US securities regulators have sued a well-connected Kuwaiti financier whose investment firm is partly owned by Citigroup, saying he reaped millions in suspicious profits after "fraudulent" takeover reports sent shares of two US companies soaring.

The civil lawsuit against Hazem Khalid Al-Braikan is sure to send shockwaves through the Middle East investment community. Al-Braikan declined to comment when reached by telephone.

Al-Braikan is chief executive of Al-Raya Investment Company, which is 10 percent owned by Citigroup. A familiar figure at high-level Middle Eastern financial functions, he is considered a respected member of the Kuwaiti money management world.

The US Securities and Exchange Commission said in papers filed in Manhattan federal court that Al-Braikan and entities linked to him in Kuwait and Bahrain earned more than $5 million from well-timed trades in Harman International Industries and Textron.

In Washington, a top SEC enforcement division official, Scott Friestad, said: "This is pretty brazen misconduct."    

He said that an investigation began soon after learning about the takeover hoax on Monday at the same time as the markets and media outlets.

"We have had a team of six or seven people working around the clock for the last couple of days to gather evidence."    

The commission got an emergency court order on Thursday freezing the trading profits in various US accounts.

"Defendants engaged in a deceptive scheme to profit by trading around the fraudulent offers to acquire Harman International and Textron," the SEC complaint said.

The defendants "profited from amassing large positions" in stocks and options in the two companies, the SEC papers said.

Harman shares briefly soared on Monday after several media outlets reported that a private investment firm called Arabian Peninsula Group planned to buy it at almost double its market price. The incident was similar to a phony offer for Textron in April from a United Arab Emirates-Kuwait consortium.

News outlets, including Reuters, received a one-page fax on Sunday announcing the purported Harman bid, originating from a Kuwaiti area code.

The SEC did not specify who sent the fax, or who spread news on the fake bid for Textron.

Al-Braikan is known to discuss market rumors with reporters, a common practice in Kuwait, where businesspeople and traders sometimes leak sensitive company details or questionable information that can move stocks on a market that has no financial regulator.

He alerted a Reuters reporter in Kuwait City that a bid was imminent for Textron before the April hoax.

"There is a major scoop coming," he said at the time. "Don't tell anyone but I will give you a great scoop."    

Other defendants in the SEC suit include investment bank United Gulf Bank and Kipco Asset Management Co (Kamco). Both are part of the Kuwait Projects Co (Kipco) group, according to the SEC.

Kipco declined to comment. The other defendants could not immediately be reached. Citigroup confirmed it has a stake in Al-Raya but declined further comment.

Kipco is affiliated with senior members of Kuwait's ruling Sabah family. Its chairman is a son of the ruler and two board members belong to the family. It is the biggest investment firm by assets in Kuwait.

Al-Braikan's resume says he has served on multiple boards, has several professional degrees and has military experience including serving in operations Desert Shield and Desert Storm during the first Gulf War.

The resume says he won the US Medal of Honor from the Gulf War Coalition Forces in 1991. It is the highest US medal for valor in combat that can be awarded to the armed forces.

However, US Army spokesman Gary Tallman said none of these medals was awarded for Operations Desert Shield and Storm.<