Saturday, September 19, 2009

(BN) HSBC Says It Was Victim of $75 Million Fraud by Fundraiser Hassan Nemazee

Since domestic scandal almost always trumps foreign dilemmas in the minds of pundits and voters, this could be the Obama administration's biggest Iranian problem.
Bloomberg News, sent from my iPhone.

HSBC Says It Was Victim of $75 Million Hassan Nemazee Fraud

Sept. 19 (Bloomberg) -- HSBC Holdings Plc said it is a victim of a $75 million fraud by Hassan Nemazee, a top fundraiser for President Barack Obama and Hillary Clinton who was arrested last month for defrauding Citigroup Inc.

The U.S. unit of HSBC, the world's third-largest bank by market value, filed a $75 million fraud lawsuit against Nemazee in New York State Supreme Court in Manhattan. The Sept. 2 suit came a week after Nemazee was arrested by the Federal Bureau of Investigation for cheating Citigroup out of $74 million.

According to U.S. prosecutors, Nemazee, 59, repaid $74 million he stole from Citigroup by tricking another bank to lend him the money on Aug. 24. That came a day after Nemazee was questioned by the FBI about the alleged Citigroup scam and the day before he was arrested. Prosecutors didn't identify the second bank in an account that corresponds to the allegations in the complaint by HSBC Bank USA.

"On Aug. 24, Nemazee drew down $75 million of his available $100 million in credit from HSBC," the London-based bank said in its fraud and breach-of-contract complaint. "Later that day, Citibank, which sometime prior to Aug. 23, 2009, began to cooperate with federal law enforcement officials concerning Nemazee's activities, accepted a wire transfer from Nemazee repaying Nemazee's loan to Citibank, which at that time amounted to more than $74 million."

Juanita Gutierrez, an HSBC spokeswoman, confirmed in an e-mail yesterday that the bank sued Nemazee. She declined to comment on whether the bank is the same one identified in court papers by prosecutors.

Yusill Scribner, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment.

House Arrest

Nemazee, the chairman of Nemazee Capital Corp., is under house arrest in his $20 million Manhattan apartment on a $25 million bond. He hasn't entered a formal response to the criminal charges. His lawyer, Paul Shechtman, didn't immediately return a call seeking comment yesterday.

The financier was one of the leading fundraisers for the Democratic Party. In the 2008 presidential campaign, Nemazee raised at least $100,000 for Clinton, according to the Washington watchdog group Public Citizen. Nemazee brought in at least $500,000 for Obama after he defeated Clinton in the primary campaign, according to Public Citizen. Clinton is now secretary of state.

Nemazee also raised money for Massachusetts Senator John Kerry during his 2004 run for the presidency as well as for Senate Democrats.

Fake Documents

In the criminal case, Nemazee is accused of using phony documents to trick Citigroup's Citibank unit into lending him as much as $74 million by telling the bank he held accounts with hundreds of millions of dollars that could serve as collateral. Documents submitted by Nemazee cited accounts that either never existed or had been closed years before, prosecutors said.

On Sept. 1, Manhattan federal prosecutors said in a letter to a judge that Nemazee used the same scheme to defraud the second bank.

HSBC said in its complaint that documents it received from Nemazee on Aug. 24 pledging collateral were fakes. The bank said one of the documents claimed Pershing LLC held an account on Nemazee's behalf with $89 million in U.S. Treasury Notes.

"The account application for the Pershing collateral account furnished by Nemazee is a sham," HSBC said in its complaint.

Nemazee submitted the same document to Citigroup, prosecutors allege.

Third Bank

In their Sept. 1 letter to the judge, prosecutors also said Nemazee lied in documents submitted to a third bank, which they didn't identify. Nemazee received a line of credit of more than $100 million from that bank, prosecutors said.

Prosecutors have frozen Nemazee's accounts at JPMorgan Chase & Co. and Bank of America Corp., another defense lawyer, Marc Mukasey, wrote in an Aug. 31 letter to a judge.

Nemazee Capital, established in 1987, invests in health care, media, oil and natural gas and other industries, according to the firm's Web site. The firm claimed to have more than $3 billion under management, according to a July press release.

Citigroup isn't named as a defendant in the HSBC lawsuit.

The state lawsuit is HSBC Bank USA v. Nemazee, 09-602735, Supreme Court, New York (Manhattan). The criminal case is U.S. v. Nemazee, 09-mj-1927, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in New York federal court at Kambiz Foroohar in New York at .

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