Tangled Fraud Web Described at Hearing on Khan Bid for ICN : Courts: A cousin of Rafi Khan testifies that the stockbroker masterminded a scheme to illegally buy shares in British Gas.

In a baroque courtroom tale of family betrayal, kidnaping and financial fraud, a cousin of stockbroker Rafi Khan accused him Thursday of masterminding a scheme to illegally buy shares in British Gas and then fleeing Britain when the plot was unraveled.

The allegations by Tahir Rafiq Khan--which surfaced last week--followed similarly dramatic testimony in a Manhattan federal court from a Scotland Yard detective who said she had sought to arrest Rafi Khan in connection with the scheme in 1987--and would arrest him today if she encountered him in London.

The testimony came during a hearing to determine whether Rafi Khan can continue his fight for control of ICN Pharmaceuticals, the Costa Mesa company headed by onetime Yugoslav Prime Minister Milan Panic.

Khan, 43, is hoping to garner enough support among the owners of ICN’s 20.4 million outstanding shares to topple Panic.

ICN is seeking an injunction to block Khan’s proxy battle on the grounds that he failed to tell the Securities and Exchange Commission that he is the subject of a criminal investigation. For his part, Khan is seeking an injunction to stop ICN from publicly impugning his integrity.

The usually animated Khan sat quietly in court as his 30-year-old cousin alleged that the stockbroker had left him holding the bag when the share-purchasing scheme collapsed. Witnesses supporting Khan will testify beginning today.

Khan declined to comment except to say, “Wait until you see my passport.” In an earlier interview with The Times, Khan showed stamps on his British passport that suggested he was not in England during key periods described by Tahir Khan.

Thursday’s hearing began with testimony from Jacqueline Malton, a British detective who was charged with investigating illegal share purchases in the 1986 privatization of British Gas. British citizens had the right to make a single application for up to 5,000 shares. But some investors sought to acquire far more by filing multiple applications under false names.

Malton testified that she had received evidence about one such ring that allegedly filed at least 166 applications; in February, 1987, police raided a Khan family residence in London.

Rafi Khan wasn’t there, but Malton and other detectives brought his cousin Tahir Khan to police headquarters for questioning.

If Rafi Khan had been there at the time, “I would have arrested him,” Malton testified. When asked what she would do if she encountered him in London today, she answered without hesitation, “I would arrest him.”

Tahir Khan then took the stand. He testified that he had helped with the British Gas purchases, filling out false applications that carried the addresses of seven or eight London properties that the stockbroker and his family owned.

Later, they received letters from the accounting firm handling the sales indicating that the multiple applications had been discovered .

“(Rafi) was absolutely devastated at the time. The scheme had completely collapsed,” Tahir Khan said. Still later, he testified, Rafi Khan was kidnaped and beaten by an associate, Peter John McGill, who was also part of the scheme and to whom Khan owed money. McGill is scheduled to testify today--but on the stockbroker’s behalf.

When Khan saw the scheme was collapsing, he left Britain in December, 1986, Tahir Khan testified. Tahir Khan--who now is represented by ICN attorneys--was eventually arrested and pleaded guilty to fraud.