UNCLAS CAIRO 000213
STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND RILEY
USTR FOR FRANCESKI
TREASURY FOR PARODI AND BAYLIN
COMMERCE FOR 4520/ITA/ANESA
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: ECON, EFIN, EINV, EG
SUBJECT: INVESTMENT SCANDAL ADDS TO STOCK MARKET WOES
Sensitive but unclassified. Please handle accordingly.
1. (U) Cairo is abuzz with talk of a serious investment fraud
allegation. Earlier this week, businessman Nabil Al-Boushi was
charged with: (i) operating as a stockbroker without the authority
to do portfolio management and (ii) breaking contractual
obligations. The Egyptian Public Prosecutor (Attorney General) has
ordered the freezing of his holdings. Al-Boushi is currently
reported to be in Dubai where he has been arrested for similar
crimes and the Public Prosecutor has requested Al-Boushi's return
from Dubai. It is reported that he is also being investigated for
money laundering.
2. (U) Forty-eight Egyptians filed claims to the Public
Prosecutor's Office against Al-Boushi for defrauding them of their
investments. Estimates range on the amount he allegedly stole,
between $37 - $200 million. Al-Boushy used his brokerage company,
Global Optima, as a venue for taking investments in securities. He
signed contracts with clients obliging him to pay at least 30%
annual interest plus a commitment to return principal at any time
upon the depositor's request. According to press reports, he
started his activities in Egypt in 2003 and started his Dubai
operation in 2005. He was apparently paying interest regularly to
depositors until 2006, but then refused to provide clients'
principal at their request, noting that the funds were invested
overseas and would lose much if they were withdrawn. In December
2008, he reportedly sent correspondence to his clients showing
earnings amounts, and all accounts were deemed profitable. It was
shortly after that that he disappeared and concerned clients alerted
the authorities. He was arrested in Dubai recently for taking $34
million from four Emiratis for investment, and also for issuing four
checks worth $13 million without adequate balance.
3. (U) As this story broke in Cairo, the Egyptian stock market
slumped a total of 6% on February 2 and February 3, and market
participants cited the scandal as one of the main contributors to
the fall. According to Sherif Henry, a large informal portfolio
manager, individuals who invested their money with informal
portfolio managers like Al-Boushi began showing nervousness and
there was a wide selling spree as individuals sought to be sure that
their funds still existed. Of the 48 individuals who filed cases
against Al-Boushi, there are actors, sports stars, relatives of high
officials, and leading businessmen. The Egyptian Stock Exchange has
been performing poorly so far this year, continuing its poor
performance since May 2008. The index has lost 65% in the past 12
months.
4. (U) COMMENT: Cases of fraudulent money managers are increasingly
common in Egypt, not only in Cairo, but in other parts of the
country as well. Analysts link this to Egyptians' desire for quick
money in the face of higher inflation. As middle income individuals
see the wealthy getting richer, there is a desire to quickly narrow
the gap, leading many to make bad or risky investment decisions.
SCOBEY