The owner of a defunct Wall Street brokerage firm, who has been sued by members of the Gambino crime family for allegedly swindling them out of their investments, was charged Thursday by state and federal authorities.
New York Atty. Gen. Eliot Spitzer said a state grand jury indictment was unsealed against Mohammad Ali Khan, 33, who operated Klein Maus and Shire (KMS), charging him with defrauding five clients, including Thomas Gambino, son of legendary Mafia leader Carlo Gambino. The five clients were allegedly defrauded out of more than $1.2 million.
Spitzer said an arrest warrant was issued for Khan on April 23, but he remains a fugitive. Khan, who lived in Jersey City, N.J., and is described in court papers as Pakistani, had owned KMS until February.
In the federal case, prosecutors announced the unsealing of a complaint charging Khan with securities fraud related to the “private placement” of $2.7 million of KMS stock to 55 investors. The complaint was filed under seal on April 29 in Manhattan federal court.
A private placement refers to a limited sale of securities to certain investors who meet specified requirements for net worth and income. In this case, Khan allegedly made numerous false statements to induce the 55 investors to purchase KMS shares in the private placement from April 1996 to June 1997.
Newly released court papers do not name the investors, and prosecutors could not be reached to say whether the Gambinos might have been cheated in the federal case.
The state and federal actions followed a lawsuit filed in New York state court earlier this month by the Gambino family against KMS alleging that family members’ money was moved from investment-grade bonds into speculative stocks in dozens of unauthorized trades.
The suit seeks $2 million in damages on behalf of Thomas Gambino and his brother, Joseph, their wives, and Thomas Gambino’s son and daughter-in-law.
Thomas and Joseph Gambino pleaded guilty in 1992 to state charges that they controlled the New York City garment industry. They paid a $12-million fine and agreed to get out of the apparel transporting business. Thomas Gambino began serving a five-year prison term in 1996 after being convicted of federal racketeering charges.
Khan is charged in the state case with using an elaborate scheme to artificially inflate the price of a number of securities by buying shares and then selling them to his clients without their authorization.
After making the trades, Khan wired the proceeds to an account in Dubai, Spitzer said. But when the New York attorney general’s office learned of the transactions, it was able to reverse the wire to Dubai with the help of the clearinghouse S.G. Cowen & Co. Since the trades were not authorized, the funds were returned to the clients’ accounts.