This is Chapter Three of a multi-chapter story…
Chapter 1 - Was The United States Attacked By Financial Terrorists?
Chapter 2 - The Money Weapon And A Jihad Bigger Than Bin Laden
Chapter 3 - Michael Milken And The BCCI Criminal Enterprise
Chapter 4 - Michael Milken, The Mafia, & Some Powerful Hedge Funds
Chapter 5 - The Russians, Their Friends, & Bernie Madoff's Bear Market
Chapter 6 - Man Financial And Al-Qaeda's Wash Trades
Chapter 7 - The Bernie Madoff Cover-Up, The Blind-Sheikh, & The RLevi2 Algo Market Manipulation Machine
Chapter 8 - Al-Qaeda, Iran, And Some Mafia Tied Agents of Economic Sabotage
Chapter 9 - The Collapse Of MJK Clearing, A Few Loose Nukes, & A Lot Of Self-Destruct CDOs
Again we remind you, there is a lot of information and we would highly advise you fact check anything you question.
Chapter Three:
The year was 1979, and the outsized profits derived from the OPEC oil embargo had fueled the rise of BCCI, whose massive criminal enterprise was now expanding its operations into the United States. Meanwhile, radical Islamists had just taken control of Iran, and a man named Ivan Boesky was about to fly to Tehran, where he planned to spend a year developing relationships with the new regime.
These seemingly unrelated events would have figured in the thoughts of a man named Irving Kott, who one day that year got into his car and started the engine. But Kott suddenly remembered that he forgot something in the house, and he jumped out of the car. Lucky for him, because that’s when a powerful bomb exploded, turning Kott’s car into giant fireball of mangled metal. Kott took some shrapnel, but he survived, and the first thing he did, according to some of his associates, was call his friend, Ali Nazerali.
Kott was livid – he wanted to know what the deal was with the car bomb. Ali Nazerali said he’d ask around. After a few hours, Nazerali called back and said the word on the street was that a hit man named Cecil Kirby planted the bomb, and Kirby worked for Canadian mob boss Vic Controni. It seemed Kott had run a stock scam with Controni, who was then one of North America’s biggest market manipulators, and Kott stole Controni’s share of the deal.
Later court filings revealed that Kirby (and Kott) had also done some work for Antonio Commisso, a.k.a. L’avvocatu, or The Lawyer – a Toronto boss of the Ndrangheta Mafia organization, also known as the Siderno Group, because it has its origins in Siderno, Italy. One way or another, Nazerali offered to patch things up with the Mafia – and he did a good job of it. Commisso ordered Kirby to lay off, and a couple of years later Kott, Nazerali and the Mafia were all in business together, running a brokerage called First Commerce Securities.
Nazerali had spent his formative years working in key positions for the powerful Gokal family of Pakistan. According to “False Profits” (one of the definitive books on the BCCI scandal), as of the early 1980s, the Gokals (who were closely intertwined with Pakistan’s intelligence services) controlled the Gulf Group, which was BCCI’s most important satellite company. The Gokals had also become the most important business partners of the Iranian regime, and served that regime as semi-official financial advisers, handling everything from budgets to the procurement of sophisticated weaponry.
Nazerali was also a blood relative of Swaleh Naqvi, the chief executive officer of BCCI, and through his relative and his dealings with the Gokals, he had come to be a trusted business associate of the Iranian regime and of BCCI’s other principals. He was especially close to Sheikh Mahfouz, the future Al Qaeda Golden Chain financier, but he also sealed business relationships with the ruling families of Abu Dhabi and Dubai. It was through Sheikh Mahfouz that Nazerali came to be an important business partner of Yasin al Qadi, the future “Specially Designated Global Terrorist.”
Nazerali dabbled in arms dealing, delivering weapons to war zones in Africa and to the mujahedeen in Afghanistan, but his primary line of business in the early 1980s was his Mafia brokerage, First Commerce Securities, which soon became an important component of the BCCI syndicate. The importance of First Commerce to BCCI was evidenced not only by Nazerali’s relationship to BCCI’s CEO, but also by the fact that the CEO dispatched his relative, Kazem Naqvi (who is also Nazerali’s relative), to visit First Commerce’s offices almost every day.
Meanwhile, according to “False Profits”, a number of First Commerce’s top executives were simultaneously employees of BCCI, or had worked for BCCI affiliates before joining the Kott-Nazerali operation. At least two of First Commerce’s top executives – Sinan Raouff and Walter Bonn – had previously worked, along with Nazerali, for the Gokal family in Pakistan. Raouff, who was not only a stock manipulator, but also an arms dealer, had previously worked for the Iraqi foreign ministry, and helped BCCI traffic weapons to both Iraq and Iran.
The Gokals brokered many of the weapons sales to Iran, laundering the money through BCCI, and skimming large amounts of the bank’s profits for themselves. The Gokal family patriarch, Abbas Gokal, would eventually be sentenced to 14 years in prison for his role in the BCCI scandal, and at his sentencing, the judge said that Gokal was among the most destructive criminals ever to be prosecuted. Gokal and his associates (including Sheikh Mahfouz, who paid a $200 million fine to settle charges for his role in the BCCI fraud) had, according to the judge, almost single-handedly “shattered the integrity” of the global financial system.
BCCI’s contribution to this destruction was accomplished with considerable help from Mafia-tied entities such as the Nazerali and Kott operation, First Commerce Securities, which is often referred to as “penny stock” brokerage, though that is to underestimate the extent to which it was involved not only in manipulating penny stocks, but also in undermining the broader markets.
One of First Commerce’s former business partners, himself an associate of the Mafia, says that the brokerage was a major player in the “death spiral” finance game, and that it took down many good companies. These were mostly small to mid-sized companies, but Nazerali and his associates would in later years move on to bigger prey.
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Around the time that Nazerali opened First Commerce, Syed Ziauddin Ali Akbar, who had served as BCCI’s treasurer, formed Capcom Financial Services, a commodities futures and investment management firm. Akbar’s sister was married to Nazerali’s relative, Swaleh Naqvi, the chief executive officer of BCCI, and all of Capcom’s key shareholders were BCCI people. Soon, the firm, like First Commerce (and probably trading in concert with First Commerce), became one of BCCI’s most important affiliates.
Later, much of Capcom’s money would disappear into the hands of Saudi intelligence operatives who used the money to buy shares in and penetrate American communications companies, including Western Tele-Communications and American Telecommunications Corporation. A Congressional Subcommittee would later state that the purpose of this operation was probably to gain the capability to track communications in the United States.
Another purpose was to manipulate the companies’ stock prices, and the operation could not have succeeded without the full support and complicity of a man named Michael Milken, who was then the most powerful financial operator on Wall Street. Milken’s operation at the Beverly Hills offices of Drexel Burnham Lambert, which was, in the 1980s, one of the largest investment banks in America, brokered much of the trading conducted by BCCI’s Capcom unit. All told, according to Capcom’s former president, Milken’s operation transacted Capcom securities contracts worth more than $90 billion, an astounding sum at that time.
If you believe what you read in the press, Milken is a financial genius who revolutionized the markets for high-yield debt, also known as “junk bonds.” Most journalists refer to him as the “junk bond king” while noting with admiration that he is also a “prominent philanthropist.” Even the usually reliable Economist magazine published an article in September 2010 that hailed Milken as an “innovator” whose junk bond finance helped build some of America’s greatest companies.
It is true that Milken’s finance contributed to the growth a few major companies – Ted Turner’s CNN and Rupert Murdoch’s News Corp., for example – but Milken and his cronies destroyed far more companies than they built. Among the many corporations that they wiped out were a number of America’s biggest savings and loans companies – massive financial operations whose collapse triggered the famous savings and loan crisis that inflicted serious damage on the economy and cost American tax-payers billions of dollars.
As was later noted by the Federal Deposit Insurance Corp (one of the government agencies that cleaned up this mess), Milken and his closest associates “willfully, deliberately, and systematically plundered certain S&Ls.” And while Milken’s impressive public relations machine has successfully convinced America’s financial journalists to forget the past, it should be remembered that Milken was, in 1989, indicted on 99-counts of securities fraud, market manipulation, and insider trading. He was sentenced to ten years, two of which he served in a federal penitentiary. At the time, most people in America knew Milken as the greatest financial criminal ever to operate on Wall Street.
It is important to understand how the Milken criminal enterprise functioned, because some of the same tactics (and some of the same people) contributed to the financial collapse of 2008.
A principal feature of the Milken operation was a variation on what mobsters refer to as a “bust out.”
In the olden days, Mafia thugs would take over, say, the corner bar, load it up with debt, siphon out the cash, and declare bankruptcy. Milken elaborated on the “bust out” and brought it to the world of high finance. The best book on this is Ben Stein’s “License to Steal”, though Connie Bruck’s “The Predators’ Ball” describes Milken’s larger scheme as well.
The scheme worked as follows: Milken issued junk bonds to finance about a dozen of his closest associates, who used the finance to take over good companies. Under the direction of Milken’s cronies, the companies took on ever greater amounts of Milken’s junk bond debt. But rather than use the finance to grow the companies, the Milken cronies simply looted the companies of their cash.
To create the illusion that there was a liquid market for the junk bonds, the Milken cronies traded their bonds amongst each other at stair-stepping prices, in an illegal process known as “daisy-chaining.” As the government’s indictments of Milken made clear, this junk bond merry-go-round was conducted with Mafia-like secrecy – nobody other than Milken’s closest associates knew that the only buyers for the junk bonds were Milken’s other closest associates.
Meanwhile, Milken presided over a nationwide network of brokerages and fund managers who traded on inside information about these companies and manipulated their stock prices.
When the Milken junk bond cronies were done looting their companies, Milken would cut off access to credit and other traders in his network would attack the companies with waves of short selling. This sent the companies’ stock price spiraling downwards, so that even if the companies’ boards were to remove the Milken cronies, the company would be unable to raise finance from more reputable sources.
When the companies went bankrupt, Milken and the other short sellers would make a fortune. Other Milken cronies would make still more money by purchasing the companies’ assets at fire-sale prices in the bankruptcy proceedings. And then they would repeat the process all over again, assured that junk bond merry-go-round would supply a constant stream of lootable finance.
But, of course, this scheme eventually collapsed – and it must be stressed, the vast majority of the companies that Milken financed ultimately disappeared.
In later years, the “bust out” concept was refined into such schemes as the “death spiral” PIPEs finance that was pioneered with help from Al Qaeda Golden Chain member Shiekh Yamani’s Investcorp and other outfits. Always, the basic idea is to finance a company, load it with debt, and then take it down.
In the 1980s, Milken and his cronies orchestrated a number of bust outs in league with BCCI and its proprietors, including future Al Qaeda Golden Chain member Shiekh Mahfouz, who remained one of Milken’s closest associates until Sheikh Mahfouz’s death in 2009.
I need to be specific about what I mean by “closest associate.” Milken has thousands of associates and not all of them are bad. But the three dozen or so people who are his closest associates are, every one of them, criminals. These include the dozen or so people who benefited the most from his junk bond merry go-round; his former top employees at Drexel Burnham; and a select number of brokers and fund managers, many of them best known as short sellers.
One of the outfits that benefited the most from Milken’s junk bond merry-go-round and the subsequent bust outs was, as I mentioned, BCCI. For example, Milken’s junk bonds financed the take-over of a savings and loan called Centrust, which became a BCCI subsidiary. Centrust was eventually looted and destroyed, but not before it played a role in the larger panoply of BCCI crimes.
Another key participant in Milken junk bond “bust out” schemes was a monumental criminal named Charles Keating. With Milken’s finance, Keating seized control of the giant Lincoln Savings and Loan, and began looting the company with help from two BCCI big wigs – Alfred Hartmann (a BCCI board member and head of BCCI’s Swiss subsidiary, Banque de Commerce et de Placements), and Abbas Gokal (the BCCI conspirator, adivsor to the the Iranian regime, and Pakistani intelligence asset who had formerly employed Ali Nazerali).
Meanwhile, back at First Commerce Securities, Ali Nazerali and BCCI’s Kazem Naqvi were busy stuffing cash and checks into large sacks that they tossed into the back of a white van, and then drove to Schiphol Airport, where they loaded the sacks onto a private jet destined for Geneva. When the sacks of proceeds of various stock manipulation schemes arrived in Geneva, they were delivered to Milken crony Charles Keating’s partner in crime, Alfred Hartmann, who laundered the money through BCCI’s Swiss subsidiary, Banque de Commerce et de Placements.
Later, the Senate Foreign Relations Committee began investigating BCCI for its role in financing Pakistan’s nuclear program. In announcing the investigation, the Committee said that it intended to take close look at Keating’s relationships with the Gokal family.
While it is unclear what came out of that investigation, it is certain that BCCI did, in fact, play a major role in Pakistan’s nuclear profliferation efforts. The top two scientists for that program, Abdul Qadeer Khan (known as the “Father of the Islamic Bomb”) and Bashiruddin Mahmood, have since both met with Al Qaeda. Mahmood especially is believed to have shared nuclear know-how directly with Osama bin Laden.
Of course, this is not to suggest that Keating himself had anything to do with Al Qaeda, which had not yet been created , but he was definitely a major figure in the overall BCCI criminal enterprise. It is also certain that Lincoln and Savings and Loan was one of the biggest bust outs in history. When Keating was finished looting Lincoln and Savings, the multi-billion dollar financial institution was an empty husk. And by way of complicated foreign exchange transactions, much of Lincoln’s money was diverted to an outfit called TrendInvest, which was, in effect, another subsidiary of BCCI.
The Senate Foreign Relations Committee, meanwhile, investigated the business relationships between BCCI and another of Michael Milken’s closest associates, Marc Rich, who was (and is) the most powerful commodities trader in the world. In 1983, Rich had been indicted for illegally trading with Iran during the Iran hostage crisis. Key to Marc Rich’s transactions with Iran was the Gokal family and probably BCCI itself.
While Rich was illegally trading with Iran, his office was located in a New York building at 650 Fifth Avenue that was owned by the Alavi Foundation, which advertised itself as a charity. The FBI later discovered that the Alavi Foundation was not a charity – it was a front for the Iranian regime’s covert activities in the United States. In 2009, the Justice Department convicted the Alavi Foundation and its subsidiary, the Assa Corporation, which was a vast business enterprise, with espionage and funding Iran’s covert nuclear weapons program.
Also working out of the Alavi Foundation’s building in the 1980s was Ivan Boesky, the fellow who had spent a year in Tehran in the late 1970s. Boesky ran what was then one of the nation’s most powerful arbitrage funds (today it would be called a hedge fund), and quickly gained a reputation on the Street as a mysterious character who liked to operate in the shadows – a guy known to deliver suitcases full of cash to gorillas with handguns holstered on their hips. Boesky often told people that he had spent his time in Iran working as a CIA agent.
In 1989, when Boesky was indicted on multiple counts of stock manipulation and insider trading, prosecutors described in colorful detail his suitcases full of cash, but Boesky’s claims to have been working as a CIA agent in Iran were dubious to say the least.
Boesky is the most famous of Michael Milken’s criminal co-conspirators, and prosecutors made it clear that he was a key figure in the stock manipulation network that Milken ran in the 1980s. It is more than likely, as one of Boesky’s former business colleagues confirmed in an interview with Deep Capture, that Boesky (like Marc Rich, the Gokals, and the other BCCI figures in Milken’s network) had deep ties not to the CIA, but to one of America’s most dangerous foes – the regime in Iran.
There might, in fact, be something to be gleaned from the court documents that were made public during the prosecution of the Alavi Foundation, the Iranian outfit that owned the building where Boesky and Marc Rich kept their offices. The court documents describe how the Iranian agents who ran the Alavi Foundation and its subsidiary, the Assa Corporation, took their orders from Iranian diplomats, including the Iranian ambassador, assigned to United Nation’s mission in New York.
These are the same diplomats who helped direct the activities of Palestinian Islamic Jihad leader Sami al-Arian, who was among the more important figures in the SAAR Network of terrorist financiers that included some BCCI principals, such as the Al Qaeda Golden Chain member Shiekh Mahfouz. The court documents also describe notes found by the FBI in the files of the Alavi Foundation’s one-time director, Ali Ebrahami. The stream-of-consciousness notes are strange and hardly conclusive, but they nonetheless worth considering.
They say, in part, “Conspiracy…to tell the truth > lie > risk > Imam’s birthday gathering…urgent situation > talk > everything > Mafia…”
The word “Mafia” was italicized in the original.
After the word “Mafia,” Ebrahami wrote – “Duty.”
It is not clear to what Ebrahami was referring, but if Iranian agents (or, for that matter, Al Qaeda financiers, Pakistani intelligence assets, and Saudi spies such as those who traded with Milken) ever desired to carry out a “conspiracy” with the “Mafia”, there would certainly be an abundance of Mafia-tied financiers for them to contact. Indeed, they already have made contact with Mafia-tied financiers, many of whom are close associates of Michael Milken.
In upcoming installments, we will explore these contacts in detail. And we will see what this network might have had to do with the financial crisis of 2008. First, though, I must present evidence that the Milken network is, in fact, tied to organized crime, and that these relationships are by no means incidental.
Regular readers of Deep Capture will know that this point has been proved and proved again. But the Milken network’s ties to organized crime are deeper than what we have previously revealed. Indeed, as we will begin to see in the next chapter, it is not an exaggeration to say that Michael Milken’s closest associates were, more than anyone else, responsible for bringing La Cosa Nostra and the Russian Mafia to Wall Street.
