CHICAGO (CN) - Executives of the now-bankrupt Sunrise Equities duped hundreds of Muslim investors and three banks out of more than $43 million in a real estate Ponzi scheme, federal prosecutors say. They allegedly told investors the profit scheme complied with Shariah law.
In a 14-count indictment, prosecutors accuse Sunrise president Salman Ibrahim and senior vice president Mohammad Akbar Zahid of promising 15 to 30 percent annual returns for investments in real estate development, and then using new investors' money to pay the monthly "profits" of earlier investors.
Ibrahim and Zahid allegedly told Muslim investors that the scheme complied with Shariah law, because they would not be paid interest, which is prohibited under Islamic law, but would instead profit from Sunrise's real estate development.
"As a result, defendants ... solicited and received investments from hundreds of Muslims from the Chicagoland community and around the country," according to the indictment.
Ibrahim, Zahid and another senior vice president, Amjed Mahmood, also lied about their financial status in order to fraudulently secure loans, even though they owed millions to investors that they couldn't repay, and "their ownership interest in Sunrise Equities and its projects had no value," prosecutors say.
They ultimately "obtained over $40 million from more than 300 investors" and "another $29 million from financial institutions," prosecutors say.
Ibrahim deposited investors' funds into his personal checking account, and the executives used some of the money to operate other businesses, including a motorcycle parts manufacturing company, a gas station and a medical equipment sales company, officials say.
Ibrahim also used investors' money to buy land, operate an Islamic school "to enhance his reputation in the community," and lease cars.
Zahid allegedly used the money to renovate his home, while Mahmood used it to make mortgage payments on his condominium, prosecutors say.
The trio convinced several investors to "refinance their home mortgages in a 'cash-out refinance' program,'' in order to get more money for the scheme, according to officials.
Months before the scheme fell apart, the executives told investors that Sunrise needed an extra $1.2 million to keep afloat, despite knowing that the company had just $200,000 in its bank accounts and would be unable to repay investors' $40 million, the indictment states.
Investors lost about $30 million in the scheme, and banks were taken for about $13.7 million, prosecutors say.
"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," FBI agent Robert Grant said in a statement.
Ibrahim, 37, of Pakistan and Zahid, 59, a former Chicago resident, allegedly fled the country after Sunrise collapsed and went bankrupt. They are charged with a total of seven counts of mail fraud and one count of bank fraud. Ibrahim is charged with an additional two counts of bank fraud, and two counts of lying to banks. If convicted, they face up to 30 years in prison and a $1 million fine per count.
Mahmood, 47, of Des Plaines, Ill., was charged with one count of conspiracy and will likely be arraigned at a later date. If convicted, he faces up to 5 years in prison and a $250,000 fine.
Federal prosecutors demand mandatory restitution on all counts.
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