Three Men Accused of Shariaa-Law Ponzi Scheme

[Solomon2]

18/11/2010

CHICAGO (Reuters) - Three men defrauded 300 Muslim investors and three banks out of $44 million in a real estate Ponzi scheme that promised profits, not interest, to adhere with Shariaa law, federal prosecutors said on Wednesday.

Salman Ibrahim, 37, and Mohammad Akbar Zahid, 59, claimed that Sunrise Equities Inc earned monthly profits on real estate investments, not interest, in the alleged scheme that took in a total of $69 million from 2003 to 2008, according to a federal indictment unveiled by the U.S. attorney's office in Chicago.

But Sunrise was not generating any profits, and existing investors were being paid off with contributions from newer investors, according to the indictment.

Sunrise's owners lured hundreds of Pakistani-American Muslim investors in Chicago and around the United States with promises of annual returns of 15 percent to 30 percent that they claimed were compliant with Shariaa, or Islamic law, according to the indictment.

"This is the first time in Chicago that an alleged fraud scheme has been uncovered that used a pillar of Islam to induce potential victims to invest their funds," Robert Grant, the FBI's top agent in Chicago, said in a statement.

Some investors were persuaded to refinance their homes and sink the proceeds into Sunrise, according to the indictment.

The accused made allegedly false statements about their net worth and about planned real estate projects to secure $29 million in bank loans from Mutual Bank, Cole Taylor Bank and Devon Bank that were not repaid, according to the indictment.

Some of the funds were used to operate a motorcycle parts manufacturing company in Pakistan, a gas station in a Chicago suburb, and a medical equipment sales company in Chicago, the indictment said. Other funds went to build a home and an Islamic school, pay for leases on personal cars, make home renovations, and to pay off a defendant's mortgage.

Ibrahim and Zahid were each charged with seven counts of fraud and one count of bank fraud. They are believed to be living abroad and are being sought, authorities said.

Each count of fraud or bank fraud carries a maximum sentence of 30 years in prison and a $1 million fine on conviction..

A third owner of Sunrise, Amjed Mahmood, 47, whose title was senior vice president of construction, was arrested and charged with one count of conspiracy to commit mail, wire and bank fraud.

The charge carries a maximum penalty of five years and a $250,000 fine.

 

[GentlemanObserver]

This reminds me of a MLM scam here in Pakistan called PrimeBank... That was just hilarious... I still can't believe people get duped by such scum suckers.

 

[somebozo]

Taking the banner of islam has become an easy way for criminals to get rich quick!

 

[Durran3]

I find this article quite hilarious. People are simply to naive to differentiate between annual interest returns and Islamic profits. There essentially is close to no difference between earning a 15 percent return annual profit or earning a compounding interest rate of lets say 15% at the bare minimum annually.. apparently just changing the word from Interest Rate to Profits makes it Halal... people can be duped so easily..

 

[pak-marine]

and the most ironic part is these thugs not even coned the people also the banks gave them loans .. banks were supposed to smarter !!

 

[The Clarifier]

I find this article quite hilarious. People are simply to naive to differentiate between annual interest returns and Islamic profits. There essentially is close to no difference between earning a 15 percent return annual profit or earning a compounding interest rate of lets say 15% at the bare minimum annually.. apparently just changing the word from Interest Rate to Profits makes it Halal... people can be duped so easily..

You don't understand how Islamic banking works. If the bank loses money from your investment, you must share the loss. If the bank makes profit, you share the profit.

It's as simple as that. Interest harms one party. Polarization of wealth occurs in society. People start benefiting from other's losses. In Islamic banking, losses or profits are shared.

 

[forcetrip]

In that scenario the bank has to run their decisions by the investors. And in the end there will be too many cooks in the kitchen. Islam took forward an idea in medieval economics and brought forward good change according to their religions clientel. Now with the population such practices are not possible or smart. I keep an eye on my investment and get paid for trusting the banks decisions. Call it interest or profit, same basic principle applies to all loans.

 

[Durran3]

You don't understand how Islamic banking works. If the bank loses money from your investment, you must share the loss. If the bank makes profit, you share the profit.

It's as simple as that. Interest harms one party. Polarization of wealth occurs in society. People start benefiting from other's losses. In Islamic banking, losses or profits are shared.

I know that but thanks anyways.. this isn't Islamic banking these are equity investments in the real estate sector most likely REITS investments. When you invest in Equity portfolios any loss in the index or the underlying asset as in this case Real estate is close to non recoverable unless well diversified and there are two ways to earn profits

1) One the Real estate market improves and your portfolio goes up via capital market gains again if you have invested in a Real Estate investment index

2) The Mutual fund or Investment equity company gives you an annual return based on the performance of the market index on a yearly, semi annually or quarterly basis. So the idea of Sharing a Profit and a Loss already applies in equity investments and there is nothing Islamic about it.. its just the way equity investments work.. if your market index falls substantially not only do the investors lose but so does the portfolio manager who was essentially responsible for allocating assets based on investor preferences.

Most small equity funds are private businesses and not corporations so essentially the loss is shared both parties...Todays capital markets are far more complex than what Islamic Finance talks about and its only reach is probably till banking and that to is hardly any different than how normal day to day banking operations work...finance isn't limited to just banking