An American Muslim Journal

Sunrise Equities: a darling of "Islamic Finance" finally exposed for what it truly is... a criminal enterprise

Sunrise Equities is a criminal enterprise that bilked hundreds and maybe thousands of American Muslims of their hard-earned money using Islam as a cover and religious piety as a sales technique.  Finally, after several years of investigations by the Federal Bureau of Investigations, U.S. Attorney Patrick Fitzgerald indicted the three owners of this ponzi scheme on numerous criminal charges.  Finally.

Salman Ibrahim was the ringleader of this scam.  His partners in this criminal enterprise were Mohammad Akbar Zahid and Amjed Mahmood.  Ibrahim and Zahid have allegedly fled the country. Mahmood appears to be in federal custody.

I met Ibrahim and Zahid personally.  It was during a short 6 month stint with Zayan Finance, a firm co-founded by another Chicago-area Muslim attorney named Nasser Nubani.  I visited their shabby (back then I thought of it as "modest" and "functional") offices off of Devon Avenue in Chicago, Illinois.  I also saw their swanky sales office in the West Loop.  I attended a DePaul University seminar on Islamic Finance where Ibrahim was a featured speaker.  I was awed by their religiosity and their sophisticated real estate finance savvy.  I heard their sales pitches and was impressed.  It was all so good, but then a few years ago the operation folded overnight, the offices were abandoned, their homes were abandoned and all of their investors and other business partners were left in the lurch.  Alas, it was too good to be true.

Sunrise Equities was not an island.  Sunrise Equities touched other "Islamic Finance" operations as well.  I have no reason to believe these other operations are doing anything wrong but they were doing business with Sunrise Equities and helped, if only by association, to bolster Sunrise Equities bona fides as a legitimate "Islamic Finance" firm.

In at least a few instances Sunrise Equities set up business deals with firms like Guidance Financial, another "Islamic Finance" firm, where Muslims with equity in real estate (their homes or investment properties) were cashed out and the money was reinvested into Sunrise Equities projects.  The "profit" (what one might refer to as interest in a conventional fixed rate mortgage) was to be serviced or paid for by Sunrise Equities during the duration of the real estate development project and then, when the deal closed Guidance Financial would be paid off the balance owed on their mortgage (called a co-ownership agreement as I recall) and the investors would receive their profits and any balance of their principal not used to pay off the firm that cashed out the equity on the real estate.

The role of Guidance and others (Devon Bank may have done similar cash-outs) wasn't criminal but those whom they cashed out and who subsequently got cheated by Sunrise Equities can't be feeling too good about these firms either.  I know that firms were eager to help Sunrise Equities find investors.  

A firm I worked with for 6 months in primarily a business development capacity - Zayan Finance - was very eager to find Muslim owners of commercial real estate to help them cash out the equity in their properties in order to invest with Sunrise Equities.  To the best of my knowledge no deals involving Sunrise Equities ever went through (and this was largely due to the sudden tightening of the CMBS market underwriting standards) at Zayan Finance and while the execs at Zayan were quite miffed about it back then, I'm sure they are relieved to not be associated with this debacle now that Sunrise Equities has been exposed as a fraud.

Salman Ibrahim was the face of the sales operation.  Although he lived the bulk of his life in the U.S. and spoke English with a midwestern dialect, he always wore Pakistani attire.  He also sported a long beard and skull cap.  He told me once that he did this out of religious conviction and I know that others looked at this with awe.  I've heard, back when Ibrahim was the darling of Islamic Finance in Chicago, that a sophisticated businessman who would wear ethnic garb out of religious conviction in public was clearly a man to be reckoned with.  Alas, it turns out to be true but not in the good sense that was implied when I first heard this sentiment.

Zahid, one of the partners, was supposedly a physician who lived in the Gulf for a while and made a bunch of money as a physician to some wealthy Gulf Arabs.  Over dinner at a favorite restaurant of Ibrahim and his partners - an Indo-Pakistani restaurant on the southwest corner of Devon and Western avenues in Chicago, Illinois - Zahid told me how he invested all of his wealth into Sunrise Equities because he felt so strongly about what he was doing and that it was so Godly.

Looking back now it seems so obvious that these guys were snake oil salesmen in southeast asian ethnic garb with sales pitches steeped in religious terminology and a shtick made up of an excessive show of piety and personal religious fervor.  Hindsight...  Sigh...

Bail us out but don't you dare tell us what to do...

According to a news story in the New York Times yesterday a lobbyist for Wall Street are waging an all out campaign to "fight compensation curbs."  The article quotes Scott Talbott, a Wall Street lobbyist:

"We support the bill, but we are opposed to provisions on executive pay."

Well how kind of Wall Street's lobbyist to accept a $700 billion bailout.  I guess we should be grateful that they are willing to take our tax dollars to subsidize their hubris and gluttony?

The argument put forth by the Wall Street lobbyists goes like this:

"Pay restrictions...would sap incentives to hard work and innovation, and hurt the financial sector and the American economy."

Generally I would agree with this as a general rule of free market economics.  But in a free market there are risks and rewards.  Risk that turns out to be successful is highly rewarded, but risk that turns out to be a failure results in losses.

Are taxpayers bailing out Wall Street firms because their risk taking strategies have paid off?  No, I think we're ponying up our tax dollars because Wall Street risks losing a lot because of bad investment decisions.

There's no government bailout in pure free market economics (is there?).  So, while the lobbyists arguments are great for Econ 101 as general principles, they don't carry much weight in the real work where the free markets are regulated.

What do you call it when men (and some women now too) who make 275 times the average worker's salary (as of 2007 according to Economic Policy Institute) fear a loss of incentive to hard work and innovation if their salaries were say, cut to only 100 times the average worker's salary?

Arrogance?  Greed?  Hubris?

The answer: all of the above.

As a matter of personal values dictated largely by Islam, I believe that a valid business transaction must have an element of risk and that free markets must be tempered by concepts of community good.

A bailout without future restrictions on executive compensation eliminates or radically reduces the risk borne by Wall Street firms participating in the bailout.  Such a move, were it to be taken, would ignore the community good.

If a bailout is the way to go to protect against a market meltdown, then it has to be coupled with executive pay regulation.