Metropolis: Wednesday, November 09, 2005
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This North Richland Hills convenience store and gas station closed last summer after a court fight but is due to reopen soon with new owners.
A D V E R T I S E M E N T
A D V E R T I S E M E N T
Gas, Groceries, and Ruin

A convenience store “flipping” scam is still causing pain in North Texas.

By MICHAEL WHITELEY

A $100 million drama that has ruined convenience store operators across the state and left major financial scars on the North Texas Pakistani community played out another act in a Dallas courtroom last month.

Dallas lawyer James W. Demik, 67, owner of Commercial Escrow & Title Co., drew five years in federal prison on 10 counts of bank fraud, conspiracy, and money laundering. Although his March trial was laced with charges of massive fraud involving Texas bankers and the U.S. Small Business Administration, Demik’s conviction — which he is appealing — hasn’t generated a whisper in North Texas newspapers.

His prosecution was the result of an ongoing five-year investigation by the FBI into a series of property “flips” engineered by a former prominent Bedford real estate broker, Sajid “Sargent” Hussain. The deals essentially involved Hussain and his associates buying convenience store/gas stations, artificially inflating the prices, then reselling them to buyers at far more than their actual value. Hussain’s group helped buyers obtain SBA loans for the purchases: He would act as broker on the loan, obtain the loan money, and then, using Demik’s title company, immediately insert the money into the buyers’ bank accounts or convert it to cashier’s checks to provide the required down payments. Some of the stations allegedly had major environmental problems, and others had construction flaws.

Assistant Federal Public Defender Douglas A. Morris, whose office is handling the appeal, declined comment on Demik’s behalf but said the appeal will challenge rulings on evidence and may challenge the adequacy of Demik’s trial defense.

In civil and criminal cases in Tarrant and Dallas courts, prosecutors and plaintiffs’ attorneys have charged that Hussain, a native of Pakistan, used his heritage and his language skills to lure unwitting borrowers into government-backed loans on businesses destined to fail. The deals triggered an audit by the SBA’s Office of Inspector General, affected the overall market for such convenience store/gas stations in Texas, and left one of the country’s largest banks with so much red ink that it shut down its SBA loan unit.

Most of Hussain’s “customers” were of Pakistani or Indian descent. “Demik and Sargent Hussain exploited buyers,” said John H. Carney, the Dallas attorney leading the charge in civil courts in Dallas and Tarrant counties. “Hussain by and large exploited his own countrymen, who relied on them for their expertise and integrity and who’ve lost everything they had.”

Demik, too, was welcomed by the local Pakistani community. He testified that education directors at mosques in Carrollton and Tarrant County invited him to teach courses on convenience store contracts and leases.

Carney represents 52 convenience store/gas station buyers suing Hussain, Colleyville real estate broker Mohammed “Mo” Siddique, and a close-knit group of associates over the deals. “The market was driven by these fraudulent transactions,” Carney said. “The values of these gas stations and convenience stores have been slaughtered. They’re worth 40 percent of what they were.”

According to statements made by Assistant U.S. Attorney Rose Romero during Demik’s trial, the FBI is continuing to investigate Siddique. Demik testified the FBI has seized files from his office relating to one Siddique transaction involving three Fort Worth-area convenience stores.

Romero also questioned Demik about his dealings with Atlantic Oil & Gas Inc., a Dallas oil distributor and convenience-store builder and operator that has taken part in some of Hussain’s convenience store transactions.

Carney also said that, during the Demik trial, Romero informed two Washington Mutual loan officers that they are under investigation. Neither Romero nor Washington Mutual returned phone calls asking for comment.

Washington Mutual, the Seattle-based banking giant, inherited trouble when it purchased Bank United of Houston, which had been the primary bank involved in the SBA loans. In December 2003, primarily due to losses on those Texas loans, the company shut down its SBA loan division nationwide. The two loan officers Romero pinpointed previously worked for Bank United.

Hussain, 47, pleaded guilty to bank fraud and became a key government witness in Demik’s trial and others. He is set to be sentenced Nov. 30 and could get up to 30 years in prison, $1 million in fines, or both. According to a 2003 affidavit filed by an agent in the FBI’s Fort Worth-based white-collar crime unit, Hussain and his company, Certified Commercial Real Estate Group Inc. of Bedford, brokered 114 small-business loans worth more than $94 million between 1998 and 2000. He has repeatedly declined to be interviewed. His Fort Worth attorney, Tim Evans, did not return a telephone call.

Hussain and his family moved to a Houston apartment after federal authorities seized their Colleyville home earlier this year. They filed bankruptcy on Sept. 6, listing $18,725 in personal assets and nearly $758,000 in debt.

Siddique has also filed bankruptcy on behalf of himself and his company, Citizens Commercial Real Estate Group Inc.

In one of the Tarrant County lawsuits, Carney alleges that Siddique set up a “straw man” to conceal his role as both broker and buyer of three convenience stores in Alvarado, Hillsboro, and Joshua in deals closed by Demik. The buyer of two of those stores, B. Hari International Inc., later defaulted on the SBA-backed loan that made their purchase possible. Romero said 40 to 50 loans Demik closed during the period have defaulted with losses of more than $50 million.

Siddique’s attorney did not return phone calls seeking comment.

Atlantic Oil & Gas is a party to one of the major lawsuits involving Hussain still pending in Dallas County, where trials have been delayed by Hussain’s bankruptcy. The company settled a 1999 lawsuit alleging it conspired with Hussain to inflate financial projections on a Fina station in Garland and then flipped it. Court records show Hussain earned a $300,000 commission when Atlantic bought the station for $350,000 and sold it the same day for $1.12 million.

In another case handled by Carney, a jury awarded his clients a $300,000 judgment in a case involving inflated values and allegations that Atlantic falsely promised a Church’s Chicken franchise in exchange for a franchise fee and an oil-distribution contract. The company appealed, but reached a settlement with the plaintiffs. Atlantic attorney R. Kirk Newsom has said in past interviews that the company’s dealing with Hussain were rare.

Carney said plaintiffs’ lawyers have been able to mitigate the losses to some buyers by turning over the keys of stores financed by Washington Mutual in a bulk negotiation. He said some have filed for bankruptcy or seen their credit destroyed. They’ll be paying for years to come.

Bilal “Bob” Shaikh and his wife, Fehmida, are still in court with Atlantic over the store they built at Mid-Cities Boulevard and Holiday Lane in North Richland Hills. Bob’s Food Store opened in 2001 with a Golden Chicken franchise, 4,000 square feet of space, and the American dream the Shaikhs had brought from India 13 years earlier.

Shaikh contracted with Atlantic to build the store but said the work left his foundation shaky and his cooler and ceilings flooded during heavy rains. When Shaikh withheld construction payments, Atlantic cut off the station’s gasoline supply and withdrew their brand.

Atlantic has denied wrongdoing and termed the dispute a simple question of payment.

Two Plano businessmen, Aamir Askari and Ankur Desai, plan to reopen the property as a Diamond Shamrock station and a Golden Chicken franchise later this month.

By that time, Bob Shaikh hopes he’ll be working for someone, but not at a convenience store. “I lost my credit,” he said. “I lost everything.”

Michael Whiteley can be reached at mikewhiteley@sbcglobal.net.


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