February 16, 2010
Business fraud scandals devastate L.A.’s Iranian Jews.
Just over a year ago, Ezri Namvar was forced into involuntary bankruptcy and accused by investors of creating a Ponzi scheme that lost as much as $500 million that had been loaned to him — most of it by Los Angeles’ Iranian Jews. Many of his former investors once knew Namvar as a friend and trusted adviser, but they now say their lives have been turned upside down by their losses. Adding to their pain is the fact that, although the accusations surrounding Namvar have earned him the community’s ire, he is not the only object of their anger. Two other investment fraud scandals involving two other local Iranian Americans have since piled onto the local community’s difficulties.
None of the three men has been charged with criminal wrongdoing at this time, but their effect on the community remains profound. Once a tightknit group that could finish a deal with a handshake, the Iranian Jewish community is now experiencing a shattered sense of trust and is rethinking its old-school ways of doing business.
Namvar, who is in his 50s and lives in Brentwood, worked as a banker, moneylender and real estate investor in the Iranian Jewish community for nearly two decades, and evidence of his generosity can be found on synagogue plaques thanking him and his family. Namvar earned the trust of many Iranian Jews, which led them to invest in his company, Namco Capital Group Inc. (Namco). His status also was founded on his family’s longstanding business reputation in Iran and the fact that he was known to provide higher rates of return to local Iranian Jews than most banks at the time. Namvar and his family were also well respected in the community for their substantial charitable contributions to various Jewish educational groups in Southern California and Israel.
Lawsuits filed against him allege that in the past 18 months, Namvar stopped paying dividends to his Iranian Jewish investors and in some cases could not return any of the funds lent to him. Subsequent lawsuits allege that through his businesses he spent money on risky real estate investments that went sour.
Separately, another investment scandal hit the Iranian Jewish community in early January of this year, when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against John Farahi, 52, a popular Iranian Jewish radio talk show host who also served as an investment adviser and stockbroker for local Iranian Jews. The suit alleges that Farahi and his Beverly Hills firm, NewPoint Financial Services Inc., defrauded Iranian American investors of millions of dollars and that Farahi, his company, his wife, Gissou Rastegar Farahi, and the firm’s controller, Elaheh Amouei, misled investors by telling them their funds were being invested in unsecured corporate bonds, FDIC-insured certificates of deposit, government bonds, and corporate bonds issued by companies backed by funds from the Troubled Asset Relief Program (TARP).
The third figure, Joseph Boodaie, also is a Beverly Hills Iranian Jewish businessman who lent money and offered community members higher rates of return on their savings than most banks. Boodaie earned the community’s trust as a bookkeeper, and he is said to have used his familiarity with clients’ assets to sell them investments in real estate deeds of trust. Last year, nearly a dozen different lawsuits were filed by various L.A.-area Iranian Jews and other businesses alleging that Boodaie had defrauded them of a combined total of close to $100 million, according to one local attorney.
Attorneys for Namvar, Farahi and Boodaie did not return calls requesting comment for this article.
The losses related to these three cases have badly shaken Southern California’s tightknit Iranian Jewish community, to the point that some friends and family members now find themselves at odds, and the life savings of many seniors in the community — much of it money brought out of Iran with great difficulty — have now disappeared.
“Unfortunately in our community, money has become a source for people to attain a reputation and respect for themselves — and many in our community are willing to go to great lengths [to] destroy others in order to obtain money and this social status,” said Fred Fouladi, an Iranian Jewish community activist.
As in the much larger Bernard Madoff scandal, a good deal of this comes down to social aspirations and greed. The complaint against Farahi alleges that investors’ money was transferred into personal accounts controlled by Farahi and his wife to build their mansion in Beverly Hills, as well as into risky stock market options that resulted in more than $18 million in losses for investors.
The SEC’s suit also claims that, since 2003, Farahi used his radio program, “The Economy Today,” featured on the Studio City-based Farsi-language Radio Iran KIRN 670 AM, to target members of L.A.’s Iranian American community, recommending they make appointments at his firm.
“They lured victims with false promises of investment safety while secretly enriching themselves and diverting investor funds for their personal use,” Rosalind R. Tyson, director of the SEC’s Los Angeles Regional office, said in a statement.
In conjunction with the suit, the SEC obtained an order temporarily freezing the Farahis’ and NewPoint’s assets until the government investigates the case further.
Numerous Iranian Americans claiming to be victims of the Farahis’ alleged investment fraud declined to comment on the case, citing privacy concerns, but court-filed declarations from NewPoint’s Iranian American investors shed light on the alleged scheme.
According to one declaration, Edmond Tahmasian, a 35-year-old Iranian American resident of Glendale, invested more than $100,000 over eight years with NewPoint, in what he was told at first by Farahi were low-risk certificates of deposit. In his statement, Tahmasian says that Farahi later informed him that his funds were invested in unsecured corporate bonds. He also states in his declaration that while his initial $30,000 investment was returned to him by NewPoint, he was never given the balance of the funds he invested and was unaware that Farahi had invested his money in high-risk stock options.
Representatives from the SEC’s Los Angeles offices declined to comment on the case because it involves pending litigation. KIRN General Manager John Paley did not return calls for comment, but Hossein Hedjazi, the station’s former program director, defended Farahi, whom he calls a friend.
“I was a program director at that station for seven years. I monitored every program, and during that time I never heard him [Farahi] encourage people to come to his office, nor did he advertise for his firm on the air or solicit business for himself,” Hedjazi said. “He was unpaid for his work at the radio and placed a lot [of] his own personal time doing the community a real service by providing listeners with the most accurate information about the economy in the U.S.”
Hedjazi, who said he has known Farahi for nine years, said the former radio host was well respected by listeners for the knowledge he shared, and that he regularly helped impoverished Iranian Americans in the city.
Both Farahi and his wife moved in high-end social circles within the local Iranian Jewish community and were involved in organizing fundraising events at the West Hollywood-based Temple Beth El, which is owned and operated by the Iranian American Jewish Federation (IAJF). Farahi’s wife, a former IAJF board member, also helped organize high-profile fundraising events in the community for Hilary Clinton’s 2008 presidential bid.
Michael Nazarian, president of the IAJF, and Kamran Broukhim, the organization’s chairman, did not return calls for comment on Farahi’s case. Iranian Jewish community leaders and creditors have kept quiet about all three men, in keeping with a long-standing community taboo against publicly discussing potentially embarrassing incidents. Others have not openly voiced their opinions, perhaps for fear of losing friendships or social status as well as wanting to avoid the sense of shame the community sometimes imposes on victims of financial fraud.
Nevertheless, a small number of people in the community have spoken out. During the past year, for example, local Iranian Jewish groups with social ties to Namvar, including the Beverly Hills-based Nessah Synagogue, have faced increasing criticism, and tempers have flared among creditors in the community who lost money invested with Namvar or his company.
An anonymous letter written in Farsi circulated within the community in late 2009, accusing the Nessah congregation’s leadership of remaining silent about the plight of Namvar’s creditors, while keeping Namvar in his place on the synagogue’s board of trustees.
Members of Nessah’s leadership declined to comment on any of the investment fraud scandals in the community, but the synagogue’s board of directors offered a joint statement to The Journal acknowledging the lawsuits against Namvar and responding to calls for Namvar to be removed from their board.
“The Nessah organization is extremely concerned about and has much sympathy for those members of the community who have been hurt by these unfortunate circumstances,” the letter from Nessah says. “The organization’s bylaws provide specific guidelines relating to the removal of sitting directors. Nessah has conducted the requisite due diligence with regard to this matter, and has concluded that its bylaws do not permit the removal of Mr. Namvar from the board at this time.”
The statement also says that Nessah has general elections coming up, in which congregants will select future board members for the organization.
Critics respond that doing nothing suggests a lack of moral courage.
“This fiasco with Namvar and [his company] Namco is not just about what has happened to a large number of our community members, and it’s not just about his involuntary bankruptcy alone,” said George Haroonian, a longtime local Iranian Jewish activist whose family members lost their savings invested in Namco. “It’s really about our community’s leadership not being able to positively respond to this problem.”
Last year, Haroonian wrote a public letter calling for Nessah to suspend Namvar’s position on the synagogue’s board until the bankruptcy and lawsuits had been decided. In a recent interview, he said that in Iran such cases of financial difficulties between Jews were handled outside of the courtroom, often more effectively.
“In Iran when these things happened, the community’s leadership, key businessmen and elders would get together all parties involved and help out those who had suffered the economic loss,” Haroonian said. “Today, unfortunately, we don’t have that here. I think there is a lot to be said [about] the lack of moral courage in our community — and just donating to certain causes has sadly become the same as real community service for us.”
The current problems of deceptions in business dealings were rare in Iran prior to the 1979 revolution, elders in the Jewish community say. This is because people who attempted to pass bad checks or failed to repay large debts were put in prison by the government until their families could raise the funds to repay their creditors.
Meanwhile, Namvar’s bankruptcy case has slowly moved forward, as the court-appointed trustees investigate the Iranian Jewish businessman’s assets and liabilities.
A preliminary report released last summer by the trustees showed that Namco owes more than $500 million to more than 170 secured and unsecured creditors. The report also states that Namco is owed more than $600 million from loans it made to 16 members of Namvar’s family, various limited liability corporations owned by Namvar and to more than 60 individuals and entities. In addition, the report indicates that Namvar gave himself a loan of more than $32 million, and he also gave $50 million to each of his four children.
A. David Youssefyeh, a local Iranian Jewish attorney who since December 2008 has been advising nearly 20 Iranian Jewish creditors with claims against Namvar, said he is unsure whether all of Namvar’s creditors will be able to recover all of their invested funds.
“My assessment for the creditors is not too positive, because a year has been wasted with trying to figure out what his assets are, instead of Mr. Namvar cooperating with the trustees who can quickly help the creditors get repaid — this shows bad faith by him,” Youssefyeh said. “Everything that has happened in the last year has confirmed for me that what we were trying to do at the beginning of this was our only option. Unfortunately, nothing has changed for these people; none of them [has] been paid yet, and due to Mr. Namvar’s lack of cooperation, I don’t see any change for them in the near future.”
Youssefyeh also said the trustees in the case will complete their final assessment of Namvar and Namco’s assets and liabilities by the end of this month, and some of the creditors will likely receive some portion of their funds in one or two years.
Namvar’s creditors include investors in Namco, those who lent money to Namco and received a personal guarantee from Namvar, lenders to Namco who received a lien on property owned by Namvar or one his entities, and those who gave profits from certain real estate transactions to Namvar.
Many of Namvar’s Iranian Jewish creditors are low- to middle-income couples, individuals or retired seniors who invested their small savings with Namvar and his company, hoping to receive higher interest rates than what most banks were offering at the time. Their investments ranged anywhere from $10,000 to $300,000, and most said they had lost all hope of regaining their funds.
“My father is 87 years old. He speaks very little English, cannot work and lost about $200,000 in equity he pulled out of his home to invest with Namvar — and now the bank is foreclosing on his home because Namvar cannot give him back his money,” said one 42-year-old Iranian Jewish woman who lives on the Westside and asked that her name be withheld for fear of being ostracized by the community.
She was unemployed for the past year, but now works part time as an executive assistant. She said her father is depressed, now lives with her in her one-bedroom apartment, and his creditors have been harassing them both.
When interviewed a year ago, a substantial number of Namvar’s creditors said they believed they would be repaid by the Iranian Jewish businessman because of his family’s longstanding reputation in the community, but today many of them have changed their minds.
Representatives of a handful of Southern California’s nonprofit Iranian Jewish organizations that offer relief to those in need said they have been overwhelmed by calls from Iranian Jewish victims of the various alleged investment fraud scandals. With their budgets already hard-hit by the economic downturn, the organizations have been unable to help everyone.
“I recently received an anonymous phone call from an Iranian Jewish widow with three kids here in Los Angeles, who invested $20,000 of her life’s savings with one of these Iranian Jewish businessmen and lost everything,” said Manijeh Youabian, who heads the social voluntary efforts of the SIAMAK organization, an L.A.-based Iranian Jewish nonprofit that helps people in need. “She cried and asked for a $10,000 loan from us, because she did not have anything to cover her expenses, feed her children or pay the rent.”
Aside from the shame of being looked down upon by other community members, Youabian said many Iranian Jews wouldn’t publicly admit to their dire circumstances because they still believe they will eventually be paid back, or fear being further ostracized.
“Many of them will say nothing because they have children of marrying age and don’t want to hurt their children’s chances of getting married in the community,” Youabian said. “Others are afraid they’ll never see their money again if they speak out, and some are even afraid that the people who defrauded them will besmirch their names in the community in retaliation for their speaking out.”
Still, some community members put part of the blame on the individual investors.
“There are also some victims from our community who should blame themselves for just being greedy, and they should not have pulled out all the equity from their only homes just to make a few percentage [points] more in income,” activist Fouladi said.
Fouladi, 77 and a Westside resident, recently filed suit against Joseph Boodaie to recover his life savings, an amount close to $400,000, which he invested in Boodaie’s company.
Fouladi declined to comment on his own case, as litigation is still pending, but he said he has been forced to work as an employee at a downtown Los Angeles bank to earn a living, instead of being able to enjoy his retirement. Fouladi recounted a time when, nearly 11 years ago, he faced financial troubles with his own creditors.
“About 11 years ago, I had run into financial problems with the bad economy that destroyed my business and left [me with] a debt of more than $1 million,” Fouladi said. “Instead of leaving my creditors without anything, I sold my only home here in the U.S. and repaid to the last penny every single one of my creditors — even the ones overseas in Asia.”
Fouladi’s suit may be the least of Boodaie’s problems, as creditors from within and outside the Iranian Jewish community come forward with suits accusing Boodaie of fraudulent business dealings. Last May, the Texas-based Comerica Bank filed suit against Boodaie and his two wholly owned businesses, Mensch Enterprises LLC and All Century Inc., for fraud and failing to repay a nearly $5 million loan. The suit also states that while Boodaie had at the time a personal net worth of more than $300 million, he allegedly knew but failed to disclose that the properties he offered as collateral to Comerica in exchange for loans did not belong to him or to his businesses. Likewise, the suit alleges that Boodaie failed to disclose that the properties he offered as collateral to Comerica had higher liens against them and that other creditors had priority security interests on these properties.
Even after all that has occurred and all the fallout and talk, many cash-strapped Iranian Jews told The Journal they still believe their community members are genuinely honest and hard working.
Perhaps this persistent faith comes from a deeper sense of commitment to maintaining harmony within this particular culture. After the lawsuits finally are settled and the financial chaos resolved for the hundreds of local Iranian Jews involved, there is fear that longer-term damage could persist, and that the community’s once stellar reputation in the business world has been forever scarred.