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Whatever the merits of the complaint, it highlights the intriguing background of a key Investcorp insider: Abdullah Taha Bakhsh, a Saudi tycoon who has served on Investcorp's board since the bank was founded and who helped persuade other rich Saudis to invest. (Like Investcorp, Bakhsh filed a motion to dismiss the Saudi European action, and his lawyer expects it to be granted.) The complaint points out that Bakhsh was a major shareholder of Paris-based Al Saudi Banque, which collapsed in 1988, and accuses him of looting that institution. One of Bakhsh's other holdings is the First Commercial Financial Group, a commodities futures firm in Chicago that has been sanctioned repeatedly by regulators. In a court ruling in 1990, a judge held that First Commercial failed to raise "a single credible defense" to a customer's allegations that the firm had defrauded him. "The case," wrote the judge, "establishes once more that there are virtually no limits to greed, or the ingenuity of men in devising schemes to cheat." First Commercial is still having run-ins with regulators. Last May the Commodity Futures Trading Commission accused it of engaging in a check-kiting scheme to mislead regulators about its financial condition. The firm is fighting the charges.
The issue of bank regulation is a vital one in the wake of scandals at Britain's Barings Bank and Japan's Daiwa Bank. The biggest debacle of recent years was the 1991 collapse of the Bank of Credit and Commerce International, which cost depositors billions of dollars. Much of the blame was placed on regulators who seemed oblivious to B.C.C.I.'s frauds. No one is suggesting that this is another B.C.C.I. case in the making. When questioned about Investcorp's practices, its officials noted that the bank is licensed in Bahrain and is well supervised. "It's a very strong regulatory agency," says Kessler.
But questions remain. Investcorp has thrived in the Bahraini environment, perhaps because some of the most powerful businessmen in the tiny island state are directors and major shareholders. When the bank was founded, it was granted an extraordinary privilege by the Bahrain government. At the time, foreigners were barred from buying stock in publicly traded companies unless they were citizens of Bahrain or of one of five neighboring countries in the Gulf Cooperation Council. The Bahrain authorities allowed Investcorp to sell 25.8% of its stock to a company owned entirely by citizens of Iraq (a non-gcc country), including Kirdar. Another clue to the bank's status in Bahrain appears in an SEC filing by Sports & Recreation Inc., a Tampa, Florida-based firm that sells sporting goods through Sports Unlimited shops. When Investcorp took the firm public in 1992, the prospectus said one of its largest shareholders was a shell company owned by Bahrain's Ministry of Finance. This would be roughly equivalent to the U.S. Treasury Department's putting money into a takeover arranged by a Wall Street buyout firm.