by Sheikh Rahman Hassan Sharbatly – who was another member of Golden Chain club. Sheik Sharbatly is also a partner, with Sheikh Faqeeh, in a unit of Sheikh Faqeeh’s Savola Group. In addition, Sheikh Sharbatly is a board member and major shareholder of Beirut Ryad Bank SAL, Egyptian Gulf Bank, and several other major financial institutions.

Meanwhile, Sheik Sharbatly and Sheikh Mahfouz were both board members of the Saudi Arabian Refinery Company, which refines much of the world’s oil supply. This brings to mind the report that I mentioned at the outset of this story – the one commissioned by the U.S. Defense Department’s Irregular Warfare Support Program.  That report speculates that one component of the possible financial attack on the U.S. economy in 2008 might have been the manipulation of oil prices to excruciating highs in the summer of that year.

That seems like a possibility that is worth considering, especially in light of Osama bin Laden’s proclamations about the “absolute necessity of using the oil weapon.” Another reason to ask whether oil prices might have been manipulated is that the membership of the elite Golden Chain club included Sheikh Abdel Hadir Taher and Sheikh Ahmad Turki Yamani – two former Saudi officials who were among the masterminds of the 1973 oil embargo that crippled the U.S. economy–retaliation for America’s support of  Israel in the 1973 Yom Kippur War.

Sheikh Taher, in addition to being a Golden Chain member and the former governor of the Saudi state oil company Petromin, has also served as director of Saudi European Bank, a big financial institution that is important to the stability of global economic order.  Al Qaeda Golden Chain member Sheikh Yamani is a former Saudi minister of petroleum. He is also a former director of Saudi Aramco, which is the largest oil company in the world.

In addition, Sheikh Yamani presides over Investcorp, an investment firm that he founded. Actually, it’s not just an investment firm; it’s a market-moving behemoth – one of the largest hedge fund and private equity outfits in the world, with more than $50 billion under management. Investcorp has made a deep imprint in the American markets, and has been involved in everything from short selling to the trading of self-destruct CDOs. As for what sort of short selling Investcorp engages in, we need only know that Ivestcorp is a client of Sheikh DeLorenzo’s Al Safi Trust phantom stock machine.

Investcorp was also a pioneer, and continues to be one of the few major players in the world of so-called PIPEs deals, also known as “death spiral” finance. Investcorp has not been implicated in any crime related to its PIPEs deals, and I am not suggesting that Ivestcorp has done anything technically illegal, but PIPEs deals generally are considered to have been a major scourge on the American markets. PIPEs, or “Private Investments in Public Equity” are simply transactions that see the investors buying stock directly from companies rather than on the open markets. But PIPEs investors often end up destroying the company to which they are supposedly serving as benefactors.

Since PIPEs finance dilutes shareholder value, a company that does a PIPEs deal often sees its stock price decline. When this happens, short sellers (often naked short sellers who are colluding with the outfit that provided the PIPEs finance) attack the company, causing its stock price to drop. The more it drops, the greater the number of shares are owed to the PIPEs financier. The greater number  of shares, the greater that drop; and so on. Hence the term,  “death spiral” finance. Once the stock price of a PIPEs victim is mauled, the finance is cut off, and the company goes bankrupt, delivering big profits to the short sellers (i.e. profits that far exceed the cost of providing the PIPEs finance in the first place).

Again, this is not to suggest that Investcorp has necessarily done anything illegal, and we cannot say with certainty that its PIPEs business follows the same modus operandi of most other PIPEs dealers. But the emergence of the PIPEs industry has, without doubt, been a scourge on the markets. As numerous court cases attest, it has destroyed countless companies and countless jobs. Basically, it is a not-insignificant reason why America’s “miserable house” (as that Muslim Brotherhood document called it) is, in fact — miserable.

* * * * * * * * *

Sheikh Sulaiman Abdul Aziz al-Rajhi is not miserable. He’s the patriarch of the wealthiest family in Saudi Arabia, and thus one of the 100 richest people in the world. He is jolly and well. So, naturally, he was also a member of the Golden Chain, the elite club of Al Qaeda’s 20 most important financiers.

Maybe because the twenty members of the Golden Chain club are the most prominent people in Saudi Arabia, the U.S. government does not label them as financiers of the grand jihad.  It does not take steps to shut down their bank accounts or bar them from trading in the U.S. markets. It does not even dare utter their names, perhaps because to do so would embarrass the Saudi government, which is ostensibly a U.S. ally.

When Congress issued its final report on the Al Qaeda attacks on New York and Washington, it contained 28 pages that reportedly detailed Saudi ties to Al Qaeda. But when the report was released to the public, the 28 pages about the Saudis were censored, so ordinary people could not read them. A full 28 pages – with no words; nothing but big blocks of black ink. Thus, it is left to independent jihad experts to sort out many of the connections. Steve Emerson and his Investigative Project on Terrorism have done especially hard work in this regard. Some former top government officials have said that Emerson is better informed about the jihad than the government itself. But Emerson and other people who have done excellent research are largely ignored by the media, which will not report the facts unless they have been stated explicitly by some official spokesman. And the official spokesmen have nothing bad to say about Saudi billionaires, regardless of whether they fund terrorism.

Indeed, Saudi billionaires with ties to terrorism have deployed their wealth to “capture” some elements of Washington. This “deep capture” has been the state of affairs since at least the 1980s, when Sheikh Mahfouz (the future founder of what the U.S. Treasury Department called an “Al Qaeda front”) and other BCCI figures began investing in banks and other companies with prominent figures in both the Democratic and Republican parties. When the BCCI scandal broke, it was widely reported that Sheikh Mahfouz and other Saudis (some, such as Kamal Adham, with links to Saudi intelligence) had invested with prominent figures of the American political establishment in order to gain influence over American government policy. But nothing was done about it, and the influence increased exponentially in the years that followed.

Therefore, it is not an exaggeration to say that some elements of Washington have been “captured” by billionaires who are not only destructive financial criminals, and who are not merely casual financiers of terrorism, but who are also regarded as being among the leaders of “The Financial Jihad” and what that famous Muslim Brotherhood document described as the larger “Grand Jihad in eliminating and destroying Western civilization from within…”

At any rate, you won’t read about it in the media, but it is clear that Sheikh al-Rajhi, the wealthiest man in Saudi Arabia (and an honorary member of the American establishment) is an important leader of the grand jihad. Aside from having been an Al Qaeda Golden Chain member, he was the principal force behind the U.S.-based SAAR Network of jihadist entities (many of which were named in that Muslim Brotherhood document as being precisely those entities that were meant to lead the “Grand Jihad in eliminating and destroying Western civilization from within…”). In fact, the SAAR Network was named after Sheikh al-Rajhi himself. The initials, S.A.A.R., stand for Sulaiman Abdul Aziz al-Rajhi.

Most of the other Golden Chain members were also involved with the SAAR Network financiers operating in the United States. For example, Sheikh Afandi and Sheikh Kamel were board members of Sana-Bell, the outfit run by “Specially Designated Global Terrorist” Yasin al Qadi’s bagman, Mr. Mirza (who, as I mentioned, was the central U.S.-based figure in the SAAR Network). Also a board member of Sana-Bell, you will recall, was Mr. Bahfzallah, head of Benevolence International, the outfit that was dealing with people who were shopping for nukes.

Yasin al Qadi’s lawyer, Cherif Sedky also worked for Sheikh Mahfouz. And this same lawyer represented Sheikh Rajhi when the FBI began to ask how it came to be that $1.8 billion dollars from the SAAR Foundation disappeared, most likely into the hands of other jihadis.

Given his important role in the jihad, it is fair to assume that Sheikh al-Rajhi harbors some disdain for not just Western civilization, but also the prevailing economic order. At the same time, Sheikh al-Rajhi is one of the most important players in the global financial order, a person who is perfectly capable of transforming or even undermining it. Indeed, it is fair to say that few men have more sway over “the system” than Sheikh Sulaiman Abdul Aziz Rajhi.

Said to be a whiz with numbers, Sheikh Rajhi directs multiple hedge funds that manage many billions of dollars, several stock brokerages, and the massive Al Rajhi Bank, which is the most venerable of the elite financial institutions that control the Stock Exchange of Saudi Arabia, also known as the Tadawul. A 2013 report issued by a U.S. Senate investigative committee revealed that Al Rajhi Bank was still (as of 2013) dealing with Al Qaeda, and that it was laundering Al Qaeda money through HSBC, the prestigious British bank, but, of course, Al Rajhi has been charged with no crime on that account (HSBC paid a relatively small fine for this and other money laundering infractions).

Sheikh Rajhi’s companies have around $100 billion in cash at their disposal. All told, the financial fire power of the Golden Chain exceeds that of most mid-sized nations.

But, rest assured, jihadis are just bumpkins in caves.

* * * * * * * * *

Despite the death of Osama bin Laden, the jihad’s sophisticated financial operation remains entirely in place. Moreover, it is doubtful that the Securities and Exchange Commission is monitoring the activities of the billionaire financial wizards who were members of Al Qaeda’s Golden Chain. Certainly, it has never prevented any member of the Golden Chain from engaging in financial schemes (such as self-destruct CDOs and “death spiral” finance) that have done damage to the U.S. economy.

Indeed, as we know, the SEC has made it easier for these people to legally manipulate the markets by allowing people such as Sheikh DeLorenzo (who, as a prominent member of the SAAR Network, was certainly on good terms with the Golden Chain) to operate trading platforms, such as Al Safi Trust’s naked short selling operation, that damage the U.S. markets. Meanwhile, Wall Street’s largest brokerage and investment houses stumble over themselves to do business with the Golden Chain, and with other financial behemoths that might not be entirely committed to keeping the U.S. economy in good health.

One such behemoth is the financial empire of Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum — or “Sheikh Mo,” as he is affectionately called in the West.  Sheikh Al Maktoum, whose family members were among the controlling shareholders of BCCI’s criminal enterprise, now operates, among other entities, the Dubai International Finance Center, which houses Sheikh DeLorenzo’s Al Safi Trust (set up in partnership with Sheikh Mo) and countless hedge funds, many of them intertwined with Dubai’s sovereign wealth fund.

The Dubai International Finance Center’s stated mission is to advance shariah compliant finance (such “compliance” being defined by the Muslim Brotherhood), and it has at its disposal more than a trillion dollars. Frank Gaffney, former assistant secretary of defense for international security and one of the nation’s leading experts on the Muslim Brotherhood, correctly insists that shariah compliant financial products “threaten what is left of the integrity of our free market system. Worse yet, they – and the theo-political-legal doctrine, Shariah, from which they spring – pose a real threat to our society and form of government.”

On the surface, it seems that there is nothing wrong with people creating shariah compliant financial products, even if they cater to a radical interpretation of Islam. People have a right to be radical and to create radical financial products. Indeed, it took me a long time to believe that shariah finance posed any threat whatsoever. My instinct was to believe that it was merely an effort to cater to people who are devoutly religious, no more dangerous than Halal beefsteak.

However, it is prudent to consider whether there is more than religion behind the astounding growth of shariah compliant finance in recent years. Indeed, we must understand that the new and radical interpretation of shariah “compliance” is overtly anti-American, and has been developed by leaders of the jihad as a means to challenge the U.S. financial order. This was well-documented in a book called “Understanding Sharia Finance”, by Patrick Sookhdeo, then director of the Institute for the Study of Islam and Christianity.

Paul Bracken, professor of management and political science at Yale University, notes that shariah compliant finance has become a powerful force and raises “the prospect that Wall Street could be knocked out of action [with] strategic implications for the United States and for the entire global system of finance.”

As for Sheikh Al Maktoum, the eminence grise of shariah “compliant” finance, many in Washington consider him to be an important ally of the United States. But it is also true that Sheikh Al Maktoum considers one of his most important allies to be the regime in Iran, which would like to see the United States obliterated. Meanwhile, Sheikh Al Maktoum and his family have been among the biggest supporters of organizations that are carrying out the “Financial Jihad.”

For example, Sheikh Al Maktoum’s family, along with the Muslim Brotherhood, the Golden Chain Saudis, and some factions of the Saudi government are among the biggest contributors to ISNA, an organization whose depredations I have partially described. A charity founded by Sheikh Al Maktoum also donated $50 million to the Council on American Islamic Relations, an ISNA-tied outfit that grew out of the Islamic Association of Palestine, which was the U.S. propaganda arm of Hamas. Numerous CAIR officials have been alleged to have ties to the jihad, which might explain why CAIR has plotted ways to secure the release from prison of the Blind Sheikh.

In Europe, where Sheikh Al Maktoum is received warmly (the BBC recently called him an “enlightened dictator”), Muslim Brotherhood spiritual leader Yousef al-Qaradawi (the cleric who has issued calls for “Financial Jihad”) runs the European Council for Fatwa and Research, which has played a key role in fostering the development of shariah “compliant” finance. That outfit was funded almost entirely by Sheikh Al Maktoum and his family until it was implicated by authorities for having ties to violent jihadists. (Despite their accusations, authorities did not file charges against the organization).

Meanwhile, Dubai, with Sheikh Al Maktoum’s acquiescence, has long served as an important operational hub for some the world’s most notorious organized crime figures, some with direct ties to jihadist groups. For example, Indian mafia kingpin Dawood Ibrahim was, until he moved to Karachi to live under the protection of the Pakistani intelligence service, one of Dubai’s most honored and ostentatious residents, regularly holding lavish parties at his landmark white mansion – parties attended by prominent figures in the world of high finance (some of whom I will introduce in upcoming chapters), and also by members of Dubai’s ruling family.

Mr. Ibrahim had the full protection of Sheikh Al Maktoum until Dubai was pressured by the international community to send him packing. And Mr. Ibrahim was no ordinary mobster. He was, as I mentioned, intimately intertwined with the operations of Al Qaeda and other jihadist groups – the only person in the world to be labeled by the United States government as both a “Global Narcotics Kingpin” and a “Specially Designated Global Terrorist.”

Former ABC News journalist Gretchen Peters, a friend and work colleague of mine when we both lived in Cambodia, has published an excellent book about the nexus between jihadists and the heroin trade. One CIA official whom Peters interviewed for the book noted that  “if you want to know what Osama bin Laden is up to, you have to understand what Dawood Ibrahim is up to.”

Another close friend of Sheikh Al Maktoum was Viktor Bout, a Russian organized crime figure who was, for a long time, flying cargo planes filled with weapons from Dubai to Taliban and Al Qaeda  redoubts in Afghanistan and Pakistan. Viktor Bout, like Dawood Ibrahim, operated with the full support and protection of the Dubai government until Interpol put out an arrest warrant for him. Then he moved to Moscow, where he enjoyed the protection of Russian prime minister Vladimir Putin until he was lured to Thailand and arrested by the FBI.

Viktor Bout was also closely tied to Abu Dhabi’s ruling family, whose leading members (like Dubai’s ruling family) probably first came into contact with the underworld while they were presiding over the criminal operations of BCCI. Some cargo planes that Bout used to smuggle weapons to Afghanistan were registered as belonging to a company called Flying Dolphin, which was owned by Sheikh Mansour Al Nayan, the present ruler of Abu Dhabi.

Then there is the famous story (widely reported by U.S. officials) of why President Bill Clinton failed to kill Osama bin Laden. Soon after Al Qaeda’s 1998 attacks on U.S. embassies in Tanzania and Kenya, the CIA located Osama bin Laden and reported that the Emir of Jihad was hosting some of his closest friends at a party in a remote corner of Afghanistan. The Al Qaeda leader and his friends were spending their days hiking in the mountains and hunting with falcons, then retreating to an Al Qaeda training camp to drink tea and (perhaps) talk of subversive notions.

Figuring that there would not be much time before Osama would vanish again, the U.S. military told President Clinton that this was the ideal moment to blow the Al Qaeda leader to smithereens with a precision-guided Hell-Fire cruise missile. The generals were ready to pull the trigger, but Clinton and his cabinet stopped them. They aborted the mission because Osama bin Laden and his friends were having a party.  And these friends were all from Dubai. In fact, they were among the most prominent members of Dubai’s ruling family.

Sheikh Al Maktoum’s family and the leaders of Al Qaeda had finished hunting and were relaxing in the tents that the Dubai royals had brought with them to Afghanistan – house-sized luxury tents equipped with giant electricity generators, and decorated with fine carpets, and fabrics laced in gold. No doubt, Osama bin Laden regaled the Dubai ruling family with stories of his exploits, and the Dubai ruling family members perhaps responded with praise for their host’s victories against the United States.

At any rate, the CIA watched the satellite images. The generals asked Bill Clinton if they should fire the missile. And Bill Clinton said, “No” — because, of course, Dubai’s royals were American allies. As George Tenent, who was then the director of the CIA, later put it, Clinton could not take this rare opportunity to kill Osama bin Laden because the missile strike “might have wiped out half the royal family of the UAE.”

Put differently, one might say that “half the royal family of [our ally] the UAE” was partying with Osama bin Laden.

That’s some ally.

Well, never mind, say America’s elite – if Sheikh Al Maktoum is supporting jihadis, it is only a matter of political expediency. Perhaps. But, in the end, it doesn’t matter whether the politics are expedient or not. What matters is the end result. And it is probably safe to assume that the Dubai royals who went on hunting expeditions in Afghanistan with Osama bin Laden may be (at least to some extent) sympathetic to the jihad. That is, they have, to a degree, been possessed by a subversive notion – that “the system”, as epitomized by the United States, can be undermined.

But the billionaire sheikhs of the Middle East – whether they be members of ruling families, funders of the SAAR Network, or members of Al Qaeda’s Golden Chain – are not the only potential threats to America’s economic well-being. As I mentioned at the outset of this story, the president’s national security staff has suggested that there is “nexus” between jihadist financiers, organized crime, agents of rogue states, and “legitimate” financial operators in the United States. This “nexus” has contributed to the great meltdown of 2008, and to the instability of the global financial system that continues to this day.

Before we discuss our present predicament, however, we need to understand more about the nexus. And to do that, we must first go back in history. We must, for starters, further examine the BCCI enterprise. We must, in addition, consider what occurred after BCCI collapsed in 1991.

One thing that occurred soon after BCCI collapsed in 1991, of course, was that BCCI was revealed to be the biggest banking fraud in the history of world finance. More important, that same year, 1991, a Muslim Brotherhood leader named Hasan al Turabi (then also a top official in the government of Sudan) founded an outfit called the Islamist International, appointing Osama bin Laden to serve as chairman. The purpose of the Islamist International was to unite the Muslim Brotherhood, affiliated terrorist organizations, and their state sponsors behind a common mission.

That mission was partly articulated in the famous Muslim Brotherhood document (published that same year, 1991) outlining plans to wage a “Grand Jihad in eliminating and destroying Western civilization from within…” There were also numerous violent terrorist attacks planned at meetings of the Islamist International. However, Osama bin Laden’s most important mission as chairman of the Islamist International was not to plan acts of violent terrorism. His most important mission–”The Financial Jihad”–was to help lead a Muslim Brotherhood initiative to replace the BCCI enterprise with an enterprise that would be similar in every respect except that it would exceed BCCI in scope and destructive power.

Yossef Bondansky, then director of the House Task Force on Terrorism, reported in his seminal 2000 book on Osama bin Laden: “The collapse of the BCCI and the shock waves that were still reverberating throughout the Muslim world could not have come at a worse time. Turabi had always known the importance of a reliable financial system to support and sustain Islamist activities.”  The Islamist International “urgently needed an expert to salvage whatever was possible and rebuild a global financial system [to replace the BCCI enterprise]. By then Osama bin Laden was the most qualified individual in Khartoum to untangle this financial mess. In late summer 1991, Turabi approached bin Laden and asked for help.”

This, of course, raises some questions.

For example: What, exactly, was BCCI, and why was it so important? What, exactly, did Osama bin Laden do after he was appointed to deal with the collapse of BCCI? Precisely what sort of “global financial system” did Osama bin Laden and his associates build from the remains of BCCI, and what is the status of that global financial system today? The director of the House Task Force on Terrorism noted that this financial network—a global financial empire that was built by Osama bin Laden, among others more important than him—eventually extended all the way from Osama bin Laden’s cave in the Hindu Kush to the caverns of Wall Street, but what else do we know about it? And why has this story never appeared in The Wall Street Journal?

In fact, Osama bin Laden played a role in building what is not only one of the greatest financial empires the world has ever known, but also one of the world’s most destructive transnational organized crime (and terrorism) syndicates, so we really ought to ask: precisely what lines of business (aside from terrorism) did this amazing enterprise pursue? What lines of business is it pursuing today? And is this good news for the American economy?

Those are questions that will be answered in later chapters of his series.

To be continued…Click here to read Chapter 3 of this series

Mark Mitchell is a journalist who spent most of his career working as a correspondent for mainstream media publications before joining DeepCapture.com.

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UBS, in Theory, a Conspiracy to Naked Short “Tens of Millions” of Shares

UBS, in Theory, a Conspiracy to Naked Short “Tens of Millions” of Shares

It wasn’t long ago when they were saying that naked short selling never happened. They said it simply did not exist, that only wild-eyed conspiracy theorists believed in naked short selling. That was before 2008, when the CEOs of some big banks started hollering that naked short selling was causing the stock prices of their banks to nosedive. With the CEOs of the big banks hollering, the SEC, in June, 2008, issued an Emergency Order banning naked short selling (that previously did not exist) in the stocks of 19 big financial institutions (i.e. the financial institutions that were doing the naked short selling—to each other). But the SEC did nothing about the naked short selling of other stocks because, apparently, that naked short selling existed only in the fevered imaginations of people who believed that their savings were being wiped out by little green men.

Then, in August 2008,  the SEC lifted its Emergency Order banning naked short selling of stock in the 19 big financial institutions, and those financial institutions began naked short selling each other again. Their stocks (which had increased in value while the Emergency Order was in place) once again nosedived, and one of them, Lehman Brothers, saw its stock go into a classic death spiral (i.e. a spiral that caused death). Almost immediately after Lehman collapsed, the SEC issued another Emergency Order, this time banning all short selling in financial stocks, and in this new Emergency Order, the SEC stated in plain English that naked short selling can cause stocks to go into death spirals, making it difficult for the targeted companies to raise new capital, and thereby result in bankruptcy. Which, of course, was what had just happened to Lehman, as the SEC knew full well.

Some weeks later, the SEC lifted that Emergency Order and put into effect some new rules governing naked short selling. Ever since, the SEC has maintained that naked short selling rarely occurs, and it certainly has never sanctioned anyone for the naked short selling that (according to the SEC) created an “emergency” in 2008. So once again, the conventional wisdom is that only wild-eyed conspiracy theorists believe that naked short selling occurs, and only UFO abductees with tin foil hats believe that naked short selling occurs in massive volumes, causing damage to the markets.

It has long since been forgotten that CEOs of big banks were, back in 2008, hollering that naked short selling had caused their stock prices to nosedive, and it has long been forgotten that the SEC issued two Emergency Orders in 2008 to save the banks from naked short selling, suggesting in one of those Emergency Orders that naked short selling had contributed to the collapse of Lehman Brothers. And now we know why it has been forgotten. Now we know why the term “naked short selling” has once again been scrubbed entirely from the public discourse in quite Orwellian fashion. It is, of course, because the big banks are still perpetrating (with the full connivance of the SEC, whose data says it isn’t happening) massive volumes of naked short selling. This, anyway, is what we can conclude from a recent FINRA settlement.

FINRA, for those who don’t know, is the Financial Industry Regulatory Authority, which sounds like a government regulatory agency, though it is owned and operated by Wall Street, and its activities as a “Regulatory Authority” amount mostly to leveling small fines for massive crimes perpetrated by Wall Street, thereby relieving the SEC of any need to do its job. If  FINRA has issued a “settlement”  letter to a perpetrator, the issue is “settled” so far as the SEC is concerned, and such was the case when FINRA recently issued a “settlement” letter asking the big investment bank UBS to pay a small fine for violating the rules against naked short selling that the SEC isn’t enforcing.

More precisely, FINRA’s recent “settlement” letter (which you can read here) asked UBS to pay a fine for “not admitting or denying” having “entered tens of millions of proprietary and customer short sale orders without having reasonable grounds to believe that the securities could be borrowed and available for delivery.” When a brokerage sells stock short “without having reasonable grounds to believe that the securities could be borrowed for delivery” that means the brokerage has deliberately engaged in naked short selling (i.e. selling phantom stock that increases supply, driving down prices), and in this case it appears that UBS (between the years 2004 and 2010, according to FINRA) transacted naked short selling to the tune of “tens of millions”(emphasis added) of phantom shares in nobody knows how many companies were affected by this massive deluge.

In fact, UBS might have naked shorted far more than tens of millions of shares, though for some mysterious reason, FINRA reports that it doesn’t actually know how many additional shares were naked shorted. In its settlement letter, FINRA simply reported that aside from the “tens of millions” that were naked shorted, UBS “effected an additional significant but unquantifiable number of short sales without valid locates [i.e. naked short sales] during the Relevant Period.” Unquantifiable? As in too big a number for a calculator to handle? Or is it some smaller but still unpalatable number that FINRA’s ”regulators” dare not speak (or regulate)?

In any event, FINRA did report (or, rather, understate) the obvious fact that the “duration, scope and volume of the trading [i.e. a volume of naked short selling that is ‘unquantifiable’ but significantly more than “tens of millions’ of shares naked shorted] created a potential for harm to the integrity to the market.”

In fact, UBS at least “created a potential” to crash the markets by flagrantly violating the SEC’s supposed naked short selling regulations, and FINRA is asking UBS to pay a small fine (without admitting or denying what it did) so that the SEC can take no action whatsoever. Meanwhile, of course, the captured media continues to pretend that naked short selling (i.e. a criminal conspiracy) exists only in the minds of “conspiracy theorists” (i.e. people in our brave new world who are are crazy because they speak the truth).

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Jeffrey Sachs Joins the Revolution

Jeffrey Sachs Joins the Revolution

I remember not too long ago people who said that Wall Street is full of crooks were considered to be off-kilter. At the same time, it was commonly understood that they were saying the obvious, but for some reason they weren’t supposed to say it.

Things have changed.

Have a listen to a speech recorded in the video below. The speech begins at 2:08, after the intro by the off-kilter guy in a t-shirt (don’t know who he is), and the speech was given at (of all places) the Philadelphia Federal Reserve by (none other than) economist Jeffrey Sachs, named by Time magazine as one of the 100 “Most Influential” people in the world.

Sachs says that Wall Street is full of crooks.

Not just that. Sachs said that, “I meet a lot of these people on Wall Street on a regular basis. I’m going to put it very bluntly. I regard the moral environment as pathological. I’m talking about the human interactions I have. I have not seen anything like this, not felt it so palpably…they have  no responsibility to their clients, they have no responsibility to counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice….We have a corrupt politics to the core.”

Or in the DeepCapture vernacular, Washington has been “captured” by financial miscreants.

Sachs also rails against (among others) Goldman Sachs and short seller John Paulson for manufacturing synthetic CDOs (i.e mortgage derivatives deliberately designed by short sellers to self-destruct). Basically, he says what we’ve been saying for years, but what most prominent economic professors dared not say in speeches at the Federal Reserve—not, anyway, until now. And when prominent economists start talking like this (he even criticizes fractional reserve banking) in speeches at the Federal Reserve—well, that’s a revolution in the making. Wait and see.

Click here to listen to the speech.

 

 

 

 

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The SAC Capital Scandal–Made For TV

The SAC Capital Scandal–Made For TV

The SAC Capital Advisors insider-trading scandal has inspired an episode of the fictional television program “Person of Interest.” The show features a plotline that was probably taken from recent media headlines about SAC Capital, but we might humbly suggest that the show instead feature a plotline that DeepCapture published more than three years ago.

The CBS crime drama told the tale of insider-trading at a hedge fund called “VAC Capital,” a clear reference to SAC Capital, and just as the real SAC trader Mathew Martoma has been accused of earning for SAC Capital a massive sum ($276 million) from trading on tips about Alzheimer’s drug trials that he received from a University of Michigan professor, so too does the VAC trader turn a massive profit (inflated to $500 million for the purposes of television titillation) from an inside tip. However, readers of DeepCapture might recall that the full (true) story is a lot worse than just that.

In 2009, DeepCapture published a book-length story (“Michael Milken, 60,000 Deaths, and The Story of Dendreon”) demonstrating that Milken had worked with “captured” doctors to derail FDA approval for a promising cancer treatment while promoting less-than promising treatments from which they stood to profit. That story also demonstrated that there was a high probability that a small group of hedge funds, including SAC Capital, had not just traded on inside information about the FDA’s decisions, but had perpetrated manipulative short selling attacks on the stock of the company, Dendreon, that was manufacturing the promising cancer treatment.

I am no TV producer, but it seems to me that Wall Street miscreants trying to destroy companies with promising medical treatments (i.e. killing people, which is exactly what they are doing) is better television than miscreants merely “making a killing” on inside information. Or maybe not. It could be that the old narrative of Gordon Gecko, the greedy but charming rogue scoring the big bucks from his clever reading of inside information, is what people want to see on their TV screens—not the far uglier truth. Even the major U.S. news organizations seem intent upon portraying SAC Capital’s insider traders not as destructive miscreants, but as basically harmless rogues, perhaps even worthy of our respect and admiration.

During the three years while hedge funds were attacking Dendreon’s stock price and Milken was successfully scheming with FDA doctors to derail Dendreon’s cancer treatment (more specifically, a treatment for prostate cancer), more than 60,000 men who would have benefited from that treatment instead died before their time. In fact, Wall Street miscreants nearly destroyed Dendreon, but thanks largely to citizen activists (and not the media) who exposed the corruption that led to the FDA initially denying approval to Dendreon’s cancer treatment, the FDA did (albeit three years too late) finally approve the drug–so maybe it was a Hollywood ending, after all.

Either way, Wall Street miscreants are attacking many other companies with promising medical treatments…and nobody (aside from a few citizen activists) is watching.

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DeepCapture and Ali Nazerali Go to Trial

On October 19, 2011, Canadian businessman Altaf (“Ali”) Nazerali persuaded a judge in Vancouver, British Columbia to grant him an ex parte injunction which ordered: (i) GoDaddy.com to shut down the DeepCapture website, (ii) Google, Inc. to stop generating search results for DeepCapture, (iii) Nozone, Inc. to deny internet access to DeepCapture, (iv) Mark Mitchell and Patrick Byrne to stop saying anything about Mr. Nazerali.

Mr. Nazerali obtained this BC Supreme Court Order without any prior notice to DeepCapture which had no idea Mr. Nazerali had even begun to file a lawsuit.  Ignoring DeepCapture’s First Amendment rights, Google, Bing, and GoDaddy simply knuckled under to the foreign court’s ex parte Order and disappeared all trace of DeepCapture. DeepCapture was blacked out. Silenced. So far as we are aware, this was the first time in history that a foreign court succeeded in shutting down an American website or media outlet of any kind.

On December 13, 2011 DeepCapture had its chance to challenge the ex parte injunction and tell a different judge of the Canadian Court its side of the story.  We presented our case through affidavits showing the basis for our reporting. We drew the Court’s attention to the governing Canadian law which places severe restrictions on pre-trial injunctions, limiting them to rare and special circumstances which did not apply to DeepCapture.

After hearing both sides, in a ruling from the bench the same day, the Court denied Mr. Nazerali’s request that the injunction be extended beyond December 13, 2011, expressing concern that the previous judge “did not have before him or was not directed by [Mr. Nazerali’s lawyer] on the ex parte application [on October 19, 2010] to the full body of the case law.”

At that point DeepCapture was free to return to the internet.

However, Mr. Nazerali was not done. He had his lawyer send an e-mail to Rackspace citing the original October 19, 2011 injunction order and asking that Rackspace refuse to host Deep  Capture.  He neglected to tell Rackspace that the British Columbia Court had already refused to extend the injunction and that it had ceased to have any force. And he certainly did not tell Rackspace that the British Columbia Court had criticized Mr. Nazerali’s submissions to the original judge on October  19, 2011.

After that, Mr. Nazerali’s lawyers set his claims down for hearing in the Canadian Court by “summary trial” on affidavits instead of a normal trial with sworn witnesses, including Mr. Nazerali who would have to take the stand and submit to cross-examination by our lawyer.  Before the “summary trial” was to begin, our lawyers applied to the Canadian Court for a ruling that a trial on affidavits would not be a just and fair way of getting at the true facts of the case.

On February 27, 2013, the Court agreed with DeepCapture and cancelled the “summary trial” on affidavits, which means we will have an opportunity to properly defend ourselves by cross-examining Mr. Nazerali and his witnesses in open Court and calling oral testimony from our witnesses in the normal way.  This will permit a full presentation of the facts, and allow the Court to assess Mr. Nazerali’s credibility on the basis of his appearance on a witness stand, instead of paperwork drafting by his lawyer.

The judge, explaining his decision in favour of a normal trial, wrote the following:

[Mr. Nazerali] claims that the natural and ordinary meanings of the statements [published on DeepCapture] are that he has repeatedly engaged in serious criminal behavior, including fraud, drug dealing, and terrorism, as well as disreputable conduct. Included in his pleadings is an allegation that the defendants were motivated by express malice in making the statements.

In addition to responding that the words complained of either did not appear on the website, or were taken out of context and are not capable of being defamatory to the plaintiff, the defendants [DeepCapture] plead justification [truth] for the allegations of dishonesty, by reference to a litany of facts. These relate to Mr. Nazerali’s alleged  involvement in shady financial practices and his association with other individuals who have been found guilty of criminal fraud. There are also defences of fair comment on a matter of public interest [and] responsible journalism, and a constitutional challenge to the combined operation of the Supreme Court Civil Rules with the common law burden of proof of justification being on the defendants”

Turning to the suitability of this case for summary trial, there is no issue that I can dismiss an application to proceed in that manner if the issues are not suitable for determination by summary trial, or it such a trial process will not assist in the efficient resolution of the proceeding.

On the issue of justification, at least so far as the fraudulent and dishonest behaviour that has been pleaded is concerned, it will be necessary to decide whether the justifying facts put forward by the defendants or Mr. Nazerali’s denial of them should be preferred.  Unlike cases in which conflicts in the evidence can be resolved by resorting to objective evidence external to the parties … engaging in that process on the evidence in this case would place a summary trial judge in an impossible position…

As to the defence of responsible journalism, …this case will depend on an assessment of the credibility of the defendants’ claims that Mr. Nazerali was inaccessible for the purposes of gaining his side of the story and that the nature of the confidential information that they relied on made it reasonable not to seek his input.  Again, these are not conclusions that can be arrived at solely from a comparison of affidavit contents.

…I conclude that without live testimony and cross-examination rights, a judge will not be able to find the facts necessary to resolve the factual and legal issues.  Therefore, I allow the defendants’ application and pursuant to Rule 9-7(11)(b) dismiss [Mr. Nazerali’s] application for a summary trial.

…The defendants have had substantial success on these applications so costs will be to them in the cause.

The trial has been scheduled to take place in Vancouver in September, 2014. At trial, we plan to call evidence that we intended not malice in alleging that Mr. Nazerali, although not himself involved in drug dealing or terrorism, has had questionable dealings with shady people.

As the judge mentioned, our defence at trial will include an argument based on the Canadian constitution that Mr. Nazerali should be required to prove that what we wrote about him is false, instead of putting a reverse onus on the defence to prove it was true.  In almost every type of case the plaintiff has the burden of proof and the law of defamation should be no different.  Because this constitutional issue could change the law in Canada, the Attorney General of British Columbia has given notice of his intention to be involved in the trial.

In other words, this is an important case. It also concerns an attempt by one man (Mr. Nazerali) to prevent the public from reading a story that pertains to the economic well-being of all nations. As readers of DeepCapture know, our story explored the way that various elements of transnational organized crime, international terrorist financiers, and foreign intelligence services have entwined, infiltrated the global financial system, and are manipulating and destabilizing it.

That sounds like a lot to swallow until one considers that on July 25, 2011, President Obama signed an Executive Order declaring a national emergency on pretty much precisely those grounds: “I, BARACK OBAMA, President of the United States of America, find that the activities of significant transnational criminal organizations…have reached such scope and gravity that they threaten the stability of international political and economic systems….I therefore determine that significant transnational criminal organizations constitute an unusual and extraordinary threat…and hereby declare a national emergency to deal with that threat.”

The US National Security Council immediately followed up with this statement:

“Transnational organized crime (TOC) poses a significant and growing threat to national and international security, with dire implications for public safety, public health, democratic institutions, and economic stability across the globe….The apparent growing nexus in some states among TOC [Transnational Organized Crime] groups and elements of government—including intelligence services—and high-level business figures represents a significant threat to economic growth and democratic institutions…”

Though we believe in vigorous and fearless journalism, we are never above taking another look at a story if we are given new information in order to ensure that we are as fair and accurate as possible. Good journalism stirs good debate. At the same time, it is our contention that there is not enough good journalism, and as evidence of this, consider that the mainstream media has, in most cases, failed even to report that the president of the United States has declared a national emergency, much less expose the organizations and activities that have contributed to this state of affairs. Meanwhile, we at DeepCapture intend to continue our investigation, and we will soon begin again to publish stories that demonstrate why we are the red pill.

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The Global Bust-Out Series (Chapter 1): Was the United States Attacked by “Financial Terrorists”?

The Global Bust-Out Series (Chapter 1): Was the United States Attacked by “Financial Terrorists”?

Parts of this book-length story were published prior to October 2011, when a man named Ali Nazerali filed a lawsuit against me and DeepCapture and convinced a Canadian court to issue (without any notice to us, and without giving us an opportunity to defend what I had written) an injunction that forced the entire DeepCapture website to be removed from the internet on October 19, 2011.

I could be wrong, but I do not believe anything like this had ever happened before. Never in history had a court outside the United States blacked out (censored) an entire American media website, much less at the behest of one man who did not like what was written in only one of hundreds of articles on many subjects that were  published on that website in the exercise of First Amendment rights.

Fortunately, on December, 13, 2011, the court heard my application opposing a continuation of the injunction and considered my detailed affidavits defending this story. Finding in my favor, and refusing to extend the injunction, the court noted that the October 19 injunction was based on an incorrect legal test for pre-trial injunctions which had been suggested to the judge by lawyers for Mr. Nazerali at the earlier one-sided hearing. 

Applying the correct legal test for injunctions, which my lawyer described in his submissions on December 13, the court ruled that our freedom of speech had to be restored, at least until Mr. Nazerali’s claims were tested at a trial.

Since then, I have taken a few months to investigate further, and we are now publishing an updated version of this book-length story, chapter by chapter.

Even if you had followed DeepCapture prior to the interruption, I encourage you to read this updated version of the story because it goes quite a bit deeper, and contains additional evidence and information that supports my thesis. In addition, I have clarified and refined my argument, because some people had slightly misunderstood it, while others (such as Mr. Nazerali and the former journalist Gary Weiss, who features prominently in this story) had misrepresented what I had written.

* * * * * * * * *

The Miscreants’ Global Bust-Out

Chapter One

Was the United States Attacked by “Financial Terrorists”?

 

I did not think that Zuhair Karam was violent, but I telephoned him because I thought his biography was interesting. For example, it was interesting that soon after making a home in the United States, Zuhair Karam obtained finance to publish a semi-famous work of jihadist propaganda, and soon thereafter, became a proprietary day trader of equities and derivatives at a small, unregistered brokerage in Chicago.

Many of the other people who operated through this brokerage also had interesting biographies. One of them was a trader who had ties to Russian organized crime, and whose business partner was  killed in a brutal gangland-style murder in New Jersey. Also trading through this little unregistered brokerage in Chicago was an account controlled by the top henchmen of a Russian oligarch and members of an organized crime syndicate that has been accused by U.S. officials of having ties to both Al Qaeda and the Russian government’s intelligence services.

In addition there was (to name just one more) a trader whose family members worked for the Revolutionary Guard in Iran. One of this trader’s close relatives (based outside Iran) had employed an undercover Iranian government agent who was implicated in a terrorist attack and who was caught shipping sophisticated weaponry to Hezbollah, the jihadist outfit that takes its directions from the Iranian regime.

Zuhair’s little brokerage, meanwhile, maintained partnerships with a number of other brokerages, all of which were similarly interesting. Some of these brokerages were operated by people who had previously been principals at brokerages controlled by La Cosa Nostra, Russian organized crime syndicates, and (in most cases) both. Some of these brokerages had important ties to a man who is now (according to credible reports from Moscow) running financial crime operations for the Russian intelligence services.

One of these brokerages was a partnership with a Moscow bank that is (according to U.S. officials) controlled by the Russian intelligence services. Another brokerage in the network had ties to a U.S.-based Iranian government company that was (in 2009) not only investigated for transacting manipulative trading, but also accused by the Department of Justice of conducting espionage against the United States and funding Iran’s nuclear weapons program.

Meanwhile, some owners and/or top employees of brokerages in this network included: a fellow who once worked for a man who commands a private army in Lebanon; another guy who had worked for a trader who orchestrated an ill-fated scheme to topple the government of Afghanistan in league with a heroin-smuggling warlord who worked closely with Iran; and an Iranian trader whose family was, in the 1990s, flying cargo planes filled with gem stones from a remote Illinois runway, in partnership with a money launderer who ran an organization that had hosted the leadership of Hezbollah.

Yet another of the brokerages in the network was connected to a Middle Eastern financial institution that has been accused of funding terrorism, and which financed a bank in Sudan that was founded by Osama bin Laden himself. Meanwhile, not just Zuhair Karam, but a number of traders who either controlled brokerages in this network or traded through the brokerages had business relationships with Islamic organizations that have been listed in a famous Muslim Brotherhood document as being organizations designated to lead a “Grand Jihad in eliminating and destroying the Western civilization from within.”

Perhaps just as important, the clients of these brokerages included some of America’s most notoriously destructive financial operators, many of whom themselves have business relationships with organized crime and, perhaps not coincidentally, also have business relationships with financiers of terrorism.

But what is most noteworthy about these brokerages is that they all cleared their trades through an outfit in Texas that was relatively obscure until late 2007, when it suddenly became (by volume) the largest brokerage on the planet. Moreover, data strongly suggests that most of this new volume was short selling targeting critical American companies, including the the nation’s largest financial institutions.

Indeed, the data suggests that this one previously obscure outfit in Texas (an outfit whose principal clientele was the network of brokerages that I have just briefly described, and which this story will describe in far more detail) transacted more short selling targeting major American financial institutions than the combined short selling (targeting financial institutions) transacted by the broker-dealers of Wall Street titans Goldman Sachs, Citigroup, and Merrill Lynch.

Moreover, this barrage of short selling continued and intensified through September, 2008, when the Securities and Exchange Commission was moved to issue an “Emergency Order,” stating that manipulative short selling had likely contributed to the collapse of major financial institutions (e.g. Bear Stearns, Lehman Brothers) and was threatening to undermine the stability of the American financial system.

As for Zuhair Karam – well, I didn’t know enough about him, but I knew a little. For example, I knew that he was born in Lebanon, and had recently spent some time overseas, where he came to be attached to an Islamic cleric named Sadathullah Khan, who tells the media that he is “moderate” – a term that, of course, has different connotations depending on your perspective.

Some people say that Sadathullah Khan is an extremist, partly because he has had ties to an outfit called the Supreme Council of Global Jihad, which espouses violence. Sadathullah Khan, meanwhile, has also worked closely on projects (an Islamic media project, for example) with a cleric named Zakir Naik, who has preached that “Every Muslim should be a terrorist.”

When he talks to the Western press, Zakir Naik says he is not fond of Al Qaeda, but in a video made for his followers, he said, “If Osama bin Laden is fighting the enemies of Islam, I am for him…If he is terrorizing America the terrorist, the biggest terrorist, I am with him.” Imam Naik also served as a mentor to Najibullah Zazi, an Al Qaeda operative who was arrested in 2009 shortly before carrying out a plan to plant explosives in the New York City subway system.

Imam Naik was banned from entering the United Kingdom after he was deemed to be immoderate, but the United States still grants him visas (he hasn’t been charged with involvement with any terrorist plot) and perhaps he will one day return to Chicago, where he once gave what he calls “my most famous speech” at a gathering organized by an outfit that has worked closely with the Bridgeview Mosque, a house of worship in Bridgeview, a middle-class neighborhood on Chicago’s south side.

Zuhair Karam, in addition to his work as a financial operator, has been fairly prominent among the small band of jihadis who congregate at the Bridgeview Mosque, where Zuhair’s relative has helped organize the mosque’s fund raising for groups such as Hamas and Palestinian Islamic Jihad.

The Bridgeview Mosque, it should be said, serves thousands of ordinary people, most of whom probably harbor no politics other than a desire for peace. Many jihadis, meanwhile, are not themselves violent people, and merely support the political ideology of jihad. But there was a time when the Bridgeview Mosque’s imam regularly gave fiery sermons urging jihadi freedom fighters to take up arms.

The sermons were toned down after the FBI began investigating, but it is assumed by some prominent terrorism experts that the Bridgeview Mosque’s top officials (and Zuhair’s family) are members of the Muslim Brotherhood. One reason to believe this is that the mosque is controlled by the Islamic Society of North America (ISNA), which government investigators have identified as being a Muslim Brotherhood front.

The Muslim Brotherhood is a diverse organization, and at least publicly disavows violence. It is probably wise to engage the Brotherhood, rather than vilify and incite it. Nonetheless, it should be understood that the Brotherhood is united in its opposition to the foundational principals of Western civilization and is making efforts to undermine the United States.

It is also true that many Muslim Brotherhood figures in the West (including some officials at ISNA) have been accused of providing material support (including money, personnel, and sometimes weapons) to violent terrorist groups, including Al Qaeda.

The Bridgeview Mosque itself has not been accused of directly supporting Al Qaeda, but there is no question that it has funded other violent jihadist groups. For example, according to the Chicago Tribune and others, the mosque was one of the most important funders of Palestinian Islamic Jihad, an outfit that was spawned by the Muslim Brotherhood and also takes directions from the regime in Iran.

Zuhair Karam and his relatives are close family friends of Sami al-Arian, who was not only a founding director of ISNA, but also a U.S.-based leader of Palestinian Islamic Jihad, indicted in 2003 for funding terrorist attacks in Palestine. As Rachel Ehrenfeld, now director of the Economic Warfare Institute, first reported, FBI investigators suspected (though never proved) that Sami al-Arian provided support to the Al Qaeda hijackers who carried out the 9-11 attacks on the World Trade Center and the Pentagon.

The Bridgeview Mosque and many traders affiliated with brokerages discussed above were also among the principal supporters of the Holy Land Foundation, which was indicted on charges of financing terrorism in 2007 after prosecutors demonstrated that it was a principal U.S. front for Hamas, another Muslim Brotherhood creation that receives support from Iran. The mosque’s directors, and one of Zuhair’s family members, meanwhile, help administer investment funds worth billions of dollars controlled by the North American Islamic Trust, an investment bank (and a unit of ISNA) that has been tied to the Muslim Brotherhood and was named as an unindicted co-conspirator in the government’s case against the Holy Land Foundation.

In addition, some Bridgeview Mosque congregants (a number of them close family friends of Zuhair Karam, and some of them also traders who operated through the same network of brokerages) were involved with a Chicago-based charity called The Benevolence International Foundation, which was actually an Al Qaeda front, founded by Osama bin Laden’s brother-in-law. According to federal prosecutors, Benevolence was “involved in terrorist activities” and had contacts with “persons trying to obtain chemical and nuclear weapons on behalf of Al Qaeda.”

More to the point of this story, Mark Flessner, a former U.S. prosecutor who was at the front lines of the government’s “war on terrorism”, has said that the Bridgeview Mosque was, at least until it came under closer government scrutiny, a “gold mine of information about terrorist finance.”

So, obviously, I wanted to know more about the Bridgeview Mosque, and I wanted to know more about Zuhair’s brokerage and other brokerages in its network. Zuhair, as I mentioned, was far from the only jihadi ideologue attached to these brokerages, though I do not mean to single out jihadis. It was perhaps more important that this network of brokerage had highly significant ties to organized crime syndicates. Some of those syndicates (especially the ones emanating from Russia) had become politicized and were hostile to the United States.

When I called Zuhair for the first time in 2010, our conversation did not go well. Zuhair began by demanding to know how I had come to possess his telephone number. I told him, honestly, that I had found his phone number in the White Pages, but he refused to believe me. When I explained that I had some questions about the little brokerage where he had worked, he insisted that he didn’t know anything about the brokerage, and he said that he did not know anyone else who worked there.

After some additional prodding, Zuhair said, “Look, man, I’m just one of the little guys.” I said, “Yes, I know, but let’s meet anyway, I can tell you more about this investigation.”

Zuhair seemed already to know about some investigation. He said, “Shit, man, I thought this was over.” Which seemed strange to me because the only investigation I knew about was the investigation that I was conducting. But I wanted to be helpful, so I said, “Let’s meet, I can tell you more about it.”

Zuhair paused. He seemed to be figuring it all out. Finally, he said, “You’re not a journalist, that’s for sure, man, tell me who you are…Are you an Arabian?” No, I am not an “Arabian” – that’s what I told Zuhair Karam. I said there’s this investigation, I have information.

I did not have any negative feelings about Zuhair or the Bridgeview Mosque. I told him that I had some sympathy for some of the opinions expressed in the jihadist propaganda that he had produced. (The propaganda was focused on the situation in Palestine).

I had also developed a fascination with Islam, and considered it to be an attractive religion. I told Zuhair this, and I told him I would like to come down to the mosque to meet him. I said I’d also like to meet his father, Haaz Karam, who helped raise money for Islamic Jihad.

Zuhair said, “He’s not my father.” So I said, “Sorry, your relative.” And Zuhair said, “Yeah, so…what is this? Man, the FBI — you say you’re a journalist, why do you know about this investigation? That just isn’t right…the FBI…man, I’m telling you, I’m just one of the little guys…the FBI…the FBI can come, let them come, they know where I live, let them come, let them try – see if I care.”

* * * * * * * *

In his 2010 report to Congress, Admiral Dennis Blair, who was then the U.S. director of national intelligence, outlined one of the biggest threats to America’s economic well-being and national security. He began by noting that transnational organized crime syndicates are closely intertwined with the intelligence services and governments of some countries (such as Russia) that are considered to be adversaries of the United States. He then stated that “the nexus between international criminal organizations and terrorist groups [including, but not limited to Al Qaeda]…presents continuing dangers.”

In the same breath, the national intelligence director warned that transnational organized crime syndicates are “undermining free markets,” and “almost certainly will increase [their] penetration of legitimate financial and commercial markets, threatening U.S. economic interests and raising the risk of significant damage to the global financial system.”

We should understand the implications of what the national intelligence director was saying. He was saying that organized crime syndicates (and, by inference, the jihadist groups and foreign governments that maintain ties to organized crime syndicates) have the capability to disrupt the financial markets and harm the American economy. The only question was: had they already done so?

On August 12, 2011, President Barack Obama answered that question in dramatic fashion. The president reiterated that there was a clear “nexus” between transnational organized crime syndicates, multiple terrorist groups, international drug cartels, and some foreign governments and intelligence services that are hostile to the United States.

The president also reiterated that transnational organized crime syndicates (and, by inference, perhaps others in the “nexus”) had not only “penetrated” the “legitimate” financial industry (i.e. Wall Street), but had already “undermined markets” to such an extent that they now posed an imminent “threat to the stability of the global financial system.”

The president did not just reaffirm this assessment. He declared it to be a “National Emergency.”

The president did not precisely define what he meant by “undermining markets,” but many in the national security community believe that one of the bigger threats “to the stability of the global financial system” is manipulative short selling and what I refer to as the “bust outs” of publicly listed American companies, the wider markets, and the economy itself.

* * * * * * * * *

The term “bust-out” is one that I borrowed from organized crime. In the old days, mobsters would take over, say, the corner bar, load it up with debt, loot the cash, declare bankruptcy, and force the bar out of business. In the modern world of high finance, “bust outs” come in many permutations, but most of them follow the same routine of leverage, loot, and destroy.

Some “bust outs” see traders financing a company (often legitimate companies; in other cases companies that are frauds to begin with) and gaining a degree of control over the company’s stock price. The traders then “pump” the stock for a period of time, but ultimately the company is looted, the stock is “dumped,” and affiliated short sellers attack the company, sending its stock into a death spiral.

In a typical “pump and dump,” the manipulative short selling accompanying the “dump” ensures that the stock hits zero before the company has a chance to raise capital from more legitimate sources, and before shareholders have an opportunity to get out of the stock and cut their losses.

In other cases, individuals or firms will provide a legitimate company with toxic finance (often referred to as “death spiral” finance), which, for reasons explained in this story, immediately causes the company’s stock price to lose value. The financiers and affiliated traders then attack the company with manipulative short selling, sending the stock into a death spiral, and making it impossible for the company to raise new capital from more legitimate sources.

When the company is forced into bankruptcy, the people who provided the finance (often the same people as the short sellers) receive what is left of its assets, and they pocket short selling profits in excess of the cost of the initial toxic finance.

In still other cases, miscreants simply invest in a company’s shares or bonds, and gain a degree of control over the company’s management, either by demanding seats on the board or by exerting influence as major shareholders or creditors. Often the financial operators will then work with corrupt insiders to loot the company or engage in more complex schemes to saddle a company with toxic assets (purchased from the  miscreants themselves or from their associates).

Ultimately, the goal is to loot and weaken the company.

If the company is publicly listed (private companies are also “busted out,” and this final step does not, of course, apply to them), the miscreants or their associates eventually attack the company with manipulative short selling. For complex reasons (to be outlined in this story), owning a company’s bonds (especially convertible bonds, sometimes known as “toxic converts”) makes it easier for the bond owners and their associates to engage in manipulative short selling.

There is also a long history of miscreants not just investing in a company, but taking the company over entirely, and looting its assets. Once sufficiently looted, the company is, as usual, attacked with manipulative short selling. Before the company’s board of directors or regulators have an opportunity to oust the miscreants, the company’s stock goes into a death spiral, making it impossible for the company to raise new capital, and forcing a bankruptcy.

In such cases, the tendency is to say, “Well, it was bad company, so its bankruptcy was inevitable.” But often, the companies are good companies until they are “busted out,” and often even troubled companies would be salvageable if it were not for the rapid death spirals of their stock prices, which do not allow time for restructuring or the ousting of the miscreants who gained control over the company.

There are also plenty of cases in which financial operators do not gain any control over their target company, but merely attack it with a steady barrage of manipulative short selling, meanwhile deploying any number of other tactics (for example, spreading false rumors about the company’s health, and manipulating credit default swap prices, which are an important measures of a company’s well-being) to drive down the company’s stock price.

* * * *  * * * *

Financial operators have, in fact, been “busting out” major American companies since at least the 1980s, when numerous savings and loan banks were “busted out,” fueling what came to be known as the “savings and loan crisis,” which delivered a devastating blow to the financial system. Many of the perpetrators of those “bust-outs” (see, for example, the book “Inside Job,” which is the seminal work on the savings and loan crisis) had ties to organized crime.

Sometimes organized crime syndicates perpetrate “bust outs” for the purposes of laundering money. The dirty cash goes into companies in the form of toxic finance, and comes out clean in the form of short selling profits. In cases where short sales are not “covered” (i.e. in many cases involving manipulative short selling, and in all cases where the target stock hits zero), the short selling profits do not even have to be reported to tax authorities.

Former FBI investigators and experts who study financial crime say that market manipulation and “bust outs” of publicly listed companies is one of the more important money laundering techniques deployed by the world’s leading organized crime syndicates and other miscreants. Indeed, many of history’s biggest “money laundering” scandals were, in fact, market manipulation and “bust out” scandals.

In 1999, for example, a famous scandal saw the Russian government and organized crime syndicates with ties to the Russian intelligence services laundering upwards of $7 billion through the Bank of New York. As later chapters of this story will demonstrate in great detail, this money laundering was (according to a careful reading of indictments, statements of government investigators, and other information) the tail end of a large scale market manipulation (“bust out”) network that destroyed countless U.S. public companies.

Some of the destroyed companies were pure frauds that were “pumped and dumped.” But many of the companies had been going concerns until they were targeted by people who had ties to Russian organized crime, and who gained control over the companies’ stock prices. Once in control, they “pumped” and then “dumped” the stocks while engaging in manipulative short selling that sent the stocks into death spirals.

Today, Russian organized crime continues to “bust out” public companies with a vengeance. While this activity has gone largely unreported by the media, a notable exception is Forbes magazine’s Nathan Vardi, who has written multiple stories (see, for example, his story, “Sewer PIPEs”) that note the extensive involvement of financial operators with ties to Russian organized crime syndicates in one form of “death spiral” finance (so-called “PIPEs”) and the manipulative short selling that usually comes with such finance.

As we will see, there is no question that Russian organized crime syndicates have (as White House national security staffers maintain) ties to the Russian intelligence services. It is, moreover, my contention that when “bust-outs” are perpetrated by organized crime syndicates with ties to the Russian intelligence services, we should consider whether they are motivated, at least to some extent, by politics, and specifically by Russia’s disdain for the United States and the prevailing economic order.

But, of course, Russian organized crime is not the only concern. As we know, the president and his national security staff say that there is a “nexus” between transnational organized crime syndicates (including, but not limited to those emanating from Russia) and other potentially hostile constituencies, including jihadist organizations and foreign governments besides Russia.

Therefore we must ask whether sophisticated financiers with ties to jihadist organizations or hostile foreign governments are among those who have “undermined markets,” thereby inspiring the president to declare a “National Emergency.”

It is not often that a president issues a formal declaration of a “National Emergency,” and it is even less often that a president suggests that he is doing so because transnational organized crime syndicates (and perhaps others in the nexus, including terrorist organizations and hostile foreign governments) have “penetrated” the “legitimate” financial sector (i.e. parts of Wall Street) and are now posing a “threat to the stability of the global financial system.”

One would think that this would be front page news. But, amazingly, the president’s declaration of a “National Emergency” received almost no coverage at all from the major media outlets. One rare exception was the highly respected Economist magazine (based in Britain), which noted the “National Emergency” (and also noted the dearth of U.S. media coverage of the emergency) in a December 2011 article (titled, “Financial Terrorism”) that noted the possibility that the financial system might already have been attacked by hostile entities.

While America’s media and financial regulators seem largely uninterested in this issue, some in the national security community are devoting a lot of attention to it. A 110 page report commissioned by the Department of Defense Irregular Warfare Support Program even goes so far as to state that there is high likelihood that the economic cataclysm of 2008 was significantly worsened by politically motivated “financial terrorists intent on wiping out the American financial system.”

The report (a copy of which can be found at DeepCapture.com) makes reference to the massive volumes of short selling that went through the previously obscure brokerage that I discussed at the outset of this story. While the report for the Department of Defense does not identify the brokerage by name, I will do so in later chapters of this series, and I will also name its client brokerages (i.e. the network that I briefly described above). However, to understand the significance of these brokerages, we must first cover some other ground.

* * * * * * * *

The report for the Department of Defense states with good reason that the weapons most likely to be used by financial terrorists are so-called “naked” short selling and other forms of short-side market manipulation.

Before I continue, let me stress that short selling is a perfectly legitimate practice. It involves traders borrowing shares and then selling them, hoping the price will drop so that they can repurchase the shares at a discount, return them to the lender, and pocket the difference.

In “naked” short sales, however, traders do not borrow or purchase stock before they sell it. They simply sell what they do not have – phantom stock. You probably can  imagine how easy it is for miscreants to suppress the price of a security if they are able to swamp a market with artificial supply.

Of course, by definition, if people are selling a phony supply of a security, then they cannot be delivering what they are selling. Regulators and Wall Street folks call this “failure to deliver.”

There are, in fact, a variety of methods that can be deployed to create “failures to deliver.” There are technical differences among the methods, but all share this one basic idea: generate “failures to deliver” that act as phony supply to drive down a security’s price. Because “naked short selling” is the most famous of these methods, and because the differences among it and the other methods are generally so technical as to interest only experts, I intend to refer to this whole class of methods as “naked short selling”, or even more generally, “market manipulation.”

As the report commissioned by the Defense Department correctly points out, foreign governments, terrorist groups, or organized crime syndicates wishing to manipulate the markets would not have to do the dirty work themselves. They would need only to invest in one among the multitude of American hedge funds  that have ties to organized crime and have demonstrated that they are willing to deploy financial weapons of mass destruction for profit.

Under one scenario described in the Defense Department report, “a terror group could direct investments to a feeder hedge fund. The feeder fund would locate a Cayman Islands based hedge fund on their behalf that was predisposed to sell short financial shares. With sufficient new money, the hedge fund would expand its short selling activity (naked and traditional) and trade through dark pools or with sponsored access. At the same time, the same terror group might invest heavily in [credit default swaps] of the targeted short sales…”

Experts painted similar scenarios in testimony before a September 2010 informal meeting of the House Committee on Homeland Security. These experts were unanimous in their opinion that a hostile foreign entity could crash the U.S. financial markets. And to do so, it would most likely engage in manipulative trading through one of several brokerages that offer platforms – such as dark pools or so-called “sponsored access” – that enable miscreant financial operators to trade in anonymity.

Partly because such trading platforms exist, and for several other reasons (see Patrick Byrne’s DeepCapture story, “A Peace Sign to Wall Street”), SEC data reflects only a fraction of the naked short selling that occurs in the markets. But even the SEC’s partial data show that an average of 2 billion shares “failed to deliver” nearly every day in the months and weeks leading up to the 2008 market meltdown.  Those shares, as I have explained, “failed to deliver” because they were phantom shares – artificial volume that drove down stock prices.

The SEC’s incomplete data also shows that more than 13 million shares of Bear Stearns sold short during the week before that bank’s demise in March 2008 failed to deliver. Soon after Bear Stearns collapsed, the CEOs of Morgan Stanley, Merrill Lynch, Lehman Brothers, and other major financial institutions began complaining to the SEC that naked short sellers had caused the demise of Bear Stearns and were now targeting their own banks.

We need to take seriously the complaints of the Wall Street CEOs because they were intimately familiar with the crime of naked short selling. Many of their own brokerages had engaged in it. When people are raising hell about a crime that has previously lined their pockets, it is reasonable to assume that they know what they are talking about.

Moreover, the Wall Street CEOs continued to demand that the SEC take action against the market manipulators even after their high-paying hedge fund clients (some of whom might themselves have been naked short sellers, others of whom were merely inclined to object to stronger regulation of any sort) asked the CEOs to stop their campaign.

When the CEOs continued to complain about the naked short selling, many of their big hedge fund clients began to pull their business in protest. It goes without saying that Wall Street CEOs do not sacrifice large chunks of their profits to speak out against crimes that do not exist.

On July 15, 2008, the SEC responded to the Wall Street CEOs by issuing an “Emergency Order” that temporarily protected 19 of the nation’s largest financial institutions (the biggest banks plus Fannie Mae and Freddie Mac) from naked short selling. The stock prices of these financial institutions immediately soared in value, and it looked like a major crisis had perhaps been averted.

Amazingly, though, the SEC lifted its “Emergency Order” just weeks later, on August 12. The next day, the naked short sellers resumed their attacks. The SEC’s own data (which, again, incompletely reflects the full magnitude of the problem) shows failures to deliver rising steadily from August 12 onwards, and these failures to deliver correspond directly to the downward spiral of stock prices.

According to the SEC’s partial data, Lehman Brothers saw an astounding 30 million of its shares fail to deliver during the week before the bank collapsed on September 15, 2008.

And make no mistake: Lehman might well have survived if it were not for the naked short selling and other attacks (such as the seemingly deliberate insertion of damaging false rumors into the marketplace, and the apparent manipulation of credit default swaps) that hammered its stock price.

Three days after Lehman’s collapse, on September 18, the SEC issued another Emergency Order, this one banning all short selling. In that Emergency Order, the SEC (without mentioning any banks by name) stated clearly that manipulative short selling was contributing to the collapse or near collapse of multiple banks, and thereby threatening to collapse the entire financial system.

In the weeks before Lehman’s collapse, the bank had plenty of liquidity to remain a going concern, and it had deals in the pipeline that would have enabled it to raise capital. But the free fall of Lehman’s stock price and (I will show) other maneuverings by short sellers derailed those deals, and panicked clients pulled their cash. Only then was Lehman forced to declare bankruptcy.

Lehman was not a healthy bank, to be sure. And there is no doubt that it was weakened with help of corrupt insiders who leveraged and looted. But that leverage and looting was only one part of a larger “bust out” that saw miscreants selling to the corrupt insiders toxic assets (which I will describe in a moment), while others attacked the bank with manipulative short selling.

If it were not for that manipulative short selling, the stock would not have gone into a death spiral, and there might have been time to restructure and oust the corrupt insiders. Lehman was a venerable bank that had survived plenty of bouts of ill health and worse economic downturns. But it had never faced an assault on its stock price like the one that it saw in the lead-up to September 18, 2008.

And nearly every other major bank, regardless of its health, faced precisely similar fates during the gory month of September, 2008. All seemed doomed to collapse until the SEC issued its September 18 “Emergency Order” banning all forms of short selling, legal or otherwise.

There was no reason to ban legal short selling (a crackdown on illegal naked shorts would have been enough), but the Emergency Order gave the markets some breathing room while the Treasury Department prepared the massive (and now notorious) bailouts that signified that the government would not allow any more banks to collapse, no matter what sort of attacks might be directed at them.

As the authors of the report for the Defense Department’s irregular warfare unit conclude, there is no question that short-side market manipulators contributed to the collapse or near-collapse of many of America’s largest financial institutions in 2008. The report states further that “the [short selling] attacks on [America’s biggest banks] were so brazen that it is difficult to imagine that they were uncoordinated.”

* * * * * * * * *

It wasn’t just the banks that were attacked. The SEC’s partial data shows that there was also massive naked short selling of exchange traded funds, or ETFs. These are publicly listed funds that are often highly leveraged and typically trade a basket of multiple stocks across a given industry. When market manipulators attack an ETF, they inflict damage on the entire industry that the fund indexes  – and the high leverage magnifies the impact.

Meanwhile, there is strong evidence that the markets for U.S. government debt have also come under attack. The first naked short selling assault on U.S. Treasuries was launched in September 2001, at the time of Al Qaeda’s attacks on the World Trade Center and the Pentagon. Prior to the 9-11 tragedy, a daily average of $1.5 billion worth of U.S. government bonds failed to deliver. During the week immediately after 9-11, the daily failures to deliver were an astounding average of $1.5 trillion.

This was new and unusual market manipulation on a Herculean scale, but it was even worse during the months leading up to and following the 2008 crisis, when an average of $2.5 trillion worth of U.S. Treasuries failed to deliver every day. The authors of the report for the Defense Department speculate that financial terrorists, having precipitated the financial crisis, might have intended to attack the government bond markets in an attempt to bankrupt the national treasury.

Unfortunately, the government has done little to address the problem. Despite having issued its 2008 “Emergency Order” stating that manipulative short selling had contributed to the demise of major banks and now threatened to collapse the financial system, the SEC has yet to prosecute even one manipulative short seller involved in those attacks. That is, the SEC has yet to prosecute even one of the people who (according to the SEC) nearly obliterated the global financial system in 2008.

Meanwhile, after the president declared a “National Emergency” in 2011, he never said another word about it. The government has yet to prosecute any of the “legitimate” Wall Street outfits that have (according to the president) been “penetrated” by transnational organized crime syndicates. Nor has the government arrested any members of transnational organized crime syndicates that have (according to the president) “undermined markets” to such an extent that they now pose an imminent “threat to the stability of the global financial system.”

* * * * * * * *

The media fails to give sufficient attention to these problems, insisting instead on reinforcing the narrative that the financial crisis was in essence caused by “reckless” lending to home buyers who could not pay back their mortgages. It is correct that the financial crisis of 2008 had its proximate cause in the collapse of the mortgage and property markets a year earlier, but that is only the surface of the story.

The Financial Crisis Inquiry Commission (FCIC) made clear in its January 2011 report to Congress that the principal cause of the mortgage and property disaster was the freakish collapse in 2007 of the market for collateralized debt obligations (CDOs), which are packages of mortgages that trade like securities.

As the FCIC also made clear, the collapse of the CDO market was by no means inevitable. Nor did it have much to do with “predatory” lending or the quality of most subprime mortgages.  Rather, the problem was that more than half of the CDOs issued in 2006 and 2007 were so-called “synthetic” CDOs, every single one of which was deliberately designed to self-destruct.

That is, just a few firms that specialized in marketing “synthetic” CDOs worked with a select number of bankers and short sellers to hand-pick a relatively small number of mortgages that seemed certain to default. The miscreants then packaged bets against those relatively few toxic mortgages into so many self-destruct CDOs that they came to account for (I must repeat) more than half of the overall market.

It is not quite correct to say that this was phantom supply similar to what is generated by naked short selling. But there is no question that the “synthetic” CDOs created a market that was, alas, “synthetic.” It was a market overwhelmed by a supply of instruments that purported to contain representative samplings of an underlying asset (subprime mortgages) that a reasonable person might expect to have some value, but which actually contained (as only the short sellers knew) assets that were worth zero.

In other words, a small number of miscreants effectively flooded the market with massive volumes of synthetic toxicity.

As these miscreants surely knew, the self-destruct CDOs would, indeed, self-destruct, and thereby wipe out the overall market for CDOs, causing property values to crash. And when that happened, the banks that had leveraged themselves to the hilt to buy CDOs and overvalued property would  be weakened. They would not be so weak that they had to die. But their weakness would create negative sentiment that could be turned into a panic if miscreants were to circulate exaggerated rumors about the banks’ problems and unleash waves of naked short selling that would send stock prices into death spirals.

In short, the report commissioned by the Department of Defense Irregular Warfare unit was correct to note that the financial crisis that nearly destroyed the nation went “far beyond normal expectations…” The authors of this report were also right to note that all of the events that precipitated the financial cataclysm raise “serious questions about whether this was a purposeful attack and if so, by whom, and why?”

By whom? And why?  Over the coming weeks, DeepCapture will be publishing the remaining chapters of this book-length story, which is the product of a years-long investigation into the underworld of market manipulation and the vulnerability of the U.S. economy to malicious attacks. To that first question – by whom? – we do not have all the answers, but we have quite a few. That is, our investigation has led us down many paths, but they all seem to circle back to a distinct network of individuals and financial firms.

This social and business network did not singlehandedly wreck the economy, but we will see that financial operators in this network were responsible for much of the mortgage fraud that occurred in the lead-up to the crisis, while others in the network created (with fraudulent mortgages) most of the self-destruct CDOs that crashed the CDO market in 2007.

People in this network also sold toxic assets to corrupt insiders at the leveraged big banks. These toxic assets included not just CDOs, but also (we will see) a number wildly overvalued properties whose prices were certain to collapse, and all the more so after the CDOs self-destructed. Once poisoned by the toxic assets, the banks were vulnerable to the short selling attacks that came in 2008. And the social and business network described by this story includes many of the world’s most notorious short sellers and market manipulators.

Moreover, this social and business network nicely illustrates the “nexus” described by the president and his national security staff on August 12, 2011, when the president stated that the “legitimate” financial sector (i.e. parts of Wall Street) had been “penetrated” by transnational organized crime syndicates with ties to terrorist organizations and hostile foreign governments. As we know, the president suggested that this “nexus” had “undermined markets” and now posed a “threat to the stability of the global financial system.”

In other words, the social and business network (or “nexus”) described in this story is comprised mostly of “legitimate” American financial operators. However, to the extent they are actually “legitimate” deserves scrutiny given the extent to which they have “undermined markets,” and given that many of them have done business with others in a “nexus” that includes transnational organized crime syndicates, agents of hostile foreign governments, and sophisticated financiers with ties to the global movement of radical jihad.

Before I continue, though, let me define what I mean by “network.” It is not the case that all of the people in this network know each other, and it is certainly not the case that all or any of its constituencies (i.e., terrorist financiers, transnational organized crime syndicates, agents of rogue states, and “legitimate” American financial operators, among others) gathered in some secret meeting hall to hatch one grand conspiracy to wipe out the global financial system. Some of the relationships I will describe in this story are, in fact, once or twice removed.

However, it is the case that a number of “legitimate” firms and individuals in this network have engaged in activities (sometimes in tandem with organized criminals, terrorist financiers, and/or agents of hostile foreign governments) that have done damage to the markets. I also feel that it is fair (indeed a matter of some urgency) to describe the larger “social network” and the relationships between the people who inhabit this network.

Nobody, of course, is guilty by virtue of his relationships alone. That a “legitimate” financial operator (whether he be from the United States, Canada, Saudi Arabia, or wherever) has done business with, say, a Russian organized crime boss or a Saudi billionaire who has funded Al Qaeda, does not mean that the “legitimate” financial operator supports terrorism or would knowingly participate in a politically motivated act of financial terrorism against the United States.

Nonetheless, there is strong reason to believe that the report for the Department of Defense Irregular Warfare Support Program was right: the United States was attacked by financial operators with ties terrorist organizations and rogue states. There is also clear reason to believe that “legitimate” American financial operators and transnational organized crime syndicates have attacked the markets. In addition, there is reason to believe that some relationships between these various constituencies are not altogether irrelevant, and might, indeed, account for the magnitude of the damage done to the financial system.

The evidence is not 100 percent conclusive, but the facts are suggestive. At a minimum, they point to a scenario for how things might have played out in 2008–a scenario that needs to be taken seriously because it does show that the United States is, without doubt, vulnerable to future attack. Indeed, there is every reason to believe that such an attack is inevitable.

When the attack comes, I hope that this story will have provided at least a few good answers to that first question:  “By whom?”

As to the Defense Department report’s second question – why? – I have no definitive answers. And ultimately, the question might be irrelevant. The damage to the economy is the same whether it has been done in the name of profit or jihad; in the name of terror, geopolitics, another billion bucks, or nothing more than the fun of the game. The financial operators who will be described in this story come in many stripes, but their various activities pose a collective threat to American prosperity and national security.

In Chapter 2, I introduce some information about prominent Saudi billionaires alleged to have financed Al Qaeda, and one fellow who ran an Islamic organization accused of inserting Al Qaeda spies into the U.S. military, and who subsequently set up a financial weapon of mass destruction that has, without doubt, done damage to the American markets.

To be continued…Click here to read Chapter 2 of this series

* * * * * * * **

*Zuhair Karam is an alias.

* * * * * * * *

Mark Mitchell is a journalist who spent most of his career working as a correspondent for mainstream media publications before joining DeepCapture.com.

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Michael Milken Redux: Insider Trading Indictments on the Horizon for SAC Capital and Others in its Destructive Network

Michael Milken Redux: Insider Trading Indictments on the Horizon for SAC Capital and Others in its Destructive Network

It’s been a long time coming, but the guys with guns and badges might soon be slapping handcuffs on some of Wall Street’s most destructive miscreants. According to a report posted over the weekend on The Wall Street Journal’s webpage, “Federal authorities are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts  across the nation…”

The New York Times on Sunday followed up with its own report, quoting Preet Bharara, the United States attorney in Manhattan, who bemoaned “the lengths to which corrupt insiders will go to misuse confidential information for their own personal gain.” As the Times noted, the rhetoric is reminiscent of the 1980s, when the Feds busted the massive stock manipulation and insider trading ring led by the famous financial criminal Michael Milken – and, indeed, it might not be a coincidence that this weekend’s announcement of imminent indictments came exactly 20 years after Milken was sentenced to prison.

The names of some of the hedge funds mentioned in the press as likely DOJ targets – hedge funds like SAC Capital and Ziff Brothers – will be completely familiar to readers of DeepCapture.com. In fact, this website was founded in large part to expose the depredations of precisely this network – a network that has its origins (at least to some extent) in the criminal enterprise that Michael Milken built in the 1980s.

As we have long explained, this network not only regularly trades on inside information, it has pioneered new variations of the practice by, for example, manufacturing information (often false) which they can front-run in the market, employing abusive (and likely illegal) short selling techniques to manipulate the stock of public companies; and “capturing” some of the institutions this nation relies upon to curtail such behavior.

Most notable among these institutions are the financial press (large swaths of which have grown inappropriately close to precisely this network of hedge fund managers), and the SEC, which has not only failed in its regulatory duties, but has often assisted the hedge funds’ schemes by launching misguided (and go-nowhere) investigations of the companies the hedge funds have targeted, and providing the hedge funds with confidential information about those investigations.  All of this has been thoroughly documented within the pages of Deep Capture.

It was more than five years ago that Overstock.com CEO and future Deep Capture founder Patrick Byrne first gave a famous public conference call that he dubbed “The Miscreants Ball”. With more than 500 Wall Street executives and a few journalists listening in, Patrick outlined the existence of a “network” of miscreant hedge funds and “independent” financial analysts that he said was using underhanded methods to trade on privileged information and do serious damage to the financial markets.

In “The Story of Deep Capture”, we sought to explain the origins of the Deep Capture project by telling the tale of our extensive (and at times, arguably over-the-top) investigation of this network of hedge funds – a network that included SAC Capital (whose founder, Steven Cohen, was investigated by the SEC in the 1980s for trading on inside information given to him by Milken’s shop at Drexel, Burnham), Ziff Brothers, and others. This story was (I admit) exceedingly  long – it demanded its readers’ patience – but it provided plenty of detail of how the network operates.

Among the tactics we cited in that story was the use of so-called “independent” experts – experts who had been hired by hedge funds to ferret out inside information about companies targeted by the hedge funds, or to badmouth companies the hedge funds were selling short. It now appears that the Feds have themselves independently discovered how these “expert networks” actually operate and, as a result, some of these “experts” seem to be looking at possible jail time.

Another tactic we detailed at length was the use of supposedly “independent” financial research shops, such as Gradient Analytics, which were, in fact, in the business of publishing spurious reports for the benefit of their hedge fund clients, which would obtain the reports before they were made public and place trades that would profit from the effect that the reports would have on stock prices. Over and over again we noted how the false information in these reports ended up regurgitated in stories written by a small clique of journalists who appeared to have developed exceedingly close relationships to a small circle of hedge funds, and had come to depend on the hedge funds’ bogus analysis to the exclusion of all dissenting views.

The journalists (some of whom worked for The Wall Street Journal and The New York Times, whose editors must have swallowed hard before publishing this weekend’s stories announcing the imminent indictments) had, like the SEC, been “captured” by the hedge fund managers.

Some of these journalists even went to lengths to cover up the hedge funds’ shenanigans, insisting all along that their favorite hedge fund managers were innocent of any crime – indeed, insisting that the hedge fund managers were heroes and the smartest people on Wall Street. (The hedge fund managers were clever, to be sure, but apparently not clever enough to avoid becoming targets of what now appears to be the biggest criminal investigation in the history of Wall Street.).

In January 2009, in a story titled “Hedge Funds Reading Tomorrow’s Headlines Today”, Deep Capture reporter Judd Bagley provided indisputable evidence that SAC Capital, Ziff Brothers, and some of the network’s other major figures, such as James Chanos of Kynikos Associates, received advance copies, and traded ahead of bogus financial research produced by Morgan Keegan, a supposedly “independent” research shop that was, in fact, working for those same hedge funds.

Even after this evidence was posted for all to see, the press continued to use these hedge fund managers as sources, and never once cast doubts as to whether they really were wholesome geniuses who deserved the final say on the health of public companies. Meanwhile, James Chanos, who heads a hedge fund lobby, could be found regularly roaming the halls of the SEC, where he successfully convinced regulators to flinch from enforcing the rules against manipulative trading that he and his associates were skirting.

Some time ago, Deep Capture published another treatise titled “Michael Milken, 60,000 Deaths, and The Story of Dendreon.” In this book-length story (which might, indeed, have been the longest blog post ever published), we provided excruciating detail about the lengths that the Milken network of hedge funds – including SAC Capital – went to obtain (and manufacture) inside information about biotech companies.

We noted in that story that the hedge funds and  Michael Milken apparently even managed to “capture” doctors working for the Food and Drug Administration – prominent doctors who abandoned their duty to the public and served the interest of the most destructive network of financial operators in America. And we explained in that story that the hedge funds did not just trade on inside information, they also deployed their information advantage and abusive short selling to hobble public companies that were developing medicines that could have saved lives.

During the many years that Deep Capture has sought to expose these miscreants, we have struggled with our despair – our belief that the system might be so thoroughly corrupted that justice would never see the light of day.  In our view, the DOJ officials and FBI agents who are now going after this network of hedge funds deserve medals. They are “public servants” in the true meaning of the phrase.

If the indictments are indeed imminent, they are proof that there are some officials who will do what is right for the country in the face of great pressure — pressure from the media, which insisted on defending the hedge funds, and from an immensely powerful hedge fund lobby that had a lot of regulators and politicians on its side.

And make no mistake: the hedge funds that the Feds are targeting are not just “insider traders” – a term that makes it seem as if they are nothing more than outsized versions of Martha Stewart. These hedge funds’ tactics have damaged the integrity of the markets. And they have hobbled – perhaps even destroyed –  countless public companies. They even helped bring about our current economic troubles.

Indeed, it might not be a coincidence that the hedge funds named as likely to be facing indictments – SAC Capital, Citadel, Ziff Brothers, and others in their network – are the same hedge funds that attacked Lehman Brothers and Bear Stearns, the collapse of which contributed mightily to market cataclysm of 2008.

Bear Stearns executives reported seeing the managers of SAC Capital and Ziff Brothers celebrating the demise of that bank at a special breakfast meeting days after its collapse. The creditors of Lehman Brothers are suing some of these same hedge funds — SAC Capital, Och-Ziff (run by Dirk Ziff, also of Ziff Brothers) and Citadel –  because they seem to be the  most likely suspects in the illegal short selling and rumor mongering that helped topple or almost topple, not just Lehman, but multiple other pillars of the American economy.

Yes, make no mistake – these hedge funds are not just small-time insider traders. I do not even think it is a huge stretch to say that some of these hedge funds are a threat to the security of our nation.

As it happens, it is on this subject – the threat that some traders pose to national security – that Deep Capture is now on the verge of publishing an immensely long and detailed piece of research. For now I will refrain from revealing too much of the article’s contents except to alert you that it includes excruciating detail about this Milken network, shocking facts about some traders who are dangerous in every sense of the word, and a tremendous amount of information regarding some singularly ruthless organized crime groups and people tied to the world’s most violent terrorist outfits.

Given this, readers will understand if I remind them that immediately before Deep Capture published my work on Dendreon, Patrick Byrne posted a short piece, “Coming Attraction: Michael Milken, 60,000 Deaths, and The Story of Dendreon“. In it, he wrote:

Incidentally, I feel it only prudent to mention that, on the remote chance that anything happened to interrupt the serialization of this piece on DeepCapture (say, for example, a power failure), then arrangements have been made for it to receive immediate publication, in full, in a way that would reach 20 million people, instantly.  In addition, the whole package is already in the hands of some politicians who care.  Lastly, over the last couple of years I constructed a Doomsday Machine (and of course, there’s no point in having a Doomsday Machine if you keep it a secret). The reader who gets but a few pages into it will understand why I make this cautionary mention.

We will begin publishing this new story as a series in a few weeks. We apologize to our regular readers for not updating the Deep Capture site regularly during recent months. And we thank our readers for having the patience to wade through our previous stories, and for staying tuned for what will be by far our longest and most comprehensive story to date.

In other words – more bad news on the way.

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Notes on David Einhorn: The Predator in a Cute T-Shirt

Notes on David Einhorn: The Predator in a Cute T-Shirt

I received an email a while back from Jim Brickman, a crony of short selling hedge fund manager David Einhorn, demanding that I post the Securities and Exchange Commission inspector general’s report on the commission’s investigation of Allied Capital. According to Brickman, the report proves that Einhorn was right about Allied being a massive fraud. Moreover, says Brickman, the report definitively establishes that Einhorn did not seek to drive down Allied’s stock price. The report, which I gladly post below, does nothing of the sort. I will discuss the report in further detail, but first a little history.

Eight years ago, Michael Milken, the famous financial criminal, appeared in the offices of a top Allied Capital executive. “You know,” Milken told the executive, “I already am quite a large shareholder of your stock – but my name will never show up on any list you’ll see.”

This might have been a reference to a practice called “parking stock” (owning stock but “parking” it in the accounts of friends with whom one has made under-the-table arrangements), a practice that figured in the high-count indictment that sent Milken to prison in the 1980s. It appeared to the Allied executive that Milken was fishing for inside information about Allied and threatening an attack. For a variety of reasons, short-side stock manipulators in the Milken network often accumulate large numbers of shares in the companies that they seek to destroy.

Not long after Milken’s strange appearance, David Einhorn was at a hedge fund luncheon, sitting next to Carl Icahn, one of Milken’s closest cronies. Einhorn launched his career working for Gary Siegler, who was formerly a top partner in Icahn’s investment fund, and is certainly part of the Milken network. So, it was not surprising to Allied’s executives when, halfway through the luncheon, Einhorn declared that “Allied Capital is going to zero!”

For the next eight years, Einhorn led a vicious campaign against Allied, loudly and publicly pronouncing that the company was a massive Ponzi scheme and an all-around fraud that could be as big as Enron. Of course, Einhorn’s vituperative remarks had nothing to do with the massive profits that Einhorn stood to earn from short selling Allied’s stock. Rather, Einhorn was just doing his duty as a concerned citizen – or so his slick public relations operation would have us believe.

I will give Einhorn credit. He is a master of spin. In 2008, he published an aptly titled book, “Fooling Some of the People All of the Time”, wherein he provided an ingeniously self-serving portrait of himself as a tenacious hero doing battle against not only the evil Allied Capital, but also powerful Washington insiders, financial journalists, and government regulators – i.e. all the people who reviewed his “evidence” and concluded that Allied was by no means a massive fraud.

Really, Einhorn’s book should be placed in a glass case at the Museum of Contemporary Propaganda, as it is such a work of art. Anyone familiar with the world of abusive short selling will read this book and see that Einhorn engaged in all manner of shenanigans to obtain inside information and drive down Allied’s stock price. But the dark genius of Einhorn’s book is that it manages to portray his malefaction as par for the course – just another day in the life of a noble fraud-buster.

For example, Einhorn admits in his book that he invested in a fund run by a man who had recently served as the chairman of Allied Capital’s board of directors. Could this investment have been a bribe? Was Einhorn seeking inside information about Allied? Certainly not. The investment was purely incidental, Einhorn assures us. And you, dear reader, should be ashamed of yourself for even asking such questions. Indeed, your suspicions make you part of the problem. You are an ignorant thug who wants to “intimidate” Einhorn and other short selling “critics” who selflessly do battle with public corporations.

In his book, Einhorn notes the SEC initiated an investigation into his short selling of Allied Capital. In the course of this rather cursory investigation, an SEC official sought to determine whether Einhorn was colluding with other hedge funds, including William Ackman’s Gotham Partners (now called Pershing Square Capital) and Whitney Tilson’s T2 Partners, to drive down Allied’s stock. The official asked this question:  “Mr. Einhorn, have you ever compensated [short selling hedge fund] Gotham Partners…for providing you with an investment idea?”

Einhorn answered, “Except in-kind, no.” Then Einhorn consulted with his lawyer and changed his mind. He went back to the SEC official and said, “I think the more correct answer to your question is that there’s been no compensation for the ideas.” The moral of this story, according to Einhorn’s book, is that the investigator was a bumbling idiot for asking such a question. And, you, dear reader – don’t even think of asking the same question. If you do, you’re part of the problem. You’re trying to “intimidate” Einhorn.

You see, it is perfectly natural for hedge funds to share ideas. Of course, hedge funds must not be required to report their short positions to the SEC or otherwise disclose their “proprietary trading strategies.” Hedge fund trading is top-secret so far as the public is concerned. But, says Einhorn, when we hedge funds “share ideas,” it’s just us pros talking shop. Really, says Einhorn, you can trust me…and, oh, did I say “payment in-kind”? Oops — slip of the mind.

Is it possible that hedge funds exchange “ideas” because it is profitable for them to do so? Surely not. Is it possible that these “idea” exchanges are nothing more than collusion – hedge funds agreeing to pile on to the same companies to put downward pressure on stock prices? How dare you ask such a question. Allied Capital asked that question. And Allied is very bad, says Einhorn — Allied tried to “intimidate” me!

Really, Einhorn says this all the time – people tried to “intimidate” him. He was hurt. But he’s a hero. He stood up to the critics. And, he assures us in his book, it was perfectly natural for him to collude (sorry, “share ideas”) with not just Tilson and Ackman, but also Eastbourne Capital’s Jim Carruthers. You see, Carruthers is really smart guy who does good research.

What Einhorn does not mention in his book is that Carruthers has sometimes spelled his name with a ‘K’ to disguise his identity while passing himself off as a friendly private investigator in order to deceptively acquire inside information from companies like Allied Capital. But let’s not criticize Carruthers. We don’t want to “intimidate” him. We don’t want to be part of the problem.

And shame on the SEC for having the temerity to investigate Einhorn. In fact, the SEC did nothing but ask Einhorn a few questions. Meanwhile, Einhorn convinced the SEC to launch an investigation of Allied. Then Einhorn all but directed this massive but ultimately misguided investigation for a period of three long years.

As Einhorn admits in his book, his hedge fund partner had a “social” relationship with William Donaldson, then the Chairman of the SEC. That’s how Einhorn got the investigation of Allied started. As the investigation progressed, Einhorn says, SEC officials even asked him to be their “cartographer” – outlining all the ways in which Allied was supposedly a massive Ponzi scheme, and also failing to mark its assets to “fair value” (i.e. the arbitrary value at which Einhorn believed the assets could be sold in a fire sale).

Clearly, Wall Street miscreants like Einhorn had captured the SEC to the point where the Wall Street miscreants were virtually running the place. But in the upside down reality presented by Einhorn’s book, the fact that a few SEC officials doubted the hedge fund manager’s sincerity is proof that the commission had been corrupted, not by Wall Street miscreants, but by corporate executives who wanted to “intimidate” Einhorn.

That’s right, the SEC, following Einhorn’s orders in microscopic detail, conducted an investigation of Allied that was so huge that Allied had to create a “Department of Investigations” to handle all of the commission’s requests for new information. But it was Allied’s executives, not Einhorn, who were peddling influence at the SEC. You don’t believe it? Read Einhorn’s book – agitprop at its best.

As for the media – well, Einhorn is deeply disappointed. Of course, Einhorn heaps praise on journalists such as Jesse Eisenger, then of The Wall Street Journal; Carol Remond of Dow Jones Newswires; and Herb Greenberg, formerly of MarketWatch.com and TheStreet.com. These journalists wrote multiple negative and false stories about Allied Capital, precisely mimicking Einhorn’s allegations that the company was a massive fraud.

As it happens, these are the same journalists that Deep Capture has shown to have had too-cozy, and in some instances, outright corrupt relationships with a select crew of short selling hedge fund managers, including David Einhorn. Indeed, it is fair to say that Einhorn and others in his network had captured some of the biggest names in financial journalism to the point where the hedge fund managers were able to virtually dictate the journalists’ stories.

But Einhorn was disappointed – the media failed him. That is to say, a number of honest journalists looked at Einhorn’s “evidence” and concluded that it was balderdash of the highest order. But, no, these journalists were not honest. They were ignoramuses. They are part of the problem. They should be publicly shamed. One of them even investigated Einhorn. This was an outrage. It was hurtful. It was “intimidation.”

Look, lying and cheating short-sellers are essential watchdogs, they add liquidity to the markets, and they are really very fragile people. Nice people, too. They don’t even care about money. You don’t believe me? Read Einhorn’s book. “I remember Grandpa Ben…,” Einhorn writes on page one, and after that he regales with countless folksy anecdotes and assorted other bullshit that – well, believe me, it brings tears to the eyes.

Einhorn even lets us know that he is going to donate some of the proceeds from his short selling of Allied to needy children. “I have been waiting,” he writes, “but the children should not have to wait.”

As far as I know, the children are still waiting. Although Einhorn has made enormous profits from his short selling of Allied, he has provided no evidence that his contributions to charity have significantly increased. But it is clear that the purpose of his book was not to tell the truth. It was to inoculate himself from public criticism and regulatory scrutiny in preparation for his next big project – the destruction of Lehman Brothers.

In May 2008, soon after releasing his book on Allied Capital, Einhorn’s launched his attack on Lehman in a speech that he gave at an event that was ostensibly held for the purposes of – what else? – raising money for needy children. Einhorn began this speech by discussing his supposedly philanthropic fight with Allied. He then  proceeded to give a grossly exaggerated account of Lehman’s problems, suggesting that Lehman was a massive fraud for precisely the same reasons that Allied was a massive fraud – namely, that it had failed to mark down its real estate assets to “fair value,” with “fair value” defined not by any reasonable metric, but by Einhorn himself.

Lest there still be any doubt that Einhorn really was a crusading crime-fighter, rather than a profit-seeking hedge fund manager, he hired an expensive lobbying outfit called the Gordon Group to orchestrate an astounding public relations campaign. The Gordon Group, whose key clients seem to be Einhorn and Einhorn’s network of hedge fund managers (including the above mentioned William Ackman and Whitney Tilson) is staffed by real professionals. Their Einhorn campaign was marked by the sort of hype that normally accompanies the launch of a new teen-idol band.

But it wasn’t just hype. It was also a particularly greasy sort of deception – imagine a pimp marketing a cheap 42nd Street hooker. Really, she’s not in it for the money. She’ a virginal college undergrad who loves her teddy bear.

Well, the media swooned for the cuddly Einhorn. This was the same media that Einhorn had accused of bungling idiocy, but never mind that – now he had glowing profiles in many of the top news publications, and a three-hour appearance on CNBC.  Half-way through his CNBC debut, Einhorn put on a cute t-shirt painted by his young kids — just to show that he was a regular guy and a lover of children, as opposed to a marauding hedge fund manager seeking to obliterate one of America’s largest investment banks.

In all his media interviews, Einhorn reminded journalists that Allied Capital had “intimidated” him. He said he had stood up to the bullies and proven that Allied was a massive fraud. Then he smoothly transitioned into a discussion of Lehman Brothers, suggesting to the journalists that Lehman was just like Allied, a massive fraud. He said Lehman was trying to “intimidate” him, but he would fight on in the name of truth and justice. The journalists swallowed this nonsense without an ounce of skepticism.

I do not mean to suggest that Lehman Brothers was a clean bank. Clearly, it engaged in some shady accounting, including its now notorious Repo 105 transactions. Its brokerage probably catered to criminal market manipulators. But while Lehman was a deeply troubled bank, it is also true that it was subjected to a wave of false rumors, each one accompanied by illegal naked short selling. With all the manipulation that accompanied the attack on Lehman, it was difficult to know what the truth about the company really was.

In the midst of the attack on Lehman, Adam Starr, the manager of hedge fund Gulfside Partners, was moved to write a letter to Lehman’s CFO, stating, “I have never witnessed more disruptive behavior than that displayed over the past year by David Einhorn.” In a recent interview with Reuters, Starr said that Lehman had clearly had serious problems, but that was besides the point. The point, Starr said, was that Einhorn was up to no good – “manipulating the market and running a high publicity business is just not appropriate behavior and disruptive to free and open markets.”

As for Einhorn being “right” about Lehman, it is important to note that the court-appointed examiner’s report on the Lehman bankruptcy does not support Einhorn’s principal claim – that Lehman’s executives fraudulently and massively overvalued the bank’s commercial real estate assets. “With respect to commercial real estate,” says the report, “the Examiner finds insufficient evidence to conclude that Lehman’s valuations of its Commercial portfolio were unreasonable as of the second and third quarters of 2008.”

Lehman’s valuations might have been high, but Einhorn’s shrill exaggerations and insinuations of fraud were clearly designed to induce panic. And sure enough, panic ensued. With potential business partners wondering whether Lehman was, in fact, massively overstating the value of its commercial real estate, the bank was unable to raise new capital.

To protect itself, Lehman sought to spin off the real estate assets, but by that time it had come under a brutal and criminal naked short selling attack, with more than 30 million of its shares failing to deliver. The plummeting stock price and continuing false rumors in the marketplace derailed Lehman’s other efforts to protect itself and triggered a run on the bank that ended with Lehman’s demise.

In short, Lehman was a bad bank. Regulators should have forced it to reform. Instead, they and the media allowed short selling “vigilantes” like Einhorn to manufacture a much bleaker reality and bring a major investment bank to its knees. It is quite possible that if it weren’t for Einhorn and other dissembling investor “activists”, Lehman would have survived, and the financial system would have had a much softer landing.

Lehman has subpoenaed records from Einhorn and his close colleague, Steve Cohen of SAC Capital,  in hopes of determining the extent to which the hedge fund managers had a hand in its demise. Perhaps those subpoenas will give us a clearer picture of what really went down, but meanwhile we can expect Einhorn’s PR machine stay “on message” – constantly repeating that Einhorn was “right” about Lehman, just as Einhorn was “right” about Allied Capital.

Which brings us to the inspector general’s report on the SEC’s investigation of Allied. Given that Einhorn, his minion Jim Brickman, and the rest of his PR machine are waving this report with glee, and no doubt preparing to use it as cover for Einhorn’s next attack on a public company, it is important that we subject the contents of the report to close scrutiny.

The report concludes that “serious and credible allegations against Allied were not initially [my emphasis] investigated” by the SEC, but contrary to Einhorn’s ridiculous claims that nobody listened to him, the inspector general notes that the SEC did ultimately conduct “a lengthy examination of Allied as a result of Einhorn’s allegations…”

SEC officials met with Einhorn on multiple occasions to review his allegations. They also scoured through millions of Allied emails and the cart-loads of other documents that Allied supplied every time Einhorn came to the SEC with a new set of accusations.

Having conducted this gargantuan investigation, the SEC concluded that most of Einhorn’s allegations were bogus. Allied was fined for having mildly inadequate accounting methods that might have overvalued some of the company’s assets, but the SEC determined that Allied certainly was not the “massive fraud” that Einhorn claimed it to be.

In addition, Allied was not, as Einhorn claimed, a massive Ponzi scheme. Einhorn had made the smarmy suggestion that Allied was a Ponzi because it supposedly raised money from the markets to pay its dividends. An SEC official told the inspector general that this claim was patently false – it was perfectly obvious that Allied legitimately paid dividends out of earnings.

The inspector general’s report notes that one SEC official claimed to have gotten “push back” when she tried to dig deeper into the Ponzi scheme allegation. But nowhere in the report does the inspector general conclude that any such Ponzi scheme existed. Clearly, Einhorn is no Harry Markopolos. Markopolos uncovered a $50 billion fraud (that of Bernie Madoff). Einhorn blew the whistle on a crime that didn’t exist. Yet, Einhorn’s slithering PR effort never ceases to amaze – somehow he has managed to attach himself to Markopolos, and even wangled a deal to write the introduction to Markopolos’s blockbuster book.

The inspector general seems to believe that the investigation of Allied could have been more thorough in some respects. For example, SEC officials didn’t visit Allied’s offices, and one SEC official was a bit too quick to believe that Allied was innocent just because former SEC officials worked for the company. But, again, the inspector general does not state that the SEC was wrong to conclude that Allied was innocent of any major crime.

The inspector general’s most damaging conclusions about Allied concern the company’s efforts to lobby the SEC. Apparently, some Allied lobbyists secured an unusual meeting with SEC officials and managed to convince these officials that Allied deserved a lighter fine. It also appears that a former SEC official went to work as an Allied lobbyist and might have gotten his hands on Einhorn’s phone records.

The inspector general is right to suggest that Allied’s lobbyists crossed the line. It is not kosher for a public company to pry into a private citizen’s phone records. But given that Einhorn had all-but moved his offices into SEC headquarters, and given that Einhorn had his own private investigators going to unknown lengths to dig up “dirt” on Allied (he admits in his book that he hired Kroll, a private investigative agency that owes its existence to Michael Milken, who was its first big client), Allied can hardly be blamed for taking steps to defend itself.

In any case, the inspector general’s report is more an indictment of the SEC than of Allied’s lobbyists. The overall picture that emerges is one of a government agency split into two factions, one populated by friends of Allied’s lobbyists, the other populated by officials who were basically taking orders from hedge fund managers like David Einhorn. It seems that nobody at the SEC was capable of conducting an investigation without having his or her hand held by some self-interested party. But it is clear from this case and many others like it that the hedge fund faction won the day.

The inspector general states in his report that it was Allied’s lobbyists who convinced the SEC to investigate Einhorn. The report concludes that the SEC initiated this investigation “without any specific evidence of wrongdoing.” That might be so, but officials do not generally obtain “specific evidence” unless they seriously look for it. And it is clear from the contents of the inspector general’s report that the SEC’s investigation of Einhorn was an unmitigated joke, even though officials had good reason to suspect that Allied’s stock was being manipulated.

The report notes, for example, that the SEC subpoenaed Einhorn’s client list in response to Allied’s complaints and discovered that Einhorn had a certain “celebrity client”, whom the inspector general does not name. Could this “celebrity client” have been Michael Milken? We cannot know for certain, but it seems like a good guess, given that the discovery of this “celebrity client” followed Allied’s complaint to the SEC, and given that Allied had complained that Einhorn might be colluding (sorry, “sharing ideas”) with one specific celebrity – Michael Milken.

In any case, it appears from the inspector general’s report that the SEC did nothing to determine how Milken, who is banned from the securities industry, became “quite a large” shareholder of Allied’s stock. Nor did the SEC seek to determine what Milken was doing that day in Allied’s offices.

Meanwhile, some SEC officials seemed to believe that Einhorn was colluding with other hedge fund managers to drive down Allied’s stock. To see whether the hedge fund managers called each other and then placed their trades at precisely the same time, the SEC subpoenaed Einhorn’s phone records. But according to the inspector general’s report, Einhorn did not bother to comply with this subpoena. He never handed over the phone records, and nobody at the SEC seemed to notice or care. Which is funny, because Einhorn states in his book that he did hand over his phone records. Indeed, he goes to great lengths to describe how hurt he felt about this. The SEC was “intimidating” him.

Perhaps because it was weary of “intimidating” hedge fund managers, the SEC also apparently did nothing to investigate illegal naked short selling of Allied’s stock. From the moment that Einhorn declared that Allied was “going to zero”, and for many months afterwards, Allied’s stock “failed to deliver” in massive quantities – a sure sign of criminal naked short selling. We do not know that Einhorn, others in the Milken network, or their brokers were committing this crime. Maybe it was someone else. Either way, it was not beyond the pale for Allied to ask the SEC to investigate. Or maybe it was. After all, the SEC wouldn’t want to “intimidate” criminals.

It is also notable that literally minutes after Einhorn declared that Allied was “going to zero”, the corrupt law firm Milberg Weiss filed a class action lawsuit against Allied that almost precisely mimicked Einhorn’s allegations. Indeed, Milberg filed a class action lawsuit against nearly every company attacked by short sellers in the Milken network.

A couple of years ago, Milberg’s top partners went to jail after prosecutors determined that the partners routinely bribed the plaintiffs in such lawsuits and knew in advance that some event would collapse the stock prices of the companies named in the lawsuits. Einhorn claims that the timing and contents of Milberg’s lawsuit were coincidences. We’ll never know the truth because the SEC doesn’t want to “intimidate” short sellers and corrupt law firms.

There were other “coincidences”. For example, supposedly “independent” financial research shops, such as Off Wall Street Research and Farmhouse Equity Research, published reports that closely paralleled Einhorn’s negative analysis of Allied Capital. The Motley Fool reported in 2007 that Einhorn’s confederate Jim Brickman helped Farmhouse write its research on Allied, and received a copy of at least one of these research reports one week prior to its publication.

Brickman, who is a bit of a mystery character (he refused to provide me with any information about his background), told the Motley Fool that he and Einhorn didn’t see the advance copies of the reports because of “travel constraints.” Allied complained to the SEC that the research shops were helping Einhorn manipulate its stock price and illegally trade ahead of their research. Einhorn said Allied was trying to “intimidate” the research shops. Who was right? It was all so confusing. The deep thinkers at the SEC picked their noses and tried to figure it all out. Then they went to lunch.

The inspector general has been on a mission to expose ineptitude at the SEC, and for this he deserves praise and gratitude. However, given the facts, I think his report on the investigation of Allied Capital was a bit too kind to David Einhorn. The inspector general notes that his office “conducted a comprehensive investigation of the allegations in Einhorn’s book.” But the report offers no solid verdict as to the accuracy of those allegations, and fails to acknowledge the extent to which the SEC had been manipulated by Einhorn and affiliated Wall Street hedge funds.

It should be noted that not only the SEC, but also the Department of Justice, the Small Business Administration, federal courts, attorneys general, and other government bodies investigated Einhorn’s allegations against Allied. All of these investigations yielded the same conclusion: Einhorn’s allegations were, for the most part, eminently ridiculous.

The only criminal fraud discovered by any of these investigators was committed by executives of Business Loan Express, a subsidiary that represented a tiny fraction of Allied’s overall portfolio. The BLX executives were apparently handing out Allied’s money to unqualified borrowers who were their cronies. In other words, Allied was the victim of this fraud. That anyone at the SEC still gives credence to David Einhorn is, therefore, rather odd.

But this story has a happy ending. Last October, Allied Capital was purchased by Ares Capital Corporation, a company that was founded by Anthony Ressler and John Kissick – both partners in the private equity firm Apollo Management. The head of Apollo is none other than Leon Black, who is Michael Milken’s closest business crony. That could be a coincidence. Or it could be that Einhorn’s attack on Allied was meant from the beginning to drive down Allied’s stock price to the point where it would be ripe for a takeover by Milken’s pals.

In any case, Einhorn mysteriously ended his “crusade” agains Allied as soon as Allied was purchased by his friends. So, for the time being at least, we don’t have to listen to his blather. And we promise – never again will we “intimidate” Einhorn. Really, no more “intimidation” — not from us. Mr. Einhorn, you are noble man. You did it for the children. You did not deserve to be “intimidated.” And, Mr. Einhorn, one more thing — boo!

Oops, did it again.

* * * * * * * *

Click here to read the inspector general’s report

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