Ok, Mr. DD, anybody you know here? The New York DA and the SEC would like you to tell us: "Was a Missing Broker Wiser Than the Wise Guys?|
By DIANA B. HENRIQUES
ON Nov. 14, The Gulf Times in the Middle Eastern emirate of
Qatar published a glowing profile of a young Karachi-born
financial entrepreneur named Mohammad Ali Khan, who had returned to
invest in his native land after "a highly successful career" in New York.
"I have come back to Pakistan hoping to provide solutions, on the basis
of my firsthand experience, in the areas where the country is lacking," the
article quoted Mr. Khan as saying. It went on to describe him as a man
who had made millions as "the proud owner of the first fully
Muslim-owned investment bank on Wall Street."
Mr. Khan, 35, was also
credited with founding a
profitable holding company,
U.S. Financial Group, whose
board of directors "included
11 top business leaders of
"As the youngest chairman and
founder of an investment bank
in America," the dazzled
reporter added, "his
accomplishments are a little
more than extraordinary."
Well, in a way, perhaps they are.
For whatever else he is, Mr. Khan is a fugitive from justice in New York,
where state prosecutors accused him last spring of stealing millions of
dollars from several of his brokerage firm's customers -- including some
who also happened to be members of the Gambino organized crime
family. The Gambino customers, one of whom is in federal prison, have
expressed their annoyance by filing a lawsuit against the absent financier
and one of his top brokers.
And U.S. Financial Group? Supposedly a diversified corporate empire, it
apparently existed only in an inch-thick stack of paper that Mr. Khan
filed with the Securities and Exchange Commission. The S.E.C.
subsequently sued him, accusing him of "vastly overstating" his business
operations in those documents and others he used to raise money from
investors and attract support from business leaders, including the former
chief executive of Kmart and a top executive at Forbes magazine.
Finally, federal prosecutors in Manhattan have filed a criminal complaint
against Mr. Khan, accusing him of committing securities fraud by using
lies and exaggerations to entice at least 55 people to invest nearly $3
million in his brokerage firm.
Of course, it is the plight of the Gambinos that makes Mr. Khan's story
so intriguing. It is not unusual these days for organized crime figures to
stand accused of manipulating sales of speculative penny stocks. But how
could Joseph and Thomas F. Gambino -- themselves such experienced
criminals -- have found themselves, as they contend in their lawsuit, the
marks in just such a swindle? Their court complaint offers an explanation
that surely resonates with penny-stock victims everywhere: They had "a
relationship of trust" with their broker.
And that trust, the Gambinos contend, was betrayed.
The Beginning: An Elusive Broker at a Small Company
Mr. Khan's difficulties with the Gambino family arose from their dealings
with Klein Maus and Shire, the tiny brokerage firm he opened in early
1995 in an impressive suite of offices on the 24th floor of 110 Wall
Street in lower Manhattan.
People who worked there knew him as Ali Khan and described him as
an attractive young man, slim and small, with gracious manners, silk shirts
and European-cut suits. Born in Pakistan, he told people that he had
lived in the United States since he was 19.
He was an intuitive listener. "He
was so sharp at picking up
exactly the right button to push
with each person," said one
executive who knew him. But his
attention to business was erratic,
veterans of the firm said, and he
would sometimes disappear for
months, staying in touch through
calls to his wife's brother, Asim
S. Kohli, the firm's young and
Among the brokers Mr. Khan
recruited to his little firm was
Maurice A. Gross Jr., known as Mike. Mr. Gross, now 68, is a big,
dark-haired man who worked for more than a dozen years at Gruntal &
Company in New York before joining Klein Maus in April 1997.
At Gruntal, Mr. Gross built up a fat list of clients that included members
of the Gambino family.
Thomas F. Gambino, who is serving a five-year prison term arising from
a federal racketeering conviction in 1993, and his wife, Frances, were
clients. So were a brother and a sister-in-law, Joseph and Arlene
Gambino, and Thomas C. Gambino, a son of Thomas F. Gambino.
Joseph and Thomas F. Gambino pleaded guilty to state antitrust
violations and paid $12 million in fines and restitution in 1992 to settle
charges that they illegally controlled intra-city trucking service in New
York City's garment industry. They are the sons of the late Carlo
Gambino, who founded the extended crime family that was later run by
the now-imprisoned John Gotti.
During his years at Gruntal, Mr. Gross lost a number of arbitration cases
brought by customers who accused him of making unauthorized trades in
their accounts, according to public records maintained by the North
American Securities Administrators Association, although that does not
seem to have worried members of the Gambino clan. Indeed, their
decision to follow Mr. Gross to Klein Maus and Shire in 1997 was "a
reflection of the trust that had developed" between them and their broker
over the years, according to their subsequent lawsuit.
Neither Mr. Gross nor his lawyer responded to numerous requests for
comment on the case, nor have they filed any response to the Gambinos'
According to Gabriel Bernaschina, a former executive at Klein Maus and
Shire, Mr. Khan was encouraged to hire Mr. Gross by "a lovely old
Italian gentleman, a retired vaudeville performer who lived in Hoboken
and was a dear friend of Ali's." He knew the elderly friend only as "Vic,"
Mr. Bernaschina said.
Thus it was that the investment affairs of a fairly demanding branch of the
Gambino family fell into the hands of a flimsy little brokerage firm whose
standards and ethical practices were policed by the ambitious but
haphazard Mr. Khan.
The History: Second Looks at a R‚sum‚
Klein Maus and Shire may seem an odd name for a Muslim-owned
investment bank. But the name had a certain logic.
Mr. Khan explained to an early recruit that the firm's first name was
chosen by his wife -- in homage to her favorite fashion designer, Calvin
Klein. "Maus," Mr. Khan said, honored a Dutch lawyer who had given
him his first job in the securities business; "Shire" was part of the name of
a London brokerage firm where Mr. Khan had gotten his start, the new
recruit was told.
Some of that story might be true, of course. But the employment history
that Mr. Khan was required to file with American regulators when he
obtained his broker's license does not list any employment in London.
Nor did he mention his London roots in discussing his life story
For example, Tariq Al-Rifai, a research consultant in Islamic finance in
Chicago, remembers being charmed by Mr. Khan when they first met in
the early summer of 1997: "I was very impressed by his story -- how he
had come here to go to college, starting with nothing and driving a taxi as
a student, and then made his money by building up a chain of video
stores, which he sold off to finance his move into the investment side."
The r‚sum‚ that Mr. Khan submitted to regulators, however, states only
that he had worked for two years at a video rental store while he was a
student at Rutgers University between 1985 and 1989.
No video store fortune was mentioned in
the documents Mr. Khan circulated as he
tried to raise money for Klein Maus and,
later, for U.S. Financial Group. But he did
claim that he had earned a degree in finance
and economics from Rutgers and boast that
he had received "the Financial Times of
Karachi award" in 1994. Mr. Khan
acknowledged later, in interviews with
regulators, that he never earned a Rutgers
degree. And while Karachi's newsstands
carry The Financial Post and The Times of
Karachi, there is no trace of a "Financial
Times of Karachi."
While still in school, where he met his future
wife, Mr. Khan worked for a few months as
a trainee at Magyar Savings Bank in North
Brunswick, N.J., according to one regulatory filing he made; after
graduation, he worked for more than a year selling insurance products at
a Prudential Insurance Company office in Woodbridge, N.J., other
His Wall Street career began in February 1990, when he went to work
as a broker at South Richmond Securities, a now-defunct brokerage firm
with a beefy file of customer complaints. By September 1991, after three
months at another small firm, he had landed at yet a third troubled firm,
Barrett Day Securities. There, he helped sell the cheap but high-risk
microcap stocks that were the firm's bread-and-butter business, until
Barrett Day's regulatory problems led to the firm's collapse in March
In various r‚sum‚s he later showed to potential investors, Mr. Khan
summarized these penny-stock experiences as employment "at two New
York-based international investment banking firms."
The Expansion: A Brokerage Firm Appears to Thrive
Late in 1995, Mr. Khan began recruiting the management team for a
brokerage firm of his own, hiring a compliance officer and chief trader
from Barrett Day. He also approached Mr. Bernaschina, then at another
small retail brokerage firm, offering him the job of chief financial officer
over lunch at the St. Regis Hotel in Manhattan.
"He was very persuasive," Mr. Bernaschina said.
"He said he was going to open up a branch office in Dubai -- that he had
a prime location, and prime prospects."
Soon, Klein Maus and Shire was gaining customers and something akin
to credibility, at least among the lawyers, brokers and accountants who
operate on the fringes of the penny-stock world and cater to small
companies trying to sell stock to the public for the first time.
Three small Canadian companies signed on to sell stock through Mr.
Khan's firm on the strength of their accountant's recommendation,
executives at those firms said. The accountant, Gerald Goldberg of the
Toronto office of Schwartz Levitsky Feldman, said he had been
introduced to Mr. Khan and his brokerage firm by Greg Sichensia, a
New York lawyer "with whom we do a lot of business."
Mr. Sichensia, in response to a query about his dealings with Mr. Khan,
said his firm "had an office policy of never talking to any reporters about
In any case, Mr. Goldberg and executives at the companies who dealt
with Mr. Khan all remember him as being impressive, if difficult to reach
by telephone. "He told us he handled the finances for some major Middle
Eastern people," Mr. Goldberg said.
The firm certainly seemed prosperous. On a Saturday early in December
1996, Mr. Khan arranged for a fleet of limousines to carry his entire staff
and their dates -- more than 50 people -- to a sumptuous black-tie
Christmas party at Caesars Atlantic City. There was an open bar, a band
for dancing, envelopes of cash for gambling at the casino's tables -- all at
By early 1997, according to one former adviser, Mr. Khan was wearing
$3,000 suits and offering to fly guests to the Super Bowl in New Orleans
-- "with box seats, a private jet, the works."
That May, he was invited to participate in a Harvard conference on
Islamic banking and financial matters -- he sent a senior executive instead
-- and he attended a banking conference in Bahrain, winning a small
mention in some newspaper accounts of the event.
As he traveled more often to the Middle East, trying to raise money from
foreign investors, Mr. Khan talked more about opening a branch office in
One young executive at the firm actually sold his home, put his furniture in
storage and moved his family in with relatives in anticipation of a
promised transfer to the Middle East, according to Mr. Bernaschina. But
a Dubai office was never opened.
Somewhere along the way, Mr. Khan was introduced to Joseph E.
Antonini, the former chief executive of Kmart. Mr. Antonini had joined
Mario Andretti, the race-car driver, in the formation of the Andretti
Wine Group, a small vintner that makes wines under Mr. Andretti's
According to documents filed with the S.E.C., the company, whose
shares trade on the OTC Bulletin Board, had engaged Klein Maus as its
Mr. Antonini declined to discuss his dealings with Mr. Khan, and others
associated with the winemaker did not return numerous calls. A
spokeswoman for the company said that the deals that gave rise to the
investment banking relationship were never consummated.
Nevertheless, in May 1998, when Mr. Khan filed the S.E.C. documents
for U.S. Financial Group, Mr. Antonini was listed as a director, along
with Leonard Yablon, executive vice president and chief financial officer
of Forbes Inc., which publishes Forbes and other magazines. The
Andretti Wine spokeswoman said Mr. Antonini, like others on the list,
had "indicated he had potential interest in serving on the board of the new
"However, this interest was dependent upon the outcome of due
diligence, as well as S.E.C. approval," she said.
"To Mr. Antonini's knowledge, the S.E.C. never approved this filing. The
board has never met or played any type of role in this company."
Mr. Yablon did not respond to messages left at his New York office.
It was in February 1997 that a Gambino family accountant named Joseph
Gluckman first noticed some disturbing activity in his clients' accounts at
Klein Maus and Shire.
Lawyers for Thomas F. Gambino and his family contend in a lawsuit filed
in New York state courts that Mr. Gluckman immediately faxed a letter
to Mr. Gross, their broker at Klein Maus, challenging the transactions.
"What the hell is going on?" Mr. Gluckman demanded.
"I opened the last reports and found a dozen off-the-wall trades. You
know Tom only gets investments in quality bonds. Please reverse or sell
all these trades immediately. Call me."
Specifically, the lawsuit asserts, Mr. Gross had used money generated by
the Gambinos' income-producing bonds to buy stock in a tiny young
company called American Champion, which owns, among other things,
a pair of San Francisco karate studios.
According to the lawsuit, Mr. Gross repeatedly promised Mr. Gluckman
that the trades were "mistakes" and would be corrected. Instead, he
"accelerated the pace of the unauthorized trading" in the Gambinos'
accounts, the lawsuit says, filling their portfolios with shares of American
Champion and other microcap stocks whose prices had been
manipulated by Klein Maus. In effect, the lawsuit accuses Klein Maus of
manipulating the prices through sham trades among numerous controlled
accounts, after which the inflated stocks were sold into the accounts of
Mr. Gluckman continued to protest these investments and demand that
they be corrected, the lawsuit says. "We don't gamble," the suit says he
told Mr. Gross at one point. "Get the h--- out now." In July 1998, the
lawsuit says, he even threatened to report Mr. Gross to the S.E.C. But
after Mr. Gross promised yet again to reverse the disputed trades, the
accountant did not carry out his threat, according to the lawsuit.
The D‚nouement: The Collapse of a Little Empire
The S.E.C. nonetheless found its way to Klein Maus and Shire's offices
on Wall Street. By early that September, according to court records,
S.E.C. lawyers were interviewing Mr. Khan under oath about the
activities of Klein Maus and his efforts to raise money for U.S. Financial
Group. Yet he continued his efforts to get an initial public offering for
U.S. Financial Group off the ground, repeatedly amending his corporate
filings with the commission.
As for Mr. Gross, by January 1999 he no longer even returned Mr.
Gluckman's telephone calls, according to the Gambinos' lawsuit. And
within a month, the little empire on the 24th floor at 110 Wall Street was
starting to unravel. Without Klein Maus's support, the prices of the
stocks that the firm had been hawking to its customers were collapsing,
and regulators were circling.
It was at this point, according to Eliot L. Spitzer, the New York attorney
general, that Mr. Khan tried to move nearly $2 million in funds from
various customer accounts -- including those of Thomas F. and Frances
Gambino -- to an account in Dubai.
Alerted by customer complaints, Mr. Spitzer and the firm's clearing
broker were able to reverse the transfer, and the money was returned to
the customer accounts.
On March 9, federal investigators obtained a search warrant for the
premises occupied by Klein Maus and Shire; by March 17, the firm,
penniless, had closed its doors.
By April 23, in an action filed under seal, Mr. Spitzer's office had
obtained an indictment from a Manhattan grand jury charging Mr. Khan
with five counts of second-degree grand larceny arising from the
attempted Dubai transfers, along with a warrant for his arrest. Less than a
week later, Mary Jo White, the United States attorney in Manhattan, also
obtained an indictment of the financier, accusing him of committing
securities fraud in connection with the sale of $2.7 million of his
brokerage firm's own preferred shares between April 1996 and June
And on May 3, the S.E.C. filed its civil complaint against Mr. Khan,
Klein Maus and Shire, U.S. Financial Group and Mr. Kohli, accusing
them of securities fraud in connection with efforts to raise money for U.S.
Financial Group between July 1997 and January 1998.
But by the time all the various legal agencies were ready to arrest him,
Mr. Khan had disappeared with his wife and two young sons, leaving
Mr. Gross and Mr. Kohli, his wife's brother, to face the consequences of
the firm's collapse.
A lawyer for the Gambinos is seeking a court order to allow the family to
seize any profits that Mr. Gross realizes on the sale of his
2,500-square-foot home about six miles from the Clintons' new home in
Chappaqua, N.Y. Neither the lawyer, Peter Raymond, nor the
Gambinos would comment on the case.
Mr. Kohli is "vigorously defending" himself against the S.E.C. charges
and "denies the allegations," said his lawyer, Richard Blumberg of New
As for Mr. Khan, he is facing trial if he is apprehended, and up to 15
years in prison if convicted.
To judge from the Gulf Times interview, however, those bleak prospects
have not appreciably diminished the optimism and enthusiasm that were
the foundation of his brief Wall Street career in America."