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Insider trading in US cos acquires global footprint

Insider trading in US cos acquires global footprint
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First Published: Thu, Jun 21 2007. 12 04 AM IST
Life in the great Pakistan bull market had been good to Ajaz Rahim. He had a big house in an affluent Karachi neighbourhood, a swimming pool with a wave machine and a Yamaha motorcycle that people who know him say he liked to ride without a helmet.
Friends said that Rahim, an admirer of Warren E. Buffett, often talked of how he had become a “rupee billionaire” from investments in Pakistani stocks, real estate and a recent winning streak in the American market.
Then, in late February, it all imploded. Stock in TXU, the Texas energy giant, had spiked after a $45 billion (Rs1.85 trillion) buyout offer, and Rahim had just taken $5.1 million in profit. But his broker was telling him that his assets, which regulators say exceeded $7 million, were being frozen and that American legal authorities suspected he had traded on inside information.
Within weeks, Rahim left Pakistan and his job at Faysal Bank Ltd, where he had overseen stock trading, and went for a time to Canada, where his wife and two children had moved, say people with knowledge of his actions.
In May, prosecutors charged Rahim with 26 counts of insider trading in US district court in Manhattan and said in the complaints that a friend at Credit Suisse, Hafiz Muhammad Zubair Naseem, had tipped him off that TXU would be taken private before his profitable trades.
Now, fearing that his Pakistani origins might be enough to land him in an American jail, Rahim has returned to his hometown, Lahore, a city in northeast Pakistan, say people who have been briefed on his whereabouts.
Rahim’s lawyer, Spencer C. Barasch, declined to comment on his client’s whereabouts, saying only that Rahim was not hiding, but was “letting the legal process work itself out”. Barasch said his client was innocent and would fight the charges against him.
The circumstances are more dire for Naseem, the former banker at Credit Suisse, who is accused of feeding Rahim inside information on at least nine deals. Released on bail of $1 million, his passport confiscated and his assets frozen, Naseem remains confined to his home in Rye Brook, New York.
While the Pakistani locale may be unusual, the story of Rahim and Naseem revolves around themes of hubris and aspiration that are timeless. And it is one in a recent spate of such incidents. While many have involved Americans, others have spanned the globe, from Hong Kong to Croatia to Pakistan.
Rahim is one of a new generation of market players who have seen their fortunes soar as a wave of capital has propelled emerging markets to new highs, from China to India and most starkly Pakistan, where the stock market has jumped more than 800% since 2001.
Far removed from the insider trading scandals of the 1980s, these investors have become enthusiastic speculators on overseas markets. But, as they have taken on more risk, regulators say that some are violating American securities laws, prompting the authorities to range far and wide to try to catch them.
Since the attacks of 11 September, $10 billion in American aid, a stream of money from oil rich investors and a pro-economic reform government supported by Pakistan President Pervez Musharraf, have produced the most explosive bull market in the country’s history.
This year the market is up 35%, shrugging off suicide bombs in Karachi and civil unrest protesting the rule of Musharraf.
While there is no evidence that Rahim used inside information in the local market, legal specialists in Pakistan say that lax regulation has created a permissive trading environment in the country.
“There is a culture of noncompliance in Pakistan,” said Tariq Hassan, the former chairman of the Securities and Exchange Commission of Pakistan. “If you can’t get caught, then you have the incentive to make a quick buck.”
Rahim, 44, and Naseem, 37, could not be more different from each other. Known for his love of Cuban cigars and sleek automobiles, Rahim seems a caricature of the classic Wall Street deal maker.
His social network extended deep into Pakistan’s business circles, and he developed a reputation as an expansive host who held frequent parties.
As the markets boomed, so did his wealth. “How much do you think I’m worth?” his associates recall him asking during a recent dinner party. “$30 million”, guessed one.
“Higher, higher”, Rahim responded, according to one person who was there.
Barasch, the defence lawyer, says that while people have tried to guess his client’s wealth, Rahim has never talked specifically about his net worth.
Naseem, the son of a civil servant, had little of his mentor’s panache. He came to know Rahim while the two worked at American Express in Lahore in the late 1990s.
In 2002, Naseem came to the US to get a business degree at New York University. After a stint at JPMorgan, he joined Credit Suisse.
At the time Naseem left Pakistan, Rahim’s fortunes were at a low ebb.
American Express was closing its operations in Pakistan, and Rahim had suffered deep losses from his investments in plummeting American technology stocks.
People who know him say that he always envisioned himself as a market-savvy deal maker.
And when capital began flowing into Pakistan after 11 September, Rahim, put in charge of managing Faysal Bank’s stock portfolio, became an influential investor in the local market.
He was promoted to head of investment banking in 2005 by Faysal’s chief executive, Farook Bengali.
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First Published: Thu, Jun 21 2007. 12 04 AM IST
More Topics: trading | Money Matters | Global Markets |