LAWFULE – MICHAEL J. GARCIA, the United States Attorney for the
Southern District of New York, announced that TIMOTHY KHAN
pleaded guilty today in Manhattan federal court to charges that
he defrauded a victim of $7 million in connection with the
fraudulent sale of $7 million in purported options to purchase
the stock of designer retailer Gucci Group NV. KHAN was arrested
in Los Angeles, California on April 17, 2007, after the filing of
a federal Complaint, and was subsequently charged in an
Indictment on April 26, 2007. KHAN, a Canadian citizen who
resided in London, England, has been ordered detained since the
date of his arrest. According to documents filed in this case
and statements made during KHAN’s guilty plea proceeding:
In October of 1995, KHAN told an investment
professional (“Victim #1″) that KHAN was on the Advisory Board of
Gucci Group NV (“Gucci”), an international company engaged in the
manufacture and sale of designer retail items, including
clothing, handbags, and jewelry. KHAN told Victim #1 that he had
been put on the Advisory Board of the company that owned Gucci to
help turn around the struggling Gucci, and to market its products
worldwide. KHAN told Victim #1 that because of his position on
the Advisory Board of Gucci, he had an opportunity to obtain
options to purchase Gucci stock at a price discounted from that
offered in the company’s Initial Public Offering (“IPO”). He
told Victim #1 that he was working on this deal with the Chief
Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”)
of Gucci, both of whom he identified by name (and that he was
frequently traveling with the CFO of Gucci). KHAN also provided
several documents to Victim #1, including agreements purportedly
signed by the CFO of Gucci permitting KHAN (who the documents
stated was on the International Advisory Board of Gucci) to
purchase and sell millions of shares in Gucci at the price of
$7.50 and $14.00 per share, below the Gucci IPO price of $22.00
per share. Between 1995 and 2006, at KHAN’s direction, Victim #1
wired approximately $7.3 million to KHAN in connection with the
purported purchase of Gucci options.
In October 1995, Gucci’s stock went public in an IPO at
$22 per share. In March 1996, Gucci issued a secondary offering
of its stock at $48 per share, and in March 1999, Gucci issued
additional shares at $75 per share. In July 2004, Gucci became a
wholly-owned subsidiary of another company that had purchased
Gucci’s outstanding shares for approximately $85 per share.
Beginning in 1996, Victim #1 repeatedly told KHAN that
he wanted KHAN to exercise the Gucci options, sell the stock, and
deliver the proceeds to him.
But from 1996 through April 2007,
KHAN provided various excuses why that could not be accomplished.
For example, KHAN claimed that the “European Union Taxation
Authority” in Brussels was delaying the distribution of the
proceeds from the investment because of certain tax obligations.
Between 1996 and 2006, KHAN also provided various documents to
Victim #1 purporting either to modify the investment or to
explain the delay in receiving the proceeds of the investment. In
fact, there is no “European Union Taxation Authority,” and the
CEO and CFO of Gucci, whom KHAN claimed to know, have confirmed
that they did not know KHAN; that they had not offered KHAN
options to purchase Gucci stock; and that KHAN did not hold the
positions he claimed at Gucci. A Gucci representative has
further confirmed that according to Gucci’s records, KHAN has
never been associated with Gucci.
KHAN pleaded guilty today to Count One of the
Indictment, which charged securities fraud, and Count Three,
which charged wire fraud. The securities fraud charge carries a
maximum sentence of 20 years in prison and a maximum fine of $5
million or twice the gross gain or gross loss from the offense.
The wire fraud charge carries a maximum sentence of 20 years in
prison and a maximum fine of $250,000 or twice the gross gain or
gross loss from the offense. The Honorable MIRIAM GOLDMAN
CEDARBAUM, who accepted the guilty plea, scheduled sentencing for
June 23, 2008.
Mr. GARCIA commended the Federal Bureau of
Investigation for its work in the case.
Assistant United States Attorney JONATHAN R. STREETER
is in charge of the prosecution.