Testimony Seeks to Clear Khan of Stock Scam : Courts: A former associate testifies that cousin was the real mastermind. ICN Pharmaceuticals hopes to discredit Khan’s fight for control of its board.

A former associate of Rafi Mohamad Khan, the stockbroker trying to topple the top management of ICN Pharmaceuticals Inc., insisted in testimony Friday that Khan had no involvement in a botched 1986 British securities scam.

Peter John McGill testified in U.S. District Court in New York that Khan’s first cousin Tahir Rafiq Khan--who testified Thursday that Khan was the mastermind of the failed scheme--was himself responsible for the plot to defraud the British government.

“There’s no love lost between the whole family and Tahir,” said McGill, a building contractor, who said the 30-year-old cousin was making the accusations out of spite. “The family left him behind.”

A Scotland Yard detective had testified Thursday that if Rafi Khan set foot in Britain, she would arrest him in connection with the alleged plot to illegally purchase more than $1 million in shares of British Gas.

Tahir ultimately pleaded guilty to fraud charges and was fined $20,000 in connection with the scheme.

ICN attorneys are trying to persuade U.S. District Judge John Sprizzo to issue an injunction barring Khan from continuing his proxy battle against the Costa Mesa-based drug firm. Khan aims to oust ICN’s chairman, former Yugoslav Prime Minister Milan Panic, and the firm’s eight other directors.

The company hopes that if it can prove Khan was involved in the British Gas scam, it can win the injunction because Khan failed to disclose the issue to the U.S. Securities and Exchange Commission when he filed for permission to take his campaign to ICN shareholders.

In an affidavit dated last week, McGill claimed that Tahir Khan sent him threats through intermediaries, warning him to stay away from Rafi Khan. But in his testimony Friday, McGill did not reiterate that claim.

However, John Murray--another Rafi Khan friend called to testify by the stockbroker’s attorneys--said Tahir Khan had asked him to pass a message to McGill, warning him to stay away from Khan.

McGill also denied Tahir’s earlier testimony that he had twice kidnaped Khan and once pointed a gun at another business associate in Tahir’s presence.

For their part, ICN attorneys succeeded in punching holes in McGill’s testimony, particularly his assertion that he had never discussed with Khan the share-purchase scheme, Tahir’s arrest or a police raid at Khan’s London residence.

After the hearing, the stockbroker held an impromptu news conference in the courthouse corridor. Khan angrily denounced ICN’s tactics and asserted that stamps on his British passport prove he was not in Britain at the times claimed by his cousin.

Khan is expected to testify when the hearing resumes Nov. 25. Sprizzo has until Dec. 15--when ICN’s annual meeting is scheduled--to issue a decision.