SEC Files Charges in Harman Hoax

Executives at Harman International Industries scratched their heads Sunday afternoon at news reports that the Connecticut-based maker of high-end audio equipment was being bought by an investment group in the Middle East.

An announcement faxed to news outlets spread like wildfire online, but no one at Harman knew anything about a pending deal.

Within hours, Harman's share price had climbed 40 percent in pre-market trading. The company quickly concluded that it was probably a hoax and issued a statement to that effect.

"We were completely taken by surprise," said Harman spokesman Brad Hoffman.

On Thursday, the Securities and Exchange Commission declared the entire affair a hoax, obtained an emergency court order to freeze $5 million in trading profits and filed civil charges against Hazem Khalid Al-Braikan, a Kuwait-based trader, "for engaging in an illicit scheme," according to a news release.

The SEC complaint, filed Thursday in the U.S. District Court for the Southern District of New York, alleges that Al-Braikan and three related firms based in the Middle East reaped millions of dollars from trading around hoax offers to acquire U.S. companies, including Harman.

According to the complaint, Al-Braikan and the other firms amassed positions in Harman before the bogus news release was distributed to media organizations Sunday. Then, after the company's shares shot up, Al-Braikan and the firms sold their stakes for a substantial profit, the complaint alleged. The SEC said a similar scheme targeted Textron, the parent of Bell Helicopter, in April.

The SEC complaint also named United Gulf Bank, KIPCO Asset Management Company and Al-Raya Investment Company as participants in the scheme. Al-Braikan and the three firms could not be reached for comment Thursday.

Harman International is a multibillion-dollar manufacturer of high-end sound equipment used in cars and by the entertainment industry.

The company, founded by Sidney Harman, was based in the District before moving to Stamford, Conn., last year.

Harman is an author and philanthropist who resigned as chairman of the company in 2008. He and his wife, Rep. Jane Harman (D-Calif.), live in Cleveland Park in Northwest Washington.

The Harmans are active in Washington's social, political and arts circles. The Harman Family Foundation gives to local institutions such as the Washington Ballet and the Phillips Collection art museum. His $20 million pledge helped build the new Harman Center for the Arts in downtown Washington.

The SEC filings characterize Harman International as a victim, and the agency said the company is not suspected of playing a role in the scheme.

"We're very pleased with the apparent speed of the SEC investigation," Hoffman said, "and we will leave it to them to fully investigate the matter."

Harman stock closed at $23.17, up 4.9 percent.