The quiet Southern Lebanese village of Maaroub has recently found itself at the center of attention following the recent arrest and indictment of its deputy-mayor and a prominent businessman hailing from the Shiite town.
Forty-nine-year-old business-mogul Salah Ezzedine, known by many for his piety and closeness to Hezbollah, is bankrupt and stands accused along with his alleged partner, Maaroub Deputy-Mayor Youssef Faour, of running a giant Ponzi scheme similar to that of American financier Bernard Madoff, who earlier this year was sentenced to 150 years in jail. As a result, the Lebanese press has dubbed Ezzedine “Lebanon’s Madoff.”
A Ponzi scheme is a fraudulent investment operation that promises investors high rates of return over a short period of time. The investments are then used to pay the return instead of actually being invested.
Exactly how much money invested with Ezzedine has gone missing remains a mystery. Some media reports estimate that he allegedly squandered more than $1 billion of investor money. According to sources close to the case, the total amount invested with Ezzedine was at at least $500 million.
On September 12, the Lebanese financial prosecutor’s office charged Ezzedine and Faour with embezzlement, loan-sharking, distributing bad checks and breaching financial laws. They are currently in jail awaiting trial.
A wolf in sheep’s clothing
Ezzedine’s indictment has shocked residents of Maaroub. Many of them remember him as a kind and generous man who always stood up for the poor. He was considered a religious man who apparently gained fame among the Shiite community in the 1990s for organizing pilgrimages to Mecca. Indeed, one of Ezzedine’s businesses is his travel agency Bab el-Salam, which specializes in religious pilgrimages.
“He helped everyone, the poor, the sick, and people wanting to put their children in school that couldn’t afford it. Whatever the request was, he was there to help out. He was there to help immediately,” said Hussein Ezzedine, an employee at the town hall in Maaroub and distant relative of the business-mogul.
With the money he made, Ezzedine built new mosques in the town and made financial contributions to building the town hall.
A few years ago, Ezzedine funded a brand new soccer field for the village. Looking out from a tower above the field offers a view of the town, as well as Ezzedine’s luxurious villa estate that now stands empty. Locals point to two large and still unfinished houses next to Ezzedine’s mansion and said they belong to his partner, Faour.
Ezzedine was also known for his close ties to Hezbollah, which apparently earned him credibility among his investors, the majority of them being from the Shiite communities in Beirut and the South Lebanon. It is also believed that several Hezbollah officials lost money with Ezzedine. One of them is Hezbollah MP Hussein Haj Hassan, who filed a complaint against Ezzedine when his check from Ezzedine bounced. Although Hezbollah has clearly distanced itself from the alleged crooked moneyman, with Hezbollah leader Hassan Nasrallah denying the party had any official links to Ezzedine in a televised address, the story is still a major embarrassment to the organization. Nasrallah has acknowledged that some members of his party invested with Ezzedine, but that the total sum did not exceed $4 million.
Ezzedine was known for his close ties to Hezbollah, which earned him credibility among his investors
The smell of something fishy
Ezzedine’s business scheme, which incorporated tens of thousands of investors, offered quick returns of 40 to 50 percent from a range of apparently bogus investment projects such as petrol, African oil and titanium. Some of his investors even say they were offered annual returns of 60 to 80 percent.
Nassib Ghobril, head of economic research at Byblos Bank, says that while there have been several similar schemes in Lebanon over the past years, there have been none “on this scale.”
Commenting on the high returns promised by Ezzedine, Ghobril says this should have raised doubts in the minds of investors. Indeed, returns of up to 80 percent should have had alarm bells ringing in the heads of Ezzedine’s investors. That, however, did not happen.
“Anyone should be suspicious about these kinds of high returns,” says Ghobril. “But people still tend to believe these things. People don’t learn, not in Lebanon and not elsewhere in the world. The victims have a hard time believing it. They learned the hard way this time.”
Ezzedine headed a number of businesses, including the publishing house Dar Al Hadi, which specializes in children’s books, and a children’s TV station carrying the same name. Following Ezzedine’s arrest, the authorities seized the Dar Al Hadi offices, sealing the company’s glass doors with red tape.
Another one of Ezzedine’s company’s is a Beirut-based financial institution established in 2007 called Al Mustahmir, which specializes in money management.
Another business that has been linked to Ezzedine is the mysterious East Line Company. The Financial Times and Abu Dhabi’s The National reports say this might be one of the investment vehicles that Ezzedine used for his business operations. Last year, in June 2008, Gambian President Yahya Jammeh issued a statement saying that he had received a $4 million check for “royalties paid to the Gambian government by Salah Ezzedine of East Line Company for 10,000 tons of sand minerals exported from the Gambia.”
Unwary victims
With expected returns of 40 percent, a sizable portion of Maaroub’s 5,500 residents decided to try their luck with Ezzedine.
Hussein Ezzedine estimates that around 15 percent of the villagers invested money with the businessman at some level.
He mentions one man who started investing with Ezzedine back in 2000 and lost $1.4 million, while others invested between $100,000 and $250,000. Some of the lower-income investors lost $10,000.
Another investor, 29-year old car importer Ali Fneish, invested $120,000 with Ezzedine half a year ago. That money is now all gone.
A man in the nearby village of Toura identifying himself as N. Chour says he invested “more than $100,000” with Ezzedine earlier this year. He says he lost all the money he earned working in Africa for 15 years.
Chour says 60 percent of Toura residents invested money with Ezzedine. To collect investment capital, lower-income investors in some cases mortgaged their houses and sold off land.
Mohammed al-Duheini, mayor of Toura, told Agence France Presse that some 250 residents from his town invested money with Ezzedine.
“He managed to win the trust of the Shiites of South Lebanon and handled a lot of their money,” he told AFP. Chour speaks of how one person in the village was appointed to collect the money from investors and hand over the investments to Ezzedine and his associates as lump sums. According to several Ezzedine investors, Faour allegedly had an office in Tyre and served as a point man for investors in the south. Ezzedine, meanwhile, is said to have had an office in Beirut’s southern suburbs.
Paperwork, including official receipts, appears to have been scarce with Ezzedine. In place of receipts, investors were given checks for the principle amount they had invested.
The great conspiracy theorists
In a peculiar twist, several of Ezzedine’s investors still defend him despite the fact that their money went up in smoke.
In Maaroub, investors and residents whom Executive talked to spoke of Israeli and American conspiracies as the cause of Ezzedine’s bankruptcy. Others believed the business mogul had taken a hard hit from the global financial crisis. They deny that Ezzedine, the “respected man” they entrusted their savings to, is a swindler.
But Chour says he has “doubts” about Ezzedine, especially following his and Faour’s recent indictment. So do other villagers, he says.
“Of course I have doubts. We don’t know what happened to him or where the money went. We have been asking this question and no one is giving us an answer — not the Lebanese state, nor any other person.”
Many investors still holding on to their checks from Ezzedine now await the outcome of the investigation for a solution. Reports have surfaced about investors in the Gulf losing large sums to Ezzedine. Yet, it is still widely believed that the majority of the victims of the alleged scam are Lebanese investors, many of whom have earned their money abroad and then returned home.
Amid growing fears in Lebanese financial circles, Central Bank Governor Riad Salameh told Bloomberg in September that Lebanon’s banks were not involved with Ezzedine.
“There is no exposure by the banks to it,” he said. “The investigation is ongoing. It has nothing to do with the finance or banking industry. He had his own investors, and it’s a private matter that’s outside of the banking industry.”
