U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21613A / August 5, 2010
SEC FILES AMENDED COMPLAINT AND SETTLEMENT AGREEMENTS IN HARMAN HOAX TENDER OFFER CASE; AGREEMENTS INCLUDE FULL DISGORGEMENT OF $6.2 MILLION IN PROFITS
Securities and Exchange Commission v. Al-Raya Investment Company and Waleed Khalid Al-Braikan as Representative of the Heirs of Hazem Khalid Al-Braikan, et al., Civil Action No. 1:09-CV-6533 (NRB) (S.D.N.Y.)
The Commission announced today that it has reached settlements in its pending federal civil court action against the late Hazem Al-Braikan, a Kuwaiti financial advisor, and Al-Raya Investment Company that will return all ill-gotten profits. Al-Braikan was sued by the SEC last July for engaging in an illicit scheme to profit by issuing hoax takeover announcements for Harman International Industries, Inc. and another company. The SEC's emergency action, filed three days after the trading in Harman occurred, froze millions of dollars in profits before they could be sent overseas. Before the settlements are final, they must be approved by U.S. District Court Judge Naomi Reice Buchwald, who is presiding over this action. The Commission also filed an Amended Complaint which provides additional details about the hoax scheme and names KIPCO Asset Management Company (KAMCO), formerly a defendant, as a relief defendant. The SEC submitted to the court a stipulation and proposed order requesting that United Gulf Bank be dismissed from the action.
The SEC's Amended Complaint alleges that in July 2009, Al-Braikan drafted and issued a bogus press release claiming that a non-existent private investment group in Saudi Arabia planned to acquire Harman International through a tender offer. According to the allegations in the Amended Complaint, Al-Braikan fabricated the press release over the weekend of July 18-19, 2009, scouring the internet for an appropriate graphic logo for his fictional entity and preparing various drafts of the hoax release, which he then faxed or emailed to various news organizations in the U.S. and abroad. He also made dozens of calls to various media outlets in the U.S. and abroad in an attempt to convince them to pick up the story. On the morning of Monday, July 20, a U.S. Internet news website posted the false announcement, which claimed that an entity called "Arabian Peninsula Group" was planning to make a public tender offer for Harman stock at $49.50 a share. At the time, Harman International's common stock was trading at about $25 per share. The false announcement led to a pre-market trading surge that drove Harman International's stock up by nearly 40%. After Harman International repudiated the announcement an hour later, the company's share price dropped precipitously, closing the day at $20.86, more than twenty percent lower than the prior trading day's close. The Amended Complaint also alleges that Al-Braikan perpetrated a similar hoax using Textron Inc. in April 2009, contacting media outlets about an alleged "scoop" regarding an upcoming takeover bid for Textron by a Middle Eastern company. In actuality, no such deal existed.
The Amended Complaint alleges that Al-Braikan profited by amassing large positions in Harman and Textron stock and Harman options in accounts that he controlled during the days and weeks before he created and released the false tender offer announcements. He then sold those positions at prices inflated by the false information, reaping profits for himself and others. Al-Braikan traded in accounts in his own name and that of Al-Raya, as well as accounts for himself and others at KAMCO. He also recommended the stocks to others, misrepresenting that there was a pending "big deal," which was near completion and/or that there would soon be "good news" concerning Harman International. As alleged in the Amended Complaint, as a result, based on Al-Braikan's misrepresentations, other people bought and sold Harman stock. Profits on the two hoaxes totaled more than $6.2 million.
Without either admitting or denying the allegations in the Amended Complaint:
- Al-Braikan's estate has agreed to consent to the entry of a final judgment that orders the estate to pay disgorgement in the amount of $1,685,727.93, representing profits gained as a result of the conduct alleged in the Amended Complaint, plus payment of $894,093.22 representing the profits of another individual who traded in Harman International;
- Al-Raya, Al-Braikan's employer, has agreed to consent to a proposed final judgment which permanently enjoins it from violating Section 10(b) of the Exchange Act and Rule 10b-5, and orders it to pay disgorgement of $1,209,707.49, and a civil penalty of $300,000; and
- Relief Defendant KAMCO has agreed to pay disgorgement in the amount of $2,439,199.87 on behalf of certain of its clients.
If approved by the Court, these final judgments ordering total disgorgement of $6,228,728.51, as well as a $300,000 penalty against Al-Raya, will conclude the Commission's litigation.
Litigation Release No. 21152 (SEC v. Hazem Khalid Al-Braikan, et al.)
See Also: Amended SEC Complaint