SALT LAKE CITY -- Saudi Arabian arms dealer Adnan Khashoggi and his brother, Essam, drained millions of dollars from their American holding company to pay personal debts, an accountant testified.
Two loans totaling nearly $90 million and a $150 million stock subscription agreement also were not listed in the bankruptcy filing for Triad America Corp., the Khashoggis' U.S. holding company, said Wayne Elggren, an accountant for the court-appointed trustee of Triad America.
Triad America and numerous subsidiaries last January filed for chapter 11 protection from creditors, listing about $197 million in claims.
Emanuel Floor, a former vice president of Triad America who resigned in August 1986, also testified Friday that Essam Khashoggi had 'four stooges', or shell corporations, called Derrick, Gerrik and Merrik and Lerrik Ltd., set up in Nevada to launder financial transactions and make it more difficult to trace them.
During the hearing, Judge John Allen issued a preliminary injunction, at the request of the trustee, barring several Khashoggi-owned companies from selling any U.S. assets.
'It is reasonable to believe that assets may be transferred outside of the United States,' to the harm of the trustee, without the order, the judge said. Previous orders and agreements he approved already preserve the status quo of the majority of the Khashoggis' dwindling empire.
Elggren said corporate records show the Triad America board of directors guaranteed personal debts of the brothers to banks in California and Nevada -- 'transactions not related to TAC.'
And Leonard Gumport, a Los Angeles attorney of the trustee, said his investigation of Khashoggi companies shows $6 million was transferred from Triad America to a Swiss bank account Adnan Khashoggi held.
No principal or interest was paid on a $49-million demand note from Triad America to Triad International Corp., a Khashoggi consulting firm, or a $40-million promissory note from Triad America to Sigma X, a Cayman Islands company, Floor told Allen.
In addition, a $150 million stock subscription agreement to Triad America from Triad International and ELK International was never made good, Floor testified.
'Adnan would always say it was his money and would get angry at me when I said it was TAC's,' Floor said, adding Khashoggi always contended he would pay back the money.
Elggren, who said accountants have made more than 2,000 examinations during their investigation in the bankruptcy proceeding, told the judge the Sigma X loan was used to represent an asset that did not exsist.
The money loaned to Triad International and ELK from a Cayman Islands bank was given to Triad America and in the same day loaned to Sigma X only to end up returned to the bank within a few days.
The transaction 'created $40 million of additional equity (for Triad America) to the extent that it was not collectible,' Elggren said.