Saudi firm sues American over alleged $10B fraud

AP News
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Posted: Mar 30, 2011 3:06 PM
Saudi firm sues American over alleged $10B fraud

A Saudi Arabian company is suing the former chief executive of a collapsed Mideast bank for $9.2 billion, alleging he helped stage one of the largest global fraud schemes in history.

The lawsuit filed in Los Angeles federal court Monday accuses Southern California resident Glenn Stewart of fraudulently obtaining loans while he was CEO of The International Banking Corp. TIBC was the fourth-largest bank in Bahrain until it failed in 2009.

The lawsuit was filed by Ahmed Hamad Algosaibi & Bros., a firm run by a wealthy and influential Saudi family.

It contends that Stewart ran what was essentially a "sham bank" that collected more than $10 billion in loans from financial institutions.

"Mr. Stewart knew that it had no real customers, having played a central role in fabricating and documenting a portfolio of dummy borrowers to make it appear TIBC had real banking business," and also falsely claimed that the prominent Algosaibi firm controlled the bank, according to the lawsuit.

The company accuses Stewart of fraud, conspiracy, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and unjust enrichment. It seeks $9.2 billion in damages.

In a telephone interview Wednesday, Stewart denied all the allegations and said the suit was meritless.

"These guys are lying through their teeth," he told The Associated Press.

The Pacific Palisades resident faces criminal charges in Bahrain. He was under a travel ban when he escaped from the country last year and returned to the U.S., which has no extradition treaty with Bahrain.

Stewart contends that Bahrain officials maliciously prosecuted him at the behest of the Algosaibi family and that he was illegally detained. He is suing Bahrainian officials in the International Court of Human Rights in Geneva.

The Los Angeles lawsuit is part of a massive cross-border fraud dispute that rocked the Mideast's banking industry during the global financial crisis.

Bahrain's Central Bank ordered TIBC and another bank, Awal Bank, to be put under outside administration after they defaulted on billions of dollars of loans in 2009.

Awal Bank is controlled by Maan al-Sanea, who heads Saudi conglomerate Saad Group and is married to a member of the Algosaibi clan. Al-Sanea's in-laws have accused him of defrauding them of billions of dollars through a variety of means _ charges he has repeatedly denied.

The dispute has snowballed into an international battle of lawsuits and countersuits tied to defaults in excess of $20 billion by the two companies to more than 100 banks worldwide.

Stewart and al-Sanea are among more than a dozen executives of the two banks that have been charged with crimes in Bahrain.

The Los Angeles lawsuit contends that Stewart was the "chief architect" of a scheme to borrow funds through the bank by using forged documents claiming it was controlled by Algosaibi.

TIBC actually was controlled by al-Sanea, but "the illusion of Algobaisi family backing was crucial to TIBC's ability to borrow in the international financial markets," the suit contends.

The money was siphoned off to al-Sanea and his Saad group of companies while Stewart collected about $100 million through various phony payments and commissions, the suit claims.

Stewart said the battle is "basically a fight within the family" and denied that he or al-Sanea committed any crime.

"All of the money went to the Algosaibis ... every single remittance," he said.

The money was then lent again to al-Sanea's businesses with the knowledge and authorization of the Algobaisi family, which eventually ran out of cash and defaulted, Stewart said.

"They got done in by the credit crisis and when the thing fell apart ... blamed Maan for everything," Stewart said. "There was no fraud."

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AP Business Writer Adam Schreck in Dubai contributed to this report.