Attorney likens Ponzi schemes to Arab-American Madoff scandal

Times-Herald Newspapers

DEARBORN — A recently filed federal class action lawsuit details the alleged story of how hundreds of local Iraqis were duped out of as much as $1 billion by some fellow ex-patriates in a web of interrelated Ponzi schemes.

The civil complaint, which was filed May 6 in the U.S. District Court for the Eastern District of Michigan, claims investors were promised 80 to 100 percent annualized returns for investments into purported Iraqi development projects.

The suit said the alleged perpetrators “exploited cultural taboos forbidding dishonesty and financial self-dealing when dealing with tribal brothers and sisters, as well as the Arab custom of doing business with cash and a handshake.”

Listed as defendants are the alleged masterminds Abdzhra Shalushi and Ahmed Alabadi as well as their purported agents Hussein Alsaedi, Kathum Al-aumary, Abdul Kareem Fradi, Majed Fradi, Khalid Amen, Abdulkarim Alkenany, Mohsin Aljebory, Abdulkhaliq Almahanna, Nazar Tajaldeen, Fadhil Abbas Badir Alzuad, Ali Zwein, Hameed Alzeyady, Ali Abbas Badir Alzuad, Hassan Zwein, Mohsen Aljabiri, Hussein Aljebori, Ali Abbas Alghanemy, Mohammed Albiraihy. Also listed are Adam Trade Group and Fedek Group Inc.

Many of the defendants reside or have owned property in Dearborn or Dearborn Heights, including Shalushi and Alabadi, according to Wayne County land records.

There are 114 anonymous plaintiffs, but the number of victims could be in the “thousands,” according to the suit. Under normal circumstances plaintiffs are required to identify themselves in court.

But the attorney for the plaintiffs in this case, Dave Honigman, said that they asked to remain anonymous because they have received threats of violence from the alleged perpetrators if they try to collect their money or take legal action. A judge will decide if they can remain anonymous as the suit moves forward.

Efforts to track down victims of the scheme for comment were unsuccessful, as were efforts to locate Shalushi and Alabadi. Shalushi and Alabadi are believed to have fled the country to the Middle East and most likely Iraq, said Honigman, of the Troy firm Mantese Honigman Rossman and Williamson, P.C.

According to the suit, here’s how the alleged fraud went down:

Starting in 1998 for Alabadi and 2006 for Shalushi, the men operated separate, but connected scams that relied on a network of well-regarded community members acting as agents to solicit investments.

Like their agents, Alabadi and Shalushi gave off the air of civic-minded, religiously observant men to most of the plaintiffs, and it was that image that helped to draw in so many people.

They would seek money from friends, families and neighbors at places like social clubs, mosques and churches. And the investors came from all walks of life – from high school students who scraped together a few thousand dollars to millionaire businessmen eager for opportunity in an emerging Iraqi free market.

The agents would draw a commission ranging from 1 percent to 3 percent depending on the size of the investment, although oftentimes they also would skim some of the money for themselves, the suit said. The money they collected would be deposited in to shell corporations, which were run by the scheme’s “general managers” and ultimately operated by Alabadi and Shalushi.
At first there were no problems. Some of the initial investors received the outsized 80 percent to 100 percent returns promised, and in some cases much more. And it was all for what was sold to them as a noble cause, Honigman said.

“People thought they could help rebuild their former country, they could make money themselves and they could make things better for their family members back home,” he said. “And it was all believable because the wrongdoers, very cunningly, made sure that the early investors made a fortune. People who invested tens of thousands made millions early on.”

However the majority of the investors never saw any of their money, Honigman said. Instead of cashing out, as was reportedly offered to them at various times, he said most chose to roll the profits into new purported investments.

But then, as the U.S. economy began to decline starting in late 2007, the scheme began to unravel. Investors short on cash started to request their money back, but were rebuffed and then eventually ignored.

Honigman said some of the victims made complaints to law enforcement authorities, but no criminal charges were filed, and it is unclear whether there were any investigations conducted.

He added that in light of the lawsuit, which does not carry criminal charges or penalties, several law enforcement agencies have begun to look into the case, including the Securities and Exchange Commission, the U.S. Attorney’s Office, the FBI and the Department of Homeland Security.

Reached by telephone on Thursday, representatives at the SEC and FBI declined comment on the matter, citing departmental policy that does not allow them to confirm or deny the existence of an investigation. The U.S. Attorney’s Office and Department of Homeland Security did not return multiple phone calls.

The suit paints a devastating picture of the fallout: houses have been foreclosed, cars repossessed and businesses shuttered. And on a meta level, “it has shattered the social and economic fabric of the Iraqi-American community, especially in Dearborn, Michigan — the center of the Arab Diaspora,” the suit said.