Judge Halts Khan’s Bid to Control ICN : Courts: Scathing ruling cites securities fraud, calls testimony ‘incredible.’ The case may be sent for criminal prosecution.

Stockbroker Rafi Khan’s fight for control of ICN Pharmaceuticals ground to an abrupt halt Friday, when a federal judge here concluded that Khan had been involved in securities fraud in Britain in 1986 and lied to cover it up.

In a blistering oral ruling, U.S. District Judge John Sprizzo called Khan’s court testimony “incredible” and said he will probably refer the matter to the U.S. attorney’s office in Manhattan for criminal prosecution.

Sprizzo granted ICN’s request for an injunction preventing Khan from taking any further action in his effort to oust the board of Costa Mesa-based ICN, the drug company led by former Yugoslav Prime Minister Milan Panic.

Khan’s attorneys said they will wait to study the written ruling, due out early next week, before deciding whether to appeal.

ICN had filed suit to block Khan’s proxy fight for control of the company on the grounds that he had failed to disclose he was the subject of a criminal investigation. Khan, contending that ICN management is overpaid and has neglected the business, had been seeking to oust Panic and ICN’s board.

The proxy fight was to have culminated at ICN’s shareholder meeting in Costa Mesa on Dec. 15.

Sprizzo’s ruling--highly unusual for its slashing criticism of Khan and his witnesses--was the culmination of three days of hearings over the last two weeks that featured exotic tales of fraud, family feuds and even kidnaping.

In a related proceeding earlier this year, Sprizzo also found that Khan had lied, but that ruling was overturned by the U.S. 2nd Circuit Court of Appeals. Yet Sprizzo--clearly angry over what he considered lies in his courtroom--said Friday, “These findings will be made, and I’ll invite the 2nd Circuit to overturn me.”

The hearing on ICN’s injunction request had begun with testimony from Tahir Khan, a cousin of Rafi Khan, who said Rafi had masterminded a scheme to illegally purchase shares in British Gas, which was being privatized by the British government.

A Scotland Yard detective, Jackie Malton, supported his version of events, saying she had conducted a search of a London house owned by Rafi Khan and his parents in 1987 and had sought his arrest. Tahir pleaded guilty to his involvement in the scheme, but Malton said she believed he was only a bit player and that the main actors--including Rafi Khan--had left the country.

A business associate of Rafi Khan, John Peter McGill, then testified that Tahir had been the mastermind of the plot and that Rafi knew nothing about it. On Friday, an associate of McGill’s, Walter Patterson, corroborated that version of events.

Rafi Khan also testified Friday, asserting that he had never heard of British Gas until recently and maintaining that stamps on his passport prove he had not been in England at the times alleged by Tahir Khan.

But ICN lawyers produced documents from a brokerage account in Rafi Khan’s name showing sales of thousands of shares of British Gas. They also noted that Khan’s U.S. resident alien card was in the name of Rafi Mohamad Khan while his British passport was in the name of Mohamad Rafi Khan, suggesting that he might hold another passport.

Throughout Friday’s hearing, Sprizzo was openly skeptical of the testimony of Patterson and Rafi Khan. In particular, he said he found it “incredible” and “inconceivable” that Rafi Khan had never heard about the police raid on the London house or Tahir’s arrest.

As Khan’s lawyer, Joseph Ferraro, was giving his summation, trying to punch holes in the testimony of Tahir Khan, Sprizzo repeatedly interrupted him, directing Ferraro to address the basic unbelievability of key aspects of Rafi Khan’s testimony.

Sprizzo stated flatly that he did not believe the testimony of McGill and Patterson, saying they resembled “creatures out of the underworld.” Finally, he cut Ferraro off altogether, declaring, “I find that (Rafi Khan) was involved in the British share scheme . . . his testimony was incredible.”

He added that he will consider turning the matter over to the U.S. attorney’s office for a criminal investigation of perjury.

“I think I intend to do that. Put that in your disclosure as well!” Sprizzo said. “It’s a little late in the game to be looking only at the civil aspects of this case.”

ICN spokesman Jack Sholl said company officials felt vindicated in their strategy of painting Khan as a fugitive from justice and a shady businessman.

Some health care analysts have criticized the company, saying its tactics amounted to no more than mudslinging.

Times staff writer James M. Gomez in Costa Mesa contributed to this report.