Rafi Khan Strikes Plea Deal With U.S. Attorney

Rafi M. Khan, the notorious Los Angeles stock promoter tied to controversial stock deals dating back a decade, is cooperating with federal investigators in an undisclosed number of fraud probes, the government announced.

As part of a plea agreement filed with the U.S. attorney’s office this week, Khan pleaded guilty to filing a false tax return for 1991, officials said.

He is to return to court for sentencing Oct. 18. He could face up to five years in prison and must pay taxes on his true 1991 income, prosecutors said.

But Khan, known to securities regulators for his dealings in both the brokerage and mutual fund industries, is likely to receive a lower prison sentence as a result of his cooperation in other federal inquiries.

“The most important thing from our point of view is that he’s not being charged with securities law violations,” said Khan’s attorney, Saied Kashani. “Obviously, they feel his cooperation is valuable.”

Though prosecutors agreed not to charge him with securities fraud, Khan still faces a civil complaint filed last July by the Securities and Exchange Commission.

Ronald E. Wood, assistant regional director for the SEC, alleges that Khan engineered “one of the more sophisticated” stock scams in recent years. “These are people we don’t want near the market.”

Khan, 48, the son of a Pakistani diplomat, built a name for himself touting thinly traded stocks in tabloid-like financial reports with screaming headlines. He stepped into the media spotlight in 1993 when he mounted a coup attempt to depose the chairman of ICN Pharmaceuticals, Milan Panic, with a so-called consent solicitation of ICN stockholders.

ICN officials countered that Khan had violated securities laws by abusing his position as an underwriter of an ICN subsidiary’s stock offering to woo ICN’s institutional investors to his side.

ICN--which took out full-page newspaper ads warning shareholders “Don’t Be Conned By Khan”--ultimately survived his assault.

At the time of his ICN campaign, Khan worked at H.J. Meyers & Co., a Beverly Hills brokerage. It was there that he improperly claimed the tax deductions of $926,677 that led to Tuesday’s criminal charge and guilty plea.

Khan’s dealings in two other stocks--Future Communications, a defunct cable television firm, and L.L. Knickerbocker, a Lake Forest doll marketer--triggered the SEC’s complaint last summer.

The complaint accuses Khan and another stockbroker of defrauding investors by manipulating the shares of Future Communications and Knickerbocker.

SEC officials said Khan cornered the market on the stock of the two companies, restricted the available supply of shares and pulled off a “short squeeze,” which in effect forces certain traders to buy a stock and lift its price.

Regulators are seeking restitution of about $552,000 for Khan’s allegedly improper trading gains.

The SEC complaint focuses in part on Khan’s trades while he worked at brokerage Reynolds Kendrick Stratton in Beverly Hills.

RKS became well-known after acknowledging it hired convicted stock swindler Irving J. Kott as a consultant in the early 1990s.

RKS’ parent later became J.B. Oxford & Co. That firm has been the subject of a federal investigation since at least August 1997, when dozens of FBI agents raided its offices in Beverly Hills and Basel, Switzerland.

Oxford also at one time processed trades for Stratton Oakmont Inc., a Lake Success, N.Y., securities firm ousted from the industry by the National Assn. of Securities Dealers in 1996.

Stratton Oakmont’s principals and former Beverly Hills entrepreneur Harry Shuster, who sought to profit from fads such as animal parks and cigar clubs, have been charged for their alleged roles in a separate stock manipulation scheme.

Khan went from H.J. Meyers to RKS in 1993, then quit RKS that year amid disputes over his trading activity.

In the case Khan has settled with the U.S. attorney, Khan said in U.S. District Court in Los Angeles this week that he had overstated business expense deductions on his 1991 income tax return, which allowed him to claim less income and pay $54,001 in taxes, a fraction of what he owed.

Khan was released on $100,000 bail and now plans to spend time in the country of Dubai, his attorney said.