How Hassan Nemazee Duped the World's Biggest Banks

Richard Scott Carnell in Bloomberg Markets, May 01, 2010

Media Source

By Kambiz Foroohar and David Glovin
Bloomberg Markets, May 2010

On the evening of March 13, 2007, limousines lined up outside the Cipriani restaurant in Manhattan’s Chelsea neighborhood.

Inside, Hassan Nemazee, surrounded by New York’s deep- pocketed donors, was orchestrating one of the year’s major fundraisers for Hillary Clinton’s presidential bid. As guests dined on steak and beet salad, Nemazee introduced the senator and her husband, former President Bill Clinton.

Harvard-educated Nemazee, a scion of one of Iran’s wealthiest families, helped raise more than $500,000 that night.

Three years later, on March 18, Nemazee stood in a federal courthouse 2 miles (3 kilometers) away and confessed to a 12- year scheme to defraud banks of $292 million, Bloomberg Markets reports in its May issue. He faces up to 19 and a half years in prison after pleading guilty to three bank fraud charges and one wire fraud charge. He must report to jail on April 30 and will be sentenced on June 30.

“He certainly has had an extremely successful fraud up to now,” U.S. District Judge Sidney Stein said during the plea.

The man whom President Clinton had nominated to be U.S. ambassador to Argentina and who’d brought in at least $2.4 million over 15 years for Democratic luminaries, including President Barack Obama and Vice President Al Gore, was remorseful and somber.

“I’m deeply ashamed of my conduct,” Nemazee, 60, told the judge.

Complete Shock

Nemazee’s downfall stunned New York’s fundraising community.

“It was a complete shock,” says Alan Patricof, managing director at New York venture capital firm Greycroft Partners LLC. “Some of us still wish that we will wake up one day and it’ll all go away.”

For Nemazee, whose family last summer was relaxing on his estate in Katonah, New York, the reversal was swift.

On Aug. 23, as he checked in at Newark Liberty International Airport for a flight to Rome, Federal Bureau of Investigation agents intercepted him. They grilled him about collateral he’d used to secure a $75 million loan from the Citibank unit of Citigroup Inc.

The next day, he borrowed $75 million from HSBC Holdings Plc to pay off the Citibank loan. That only dug him in deeper.

On Aug. 25, Nemazee surrendered to the FBI and was charged with defrauding Citibank by offering as collateral $86 million of U.S. Treasuries that didn’t exist. He also claimed to have an additional $500 million in another account.

Millions Still Missing

Prosecutors added to the charges on Sept. 21, accusing him of stealing hundreds of millions from HSBC and Bank of America Corp. He used the purloined money to juggle the loans and to finance the political donations, charitable contributions and real estate purchases that made him a fixture in political circles.

Now, Nemazee’s lawyer, Paul Shechtman, says his client is almost wiped out.

“There really is nothing to run with -- barely enough to support a family,” Shechtman told the judge.

Assistant U.S. Attorney Daniel Levy said prosecutors have been unable to track down all of the money Nemazee stole.

“We haven’t found substantial millions,” Levy said in court.

Nemazee said he began the fraud when he faced a severe financial crunch in the mid-1990s. He said he intended to repay the banks but couldn’t because his investments went bad.

“The hole that I dug for myself grew larger, and I borrowed more,” he said in court.

‘No One Suspected’

The fraud escalated in 2004 when Nemazee became part owner of New York-based investment firm Carret Asset Management LLC with Alan Quasha, a friend from Harvard he’d known for 30 years and who says he became another victim of fraud and deception.

Nemazee was an icon of business success and political influence among Iranian-Americans, says Amir Farman-Farma, managing director at Connexion Capital in London, who says he met him at a party in Scarsdale, New York, in the mid-1980s. A member of the Council on Foreign Relations since 2004, Nemazee donated money to the Asia Society and the Brain Trauma Foundation.

“No one suspected anything,” Farman-Farma says.

Now, Farman-Farma, Patricof and others are left to wonder what signs they missed. Nemazee’s Harvard pedigree, his generosity and his political hobnobbing created a facade of legitimacy that led people to overlook the possibility of deception.

‘First-Rate Individual’

“Hassan certainly gave me and everybody who knew him the sense that he was absolutely a first-rate individual,” Quasha says.

Nemazee reinforced this masquerade by pretending to be a business success. He owned a Park Avenue duplex and a blue Maserati Quattroporte. He claimed in press releases that his privately held firm, Nemazee Capital Corp., had $3 billion under management -- with investments in energy, media and technology.

There were hints that Nemazee wasn’t what he said he was.

“People have blinders on,” says Ken Springer, a former FBI agent and founder of Corporate Resolutions, a New York-based investigative firm. “They ignore the warning signs.” Business partners should have looked at Nemazee’s previous lawsuits and checked his resume, Springer says.

‘Failure of Diligence’

The banks Nemazee bilked should have known better, says Richard Carnell, a professor at Fordham University School of Law in New York. Even in an era of easy credit, the banks should have exercised normal controls.

“This is an enormous failure of diligence,” says Carnell, a former assistant secretary for financial institutions at the U.S. Treasury. “The banks had an enormous self-interest in verifying the collateral.”

Shirley Norton, a spokeswoman for Bank of America; Juanita Gutierrez, a spokeswoman for HSBC; and Shannon Bell, a spokeswoman for Citigroup, declined to co mment.

Nemazee’s case is one of several scams that have rocked banks during the past 15 years. Ponzi scheme artist Bernard Madoff, now serving a 150-year sentence in federal prison, took Spain’s Banco Santander SA for $3.2 billion, while in 2008 Jerome Kerviel is alleged to have lost 4.9 billion euros ($6.7 billion) making unauthorized trades at Paris-based Societe General SA. He is scheduled to go on trial in June for abuse of trust and faking documents to cover up his trades. He denies the charges.

Fundraising Black Eye

Nemazee’s arrest was another political fundraising embarrassment. In September 2009, Norman Hsu, a Hong Kong-born businessman who brought in more than $800,000 for Hillary Clinton’s presidential bid, was sentenced to 24 years in jail after he was convicted of running a Ponzi scheme that defrauded investors of more than $20 million.

Chris Lehane, who worked on Bill Clinton’s campaigns, says politicians don’t have the resources to fully vet every donor.

“A candidate has hundreds of people who are raising funds, so you’re just doing a basic check,” he says.

Nemazee, the son of an Iranian diplomat, philanthropist and businessman, grew up among the political elite, says Harvard friend and one-time business partner J.C. Helms.

Nemazee was born in Washington, where his father, Mohammed Nemazee, was a commercial attache during World War II, Hassan wrote in a resume in the mid-1970s. Every Sunday, the family living room was a lively salon where government officials dissected current events, Helms says Nemazee told him.

‘Rockefellers or Carnegies’

The Nemazees ran shipping, trading and manufacturing businesses in Iran, Hong Kong, India and Singapore.

“They were the Rockefellers or Carnegies of Iran,” says Ehsan Yarshater, director of the Center for Iranian Studies at Columbia University.

The family was known for its charitable giving. In 1953, Nemazee’s father opened the Nemazee Hospital in Shiraz, 570 miles south of Tehran, Yarshater says. The 250-bed facility was among the Middle East’s most advanced at the time.

Mohammed Nemazee’s influence extended to the palace of Shah Mohammad Reza Pahlavi. He served as a cabinet minister from 1953 to 1955; another family member was a senator. Nemazee left the cabinet in 1956 and returned to Washington to resume his commercial attache post. He went back to Iran in 1962 and died in April 1972 just weeks before Hassan graduated from Harvard with a bachelor’s degree in economics.

‘He Had Access’

Armed with his Ivy League credentials, Hassan moved to Iran as family patriarch the same year. The U.S. and Iran were close allies at the time, and the Shah encouraged Americans to help modernize his country.

Nemazee became friendly with former American International Group Inc. chairman Hank Greenberg and started an insurance company in partnership with AIG, according to Helms. He formed a construction company and teamed up with Morgan Guaranty Trust Co. of New York, a predecessor of JPMorgan Chase & Co., to establish a bank, Nemazee wrote in his resume.

“He would utilize his position as an Iranian with quite a bit of money to smooth the way for a Western partner,” says Helms, who joined Nemazee in Tehran in the mid-1970s to work on joint ventures. “He had access.”

Nemazee was loyal to his friends, says C. Gregg Petersmeyer, another Harvard classmate who arrived in Tehran soon after graduation, sick from salmonella poisoning after trekking through South Asia.

‘He Took Me In’

“He took me in,” says Petersmeyer, 60, who now runs Personal Pathways LLC, an Internet company that helps employees collaborate on charitable projects. Nemazee gave Petersmeyer a plane ticket from Tehran to Shiraz, where doctors at Nemazee Hospital were waiting.

“He said, ‘You need to be examined,’” Petersmeyer says. “That was a remarkable gesture.”

Nemazee’s days of holding sway in Iran ended with the 1979 Revolution. In January, a month before Ayatollah Ruhollah Khomeini ousted the Shah, Nemazee left on a business trip. He never returned. His companies were taken over by the new regime.

“I lost everything that I had in Iran,” Nemazee testified in a 2004 court deposition.

Friends and acquaintances, though, assumed Nemazee had secreted a fortune out of the country. He began a new career in the U.S., acquiring land in Houston and forming HN Properties Ltd., a real estate partnership with Helms.

The two hired architect I.M. Pei to design a 300,000- square-foot (28,000-square-meter) office tower in the city. It wasn’t long before tensions erupted. Helms sued Nemazee in 1982 for pocketing their profits and refusing to bankroll the partnership as promised.

‘Tried to Cheat Me’

“He tried to cheat me,” Helms says, a claim Nemazee denied. Nemazee later paid Helms $2 million to settle the case, Helms says.

In 1987, Nemazee set up money management firm First Capital Partners Inc. with Gerardo Angulo, a Harvard Business School graduate who’d worked for a partnership run by arbitrageur Ivan Boesky. Boesky was sentenced to three years in prison for filing a false statement with the U.S. Securities and Exchange Commission in 1987. Angulo wasn’t accused of wrongdoing.

Nemazee and Angulo attracted pension funds, including the California Public Employees’ Retirement System. Calpers pulled its money in 1993, Angulo testified in a 1996 suit against Nemazee.

‘Tight on Cash’

Even then, there were signs of financial distress. Angulo, who didn’t return calls regarding this story, testified in the 1996 lawsuit that he asked Nemazee on three separate occasions to give him $100,000 to cover shortfalls at Puerto Rico’s San Juan Star newspaper, First Capital’s chief asset, purchased in 1993 for $6 million.

“He said he was tight on cash,” Angulo testified, and Nemazee failed to come up with the money.

Nemazee sued Angulo in 1996 after demanding that Angulo buy his stake in New York-based First Capital for $10 million. A judge dissolved the partnership and ordered Angulo to pay just $900,000.

Nemazee appealed and lost in May 1998. He began committing his bank fraud that same month, according to the indictment. NationsBank of Texas, which later merged into Bank of America, agreed to lend him as much as $3.5 million, the indictment says. He falsely told the bank that he owned $118 million in securities, prosecutors say.

Coffee With the President

By then, Nemazee had started making a name for himself in political circles. In 1994 and 1995, he gave $100,000 to the Democratic Party and more to individuals, including the late Senator Edward Kennedy, according to the Center for Responsive Politics. His largesse paid off in November 1995: He was invited to the White House for coffee with Bill Clinton.

“The president would call Hassan and say, ‘Help me here, help me there,’” says Akbar Ghahary, a Nemazee friend and chairman of Safas Corp., a Clifton, New Jersey-based maker of countertops.

Three years later, after Nemazee had donated thousands of dollars more to the Democratic Party, Clinton nominated him as ambassador to Argentina. After Forbes magazine disclosed Nemazee’s lawsuits and failed investments in 1999, his nomination didn’t clear the Senate Foreign Relations Committee.

“He was close to the administration,” says Henry Cisneros, Clinton’s housing secretary from 1993 to 1997, who was pardoned by President Clinton in 2001 after pleading guilty to lying to the FBI. Spokespersons for the Clintons declined to comment for this story.

The setback didn’t blunt Nemazee’s ascent as a fundraiser. By 2009, he, his wife and three children had contributed about $900,000 -- mostly to the Democratic Party -- and raised more than $1.5 million more for Massachusetts Sen. John Kerry, Hillary Clinton and Obama.

“He was active in Democratic politics for a long time,” Kerry says.

Political Salon

Nemazee’s Park Avenue apartment was transformed into the political salon he’d known as a child.

“He re-created that life,” Ghahary says. Connexion Capital’s Farman-Farma recalls meeting then Delaware Sen. Joseph Biden at the apartment in 2005. New York Sen. Charles Schumer, Gore and the Clintons also showed up, Ghahary says. Kalee Kreider, a spokeswoman for Gore, declined to comment. Elizabeth Alexander, a spokeswoman for Biden, didn’t return phone calls or e-mails. Schumer’s office declined to comment.

As Nemazee’s political star rose, his deceptions multiplied. He provided lenders with fake account statements and forged signatures, according to court papers.

He set up a virtual office in January 2004 that used a Manhattan-based answering service to field calls asking about phony account statements he’d created, FBI Agent G. Dalynn Barker said in a criminal complaint.

Anyone who called to verify that Nemazee owned securities that he put up as collateral would reach a phone number he controlled.

Mother’s Estate

His mother, Fakhri Nemazee, died that same year. She had valued her U.S. estate at $5 million to $6 million and left the assets mostly to Nemazee and his three siblings, according to the will on file in Manhattan Probate Court.

The banks’ money started flowing into Nemazee’s pocket in big amounts in 2005. In August, he took the first of what grew into a $74.9 million loan from Citibank, telling the bank he owned $500 million in U.S. Treasuries.

He added a loan of up to $100 million from Bank of America in 2006. He secured it with an account at Westminster Securities Corp., a New York-based broker-dealer that he falsely claimed held $139 million in Treasuries. He repeated the scheme with both banks and used funds from one to repay the other. At one point, he said he owned more than $600 million in securities.

‘Fall Prey’

“It was stunning that the banks could fall prey to such a scam,” says Jeanne Schroeder, a commercial law professor at Yeshiva University’s Benjamin N. Cardozo School of Law in New York. Before making a loan backed by collateral, banks usually demand that a borrower transfer the brokerage account with the securities into the bank’s name or require the brokerage to follow the bank’s instructions for holding the securities.

“It’s inconceivable to me that a bank would make a loan thinking it’s relying on investment securities without taking control,” Schroeder says.

Scheme Unravels

The scheme began to unravel on Aug. 7, 2009, when Citibank told Nemazee it wanted to verify his assets, prosecutors say. At first, he said he’d rather repay the loan than cooperate with the bank, according to the August complaint. Citibank grew suspicious and called the FBI -- the first time in 10 years any bank was skeptical enough of Nemazee’s collateral to bring in law enforcement.

To pay off Citibank, Nemazee drew $74.9 million from a loan from HSBC, also secured by fictitious Treasuries. At his arrest, he owed $142 million to Bank of America, prosecutors say. HSBC sued him separately for $75 million.

Assets of Westminster, the firm where Nemazee said he held his securities, were taken over in February 2009 by Jersey City, New Jersey-based Hudson Securities Inc. Andrew Lewin, general counsel for Hudson, says Nemazee forged the signature of Westminster’s president on loan documents.

When Hudson acquired Westminster’s assets, Nemazee’s account was empty, Lewin says. Nemazee also created phony statements from Pershing LLC, which he said was custodian of his Westminster account, prosecutors say. Barbara Gallo, a spokeswoman for Pershing, a unit of Bank of New York Mellon Corp., declined to comment.

Fake Documents

Nemazee fooled the banks in part by submitting forged documents manufactured by his brother-in-law Shahin Kashanchi, prosecutors say. Nemazee paid him $500 on each of eight occasions from 2004 to 2008, according to prosecutors. Kashanchi produced fake quarterly statements from one of Nemazee’s nonexistent collateral accounts, according to a Feb. 3 indictment against Kashanchi.

On April 15, 2009, Kashanchi sent Nemazee a statement, as an e-mail attachment, for a fake account the statement said held $621,914,043 in U.S. Treasuries and $3,976,543 in cash, according to a Sept. 24 complaint.

Nemazee in turn submitted the statement to Citibank. On July 8, Nemazee forwarded an e-mail he got from another person, who isn’t identified in the complaint, with the price and identifying CUSIP number of a Treasury bill, it says.

“I did receive the Treasury numbers,” Kashanchi wrote back, according to the Sept. 24 complaint. “I’m all set and will take care of the statement this weekend.”

‘Here Is a Try’

When Citibank in August 2009 told Nemazee it wanted to verify his account and that it would contact Pershing for a written confirmation of his collateral, Kashanchi e-mailed Nemazee a piece of fake Pershing letterhead. It listed the virtual office Nemazee set up as Pershing’s address and telephone number, prosecutors say.

“Here is a try,” Kashanchi wrote, according to the complaint. “Compare it to an original if you have it.”

Sabrina Shroff, a public defender representing Kashanchi, says her client didn’t know what Nemazee was up to.

“I have nothing that tells me he took my client into his confidence,” Shroff says. Kashanchi pleaded not guilty to bank fraud on March 1.

Nemazee’s fraud even extended to one of those who thought they knew him best -- his Harvard friend Quasha, with whom he shared office space for almost 20 years.

‘Hassan Was a Friend’

Nemazee invested alongside Quasha’s private-equity firm, Quadrant Management Inc., to buy Carret Asset Management in 2004. Nemazee put up $2.4 million for a 24.9 percent stake, Quasha says. They did four more deals beginning in 2007, according to press releases on Nemazee Capital’s Web site.

In 2008, Nemazee enlisted Quasha to join him on the $100 million Bank of America line of credit. Nemazee could draw on the line only with Quasha’s approval, Quasha says. After Nemazee’s arrest, Quasha says he learned his partner had forged his signature and taken more than $10 million.

“It was inconceivable to me that Hassan could do what he did,” Quasha says. “Hassan was a friend.”

While the indictment and guilty plea shed light on the man who bilked banks and conned politicians, the fact that Nemazee’s closest friends still can’t reconcile his image with his actions shows just how deep the deception ran.

The criminal case is U.S. v. Nemazee, 09-cr-902, U.S. District Court, Southern District of New York (Manhattan).

Kambiz Foroohar is a senior writer at Bloomberg Markets magazine in New York at kforoohar@bloomberg.net. David Glovin is a reporter in New York federal court at dglovin@bloomberg.net.