Barred Broker Khan Again Under Scrutiny in SEC Inquiry

Regulators are investigating whether former stockbroker Rafi Khan, who pleaded guilty to tax fraud in 1999 and agreed in 2001 to a five-year banishment from the securities business, may have improperly promoted stocks in which he had an interest.

In filings in federal court in Los Angeles this week, the Securities and Exchange Commission said it was examining Khan’s connections to four Southern California companies--GenesisIntermedia Inc., Aura Systems Inc., EUniverse Inc. and Ontro Inc.

The SEC said Khan wrote promotional reports about the companies for investors, and raised capital for at least three of the firms. They compensated him by issuing stock or warrants to companies owned by Khan’s brother-in-law, Qaiser Imran, a wealthy Pakistani businessman, the SEC filings said.

The SEC said Imran’s companies in Pakistan then sold shares of the companies through a brokerage account of Khan’s wife, Rubina Khan.

One SEC filing said Khan may be using his wife’s bank and brokerage accounts “in an attempt to conceal his participation in certain financing or stock purchase agreements” and “evade the restrictions or disclosure requirements arising from” his previous run-ins with securities regulators.

If the allegations are proved to be true, it would mean Khan continued to operate in violation of settlements of the earlier fraud investigations. That potentially would subject him to large fines, a permanent ban from the securities industry and possibly prosecution for criminal contempt, according to the SEC and federal prosecutors.

Khan, who lives in La Canada Flintridge, said Tuesday that he has carefully obtained legal approval for everything he has done since settling the previous cases.

His attorney, Saeid Kashani, said that writing reports did not constitute a return to the securities business. He also said Khan disclosed in his reports that he may hold positions in the subject stocks, and that Khan authorized the firms to pay Imran to cover loans Imran had made to Khan.

The SEC inquiry, which began Nov. 13, became public after the agency asked a federal judge Monday to order Rubina Khan to provide testimony about her bank and brokerage accounts. The request is pending. Kashani said Rubina Khan agreed to answer written questions, but was unable to under- go the stress of an in-person deposition because she is on anti-seizure medication after surgery three years ago for a brain tumor.

Khan has been investigated in connection with a series of alleged stock-promotion scams dating back to 1993, when he allegedly orchestrated a fraudulent trading scheme that helped fuel spectacular gains in the stock of Future Communications, which later collapsed.

In settling a federal criminal investigation, he pleaded guilty to tax fraud and also agreed to cooperate with federal investigators. In April 2000, he consented to a permanent order barring him from violating anti-fraud laws preventing market manipulation. He later agreed to an SEC order barring him from associating for five years with any broker or dealer.

Kashani blamed much of Khan’s woes on complaints by short sellers, speculators who bet stocks will go down and who Kashani said have resented Khan’s positive reports on companies. Kashani said Khan provided reports on small companies in need of capital to potential investors--large institutions with their own research staffs.