The suit against Imam Feisal Abdul Rauf by businessman Robert Deak -- a former big donor to the imam's Cordoba Initiative and American Society for Muslim Advancement non-profit organizations -- alleges the 64-year-old imam used $167,000 of his donations for personal real estate, a luxury sports car and expensive trips with a woman who is not his wife.
It also accuses the organizations of misusing and not reporting on their tax returns $3 million the Malaysian government donated to the two organizations, whose stated purposes are to educate the public about Islam and improve relations between Muslims and people of other faiths.
But the money was instead allegedly taken by Abdul Rauf for his personal use, the lawsuit filed in New York state Supreme Court in Manhattan says.
The Malaysian Embassy had no immediate comment.
Deak and his wife, Moshira Solimon, are asking for $5 million in punitive damages.
Abdul Rauf and his wife, Daisy Khan, an officer at the two non-profit organizations, said in a statement they "emphatically deny the allegations contained in that lawsuit."
"The lawsuit is meritless and it will be vigorously defended in the New York court," the statement said.
Abdul Rauf and Khan noted Cordoba was already suing Deak and Solimon for $1.5 million in U.S. District Court in Washington for allegedly knowingly inflating the value of a Washington condominium they sold to Cordoba in 2010 and then failing to transfer the title, The New York Times said.
Deak and Solimon live in Washington and Rye, N.Y.
The alleged "other woman" was identified by Deak attorney Jonathan Nelson as Evelyn Adorno, who shared "a personal relationship" with Abdul Rauf, Nelson told the New York Daily News.
Adorno, 57, lives in North Bergen, N.J. -- the same town as Abdul Rauf and Khan, the News said.
A woman at the address listed for Adorno slammed the door on a News reporter.
Abdul Rauf received national attention and became a lightning rod in 2010 for his plans to build Park51, a Sufi Islamic community center, two blocks from Ground Zero in lower Manhattan.
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