Billion-Dollar Pyramid Scheme Rivets Lebanon

Billion-Dollar Pyramid Scheme Rivets Lebanon
By ROBERT F. WORTH
Copyright by The New York Times
Published: September 15, 2009
http://www.nytimes.com/2009/09/16/world/middleeast/16lebanon.html?_r=1&th&emc=th


TURA, Lebanon — The investor, a heavyset man in a gray polo shirt, sat back in a plastic chair in his hardware store and sighed, unable to explain how his life savings had vanished so quickly into thin air.

An investor in Toura, Lebanon, said that at least 500 families in the small village lost much of their life savings in the pyramid scheme.

“It’s a disaster, a tsunami,” he said. “Some farmers mortgaged their fields and brought in cash. Others sold land they had inherited from their parents. Teachers gave up all their savings. Old people lost everything they had.”

The money disappeared, judicial authorities say, in a billion-dollar pyramid scheme that has riveted this country. Its mastermind, a businessman named Salah Ezzedine, was charged with fraud on Saturday and is being called the “Lebanese Bernie Madoff” in local newspapers. Bankers say it is the biggest fraud of its kind this country has ever seen.

But the dollar figures have drawn less attention here than Mr. Ezzedine’s close links with Hezbollah, the militant Shiite movement. Many of the investors — mostly Shiites living in Beirut and southern villages like this one — say those party links were the reason they chose to risk their hard-earned savings with a man who offered 40 and 50 percent profits but never showed any paperwork.

The scandal has embarrassed the party, which prides itself on a reputation for honesty and selfless piety. It has also illustrated the way many of Lebanon’s Shiites, despite their ascent from near feudal poverty just a few decades ago, remain in some ways a nation apart. Their residual distrust of mainstream Lebanese institutions, which helped fuel Hezbollah’s rise as a virtual state within a state, also appears to have made them vulnerable to Mr. Ezzedine’s schemes.

“We got guarantees that were stronger than any bank,” said the investor here, who like others associated with Mr. Ezzedine, spoke only on condition of anonymity for fear of reprisals. Asked whether he meant Hezbollah, he declined to answer.

Hezbollah’s general secretary, Hassan Nasrallah, denied in a speech last week that the party had any official connection with Mr. Ezzedine. But a few days later, during a Ramadan dinner with Hezbollah supporters where he appeared by video link, Mr. Nasrallah conceded that the party would in practice be held responsible, and said it was setting up a “crisis network” to assess each investor’s losses. Several Hezbollah officials lost money, and at least one has filed suit against Mr. Ezzedine.

There have even been calls for Hezbollah to compensate the investors. So far, the party has said it will not do so, and it is easy to see why. The losses among southern Shiites alone run into the hundreds of millions, and Hezbollah is still struggling to rebuild the houses destroyed during its devastating monthlong war with Israel in 2006.

Mr. Ezzedine, 49, remains a mysterious figure. He was best known as the owner of Dar el-Hadi, a publishing house that specialized in religious titles and is based in the heart of Dahieh, Beirut’s Shiite southern suburb. More recently, in 2007, he founded Al Mustathmir, a financial institution based in Beirut that focused on money management. He was known as a deeply religious and charitable man, with a gift for winning people’s friendship.

It is still not clear what happened to the money, according to a judicial official with knowledge of the case who spoke on condition of anonymity, saying he was not authorized to comment publicly. Mr. Ezzedine, who is now in jail awaiting trial, invested in metals, oil and other commodities in Africa and the Middle East, according to several people who knew him.

“Gold, steel, iron,” said the investor, who regularly bundled smaller contributions from dozens or even hundreds of villagers and then presented packages — anywhere from $100,000 to $500,000 — as a single investment to Mr. Ezzedine’s assistants. “Every time, I’d give them the money in a bag, and they’d give me a check for the same amount.”

He leaned forward and showed his cellphone, with a photograph on the screen of rows and rows of stacked $100 bills.

As he reeled off the project titles — zircon, titanium, African oil — the investor began to shake with melancholy laughter. Two friends sitting across from him in his threadbare store — who also lost money with Mr. Ezzedine — laughed with him. The laughs grew louder and louder, and soon all three men were collapsing into wild, helpless bouts of hilarity, tears forming in the corners of their eyes.

“On the day we first heard, we met in the mosque, and we were laughing hysterically for 24 hours,” the investor said.

He soon grew sober again.

“I’m telling you this like it’s just a story,” he said. “But for us, it’s really hard. We are expecting family problems, social problems. Brothers who borrowed money from in-laws and lost it. I have a building I mortgaged.”

Although the scandal is not likely to affect Lebanon’s broader economy, it could create real problems in the Shiite community, where some major real estate owners and businessmen went into debt to finance their investments. The full extent of the alleged swindle remains unclear, but the judicial official said the amount lost appeared to be at least $700 million, and possibly more than $1 billion.

Curiously, some of the investors still defend Mr. Ezzedine. The deep loyalty to Hezbollah that may have helped cause the disaster apparently also prevents many victims from complaining.

In Mahroub, the village a few miles from here where Mr. Ezzedine grew up, many local people know him as the pious, likable man who used his money to build a beautiful new mosque a few years ago.

And in some cases the financial naïveté that Mr. Ezzedine played on may even help obscure any crimes. Mustafa Fneish, a wizened 54-year-old taxi driver in Mahroub, said he invested $10,000 with Mr. Ezzedine and had received an 80 percent profit on his investment, or $8,000. When asked whether he had received the principal back, he looked confused, and said no.

“All this happened because of the United States and Israel,” Mr. Fneish added, echoing a refrain that springs easily to people’s minds here. “When they discovered that Ezzedine was close to Hezbollah, they ruined him.”

Hwaida Saad contributed reporting from Beirut, Lebanon.