High-profile fraud case rocks Iran

Until six years ago, Mohsen Pahlevan Moghadam ran a small tourism business and a shish-kebab restaurant.

But now the Iranian is accused by Gholam-Ali Sadeghi, prosecutor in Mashhad, of fraud that Iranian media says is worth as much as 940tn rials ($34.3bn), although judiciary officials say the value is still under investigation. Mr Pahlevan, who has not been formally charged, denies the allegations.

Mr Pahlevan is one of a generation of young, unknown businessmen who were rapidly promoted with the support of senior authorities under the previous government of Mahmoud Ahmadi-Nejad (2005-2013). The story of the 43-year-old, who rose from a modest background, has caused an uproar among Iranians — and comes after the country has been rocked by revelations of large scale corruption by others under the previous government.

In 2009 he set up Padide Shandiz Construction Co, a construction arm of his Padide Shandiz Co, which lured investors by promising huge returns on their shares in projects in Shandiz, a suburb of the holy city of Mashhad, and in the island resort of Kish.

An advertising campaign on state television was taken as reassurance that the government backed the company; investors felt their money was safe in the construction of high-rises, hotels, shopping malls, recreation complexes and a Dubai-style tourist development. Around 120,000 bought the company’s stocks and banks gave Padide Shandiz loans on the basis of brochures, some unfinished construction projects and promises that investments would constantly grow. Now, thousands are trying to sell their shares having heard that the company has huge debts, although judiciary spokesman, Gholam-Hossein Mohseni Ejei said the exact sum was under investigation.

“The art of this man was not only collecting money from people, but having many officials involved in his projects,” said Javad Ghodousi-Karimi, a member of parliament from Mashhad.

The controversy follows disclosures of unprecedented corruption. Last Wednesday Mohammad-Reza Rahimi, the former first vice-president, was sentenced to more than five years in jail on charges of fraud.

The government also announced last week that they were trying to trace $22bn of oil revenues under the previous government. According to Es’haq Jahangiri, Iran’s first vice-president, the money was taken out of the country by unidentified figures under the pretext of helping to circumvent international sanctions over the nuclear programme.

Hassan Rouhani, Iran’s centrist president, has warned that the economy, which has inflation of 17 per cent and youth unemployment of 25 per cent cannot move forward if corruption is not curbed.

Mr Pahlevan, reportedly a former member of the Revolutionary Guards corps who was disabled during the war with Iraq in the 1980s, declined to comment. But analysts say that he could not have operated at such a scale without strong support from senior politicians.

“He enjoyed the support of political and military organisations as well as religious foundations,” said one reform-minded analyst. “But now that 120,000 shareholders are worried about their money, the judiciary had to intervene as public anger could become a security threat.”

In a recent interview with Etemad, a reformist daily newspaper, Mr Pahlevan insisted that his company had capital of 200tn rials and 30,000 employees, and that he and his 26 executives owned more than 50 per cent of the company. He also claimed to have investments in Afghanistan, including construction projects and a restaurant.

Mr Pahlevan said: “When you work three times more than the others and have no day off, you grow three times more than the others.” He added: “I am Iran’s best businessman.”

Analysts say that although Padide was registered as a private joint stock company with limited liability, it behaved like a public company by selling stocks. Over five years the share price jumped from 2,000 to 100,000 rials. When news of the alleged fraud emerged last month, the share value dropped by 20 per cent.

Critics say the growth of the share price was due to Padide managers setting the value. “What is certain is that the jump in the value of shares was fake and a bubble,” said Mr Sadeghi, the prosecutor in Mashhad.

Mr Pahlevan denies all wrongdoing and brushes off suggestions that he could face arrest or even the death penalty, which has been imposed on some businessmen convicted of charges of disrupting the national economy. He has even told domestic media that he is considering launching new mega projects in the capital, including the biggest recreation complex in the Middle East.

The judiciary has so far shut down a couple of the company’s offices across the country and banned the Padide Shandiz from advertising. Mr Mohseni-Ejei, the judiciary spokesman, also said the government would safeguard people’s investments.

In the view of one economic analyst, besides any alleged fraud Padide is also “the result of Iranians’ wish to become rich without hard work and creativity”.