Issue Date: IR Alert - July 24, 2009
U.S. Sues Investors Over Profits Made From Fake Takeover Rumors: "Suspicious" Trading Nets Millions for Kuwaiti Firm
Securities regulators have sued the head of a Kuwaiti investment firm seeking the return of millions of dollars in profit made after false takeover rumors pushed up shares of two American companies. The Securities and Exchange Commission, which filed the civil lawsuit in Federal District Court in Manhattan, said in a statement that Hazem Khalid al-Braikan, the Al-Raya Investment Company and other related entities in Kuwait and Bahrain had realized trading profits of more than $5 million from suspicious trading, Reuters reports.
The SEC said the defendants "profited from amassing large positions" in securities of Harman International Industries and Textron shortly before bogus announcements of takeover offers for the companies. Other defendants include the United Gulf Bank, described in the court papers as the investment banking arm of the Kuwait Projects Company, and the KIPCO Asset Management Company, a United Gulf unit.
The SEC said Braikan is chief executive of Al-Raya, which the agency said purports to be an international asset management company created in 2007 with KIPCO Asset Management.
Harman shares briefly soared on Monday after several media outlets reported that a private investment firm called the Arabian Peninsula Group planned to buy the high-end audio equipment maker for $49.50 a share — about double the Friday close of $25.18.
The lawsuit deepens problems faced by Bahrain’s banking sector. Two Bahrain banks were connected to multibillion-dollar corporate defaults in neighboring Saudi Arabia in June that have since shaken the gulf financial sector and spurred investor calls for more transparency.
The SEC said Braikan had engaged in "an aggressive trading strategy" of buying Harman stock and call options in the four trading days before the fraudulent tender offer.
The commission said Braikan and the United Gulf Bank liquidated their positions in Harman and requested the money in their Citigroup accounts wired to them.
On July 20, Braikan sold his entire position of 341,000 shares of Harman common stock for a profit of about $1.15 million.
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