$43 Million “Shariah-Compliant” Ponzi Scheme Goes Down

Three Chicago banks got defrauded out of millions of dollars financed by a Ponzi scheme that cheated hundreds the U.S. Attorney’s Office charged today. The press release follows:



CHICAGO — Three owners of a bankrupt Chicago real estate development firm that purported to adhere to Islamic law in handling investments from individuals in the Chicago area and nationwide actually operated a Ponzi-scheme that defrauded hundreds of victims and three banks of more than $43 million, according to a federal indictment made public today.

The defendants, who owned Sunrise Equities, Inc., allegedly fraudulently obtained more than $40 million from more than 300 investors through the sale of promissory notes and fraudulently obtained more than $29 million in loans from three area banks.

The individual victims collectively lost approximately $30 million and the banks lost approximately $13.7 million when the alleged scheme collapsed in the fall of 2008.

Two defendants,

  • Salman Ibrahim, the majority owner, president and chief executive officer of Sunrise, and
  • Mohammad Akbar Zahid, senior vice president of investor relations and a 10 percent owner of Sunrise,

allegedly misrepresented that an investment in Sunrise was Shariah-compliant, which meant that investors would not be paid interest on their investments, which is prohibited under Islamic law.

Instead, the investors would receive monthly payments consisting of “profit” generated from real estate development.

As a result, they solicited and received investments from hundreds of Muslims in the Chicago area and around the country.

Ibrahim and Zahid offered and sold purported investments to the public in the form of promissory notes, claiming that investors’ funds would be invested in real estate development only, and they promised annual returns of between 15 and 30 percent, according to 14-count superseding indictment.

The charges were returned by a federal grand jury yesterday and announced today by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

“This is the first time in Chicago that an alleged fraud scheme has been uncovered that used a pillar of Islam to induce potential victims to invest their funds. A key element in securing the charges was the extraordinary cooperation provided by members of Chicago’s Pakistani community, who were the primary victims of this alleged fraud scheme,”

Mr. Grant said.

Both Ibrahim, 37, a Pakistani national, and Zahid, 59, a U.S. citizen, formerly of Chicago, allegedly fled the country since Sunrise collapsed and was forced into bankruptcy by creditors. They are believed to be living abroad and anyone with information regarding their whereabouts is encouraged to contact the FBI at (312) 421-6700.

Ibrahim and Zahid were charged together with seven counts of mail fraud or wire fraud and one count of bank fraud. Ibrahim was charged alone with two additional counts of bank fraud, as well as two counts of making false statements to financial institutions. Zahid alone was charged with one count of making false statements to a financial institution. The indictment also seeks forfeiture of at least $43.7 million from them.

A third defendant, Amjed Mahmood, 47, of Des Plaines, who was senior vice president of construction and a 10 percent owner of Sunrise, was charged with one count of conspiracy to commit mail, wire and bank fraud. He will be arraigned at a later date in U.S. District Court.

According to the indictment, between January 2003 and September 2008, the defendants engaged in a Ponzi scheme by continually using funds raised through the sale of promissory notes to new investors to make purported “profit” payments to earlier investors, all of which they concealed and intentionally failed to disclose to both new and earlier investors.

The defendants allegedly knew that Sunrise was not generating any profits from real estate developments and the only way they could make the promised payments to investors was through the operation of the Ponzi scheme.

In addition, they allegedly obtained additional financing by making false statements to obtain loans from

  • Mutual Bank,
  • Cole Taylor Bank and
  • Devon Bank.

Altogether, the charges allege that the defendants took in a total of more than $69 million from individual investors and banks during the scheme.

The defendants used a portion of investors’ funds to operate non-real estate projects that were not disclosed to investors, including

  • a motorcycle parts manufacturing company in Pakistan,
  • a gas station in suburban La Grange and
  • a medical equipment sales company in Chicago,

the indictment alleges. Ibrahim misused investor funds to purchase a plot of land on which to build a residence for himself, to operate an Islamic school in order to enhance his reputation in the community, and to lease cars for his personal use; Zahid misused investor funds to renovate his personal residence; and Mahmood misused investors’ funds to make mortgage payments for his personal condominium, according to the indictment.

All three defendants allegedly took steps to fraudulently lull investors into believing their investments were doing well, including sending monthly “profit” payments and falsely representing that Sunrise was a successful real estate development company.

To obtain additional funds, Ibrahim allegedly arranged for certain investors to refinance their home mortgages in a “cash-out refinance” program so they could further invest their home loan proceeds into Sunrise.

The indictment details five examples of unnamed investors who each lost between $120,000 and $300,000 in the alleged Ponzi scheme, including several who refinanced their mortgages to make further investments.

In August 2008, the defendants allegedly organized an emergency investor meeting and falsely told investors that Sunrise needed an additional $1.2 million to continue operating.

The defendants allegedly knew, however, that Sunrise had expended all investor funds and had only approximately $200,000 remaining in its bank accounts and had no means to recover more than $40 million in principal that Sunrise owed to its investors.

As part of the alleged bank financing scheme, Ibrahim and Mahmood obtained loans totaling approximately $20.3 million from Mutual Bank to construct a high-rise condominium building at 24 South Morgan St., Chicago.

They allegedly submitted false personal financial statements indicating that they each had a net worth of approximately $8.4 million and $1.5 million, respectively, based primarily on their ownership of Sunrise and its real estate projects, knowing that the company and its projects had no value.

In June 2007, Ibrahim and Zahid obtained a $7.2 million loan from Cole Taylor Bank to construct high-rise condominiums at Leland and Clarendon avenues in Chicago.

They allegedly submitted false personal financial statements reflecting that they had a net worth of approximately $10.4 million and $687,305, respectively, knowing that they had no such personal worth to guarantee the loan.

Similarly, Mahmood alone allegedly fraudulently obtained a $1.2 million loan from Devon Bank to build a high-rise condominium building at 2215 Madison St., Chicago.

The government is being represented by Assistant U.S. Attorney Sunil Harjani.

The investigation falls under the umbrella of the Financial Fraud Enforcement Task Force, which includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit: www.StopFraud.gov.

Each count in the indictment, except the conspiracy count against Mahmood, carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. The conspiracy count carries a maximum penalty of five years in prison and a $250,000 fine. The Court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, however, the Court must determine a reasonable sentence to impose under the advisory United States Sentencing Guidelines.

An indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.


$43 Million “Shariah-Compliant” Ponzi Scheme Goes Down — 2 Comments

  1. Maybe these bankers attended the Alexi Giannoulias school of banking?

    My guess is the same banks put people through the ringer requiring documentation in order to refinance an existing home or get a new mortgage.

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