Shariah’s Black Box

Caribou filed its first amended draft of the registration statement on August 15, 2005. While there is no change to the description of the 2002 affair, some additional risks are disclosed relative to financing:

 . . . We may, however, enter into a new lease financing arrangement or other financing arrangement or amend our current lease financing arrangement to provide us with additional liquidity. We expect that any such financing arrangement would be structured in a manner that would be compliant with Shariahh principles. Shariahh principles regarding the lending and borrowing of money are complicated, requiring application of qualitative and quantitative standards. The negotiation and documentation of financing that is compliant with these principles are generally complex and time consuming. As such, if we have immediate liquidity needs, we may not be able to obtain financing that is compliant with Shariahh principles on a timely basis.[335]

The SEC commented on the first amended registration statement by asking for some additional clarity on the “disclosure concerning the majority shareholder to briefly discuss the shareholder and compliance with Shari`ah principles.”[336] Notwithstanding the written comments by the SEC, no material changes regarding Shariah or the 2002 affair were made to any of the subsequent four amendments to the registration statement or to the final prospectus.[337] No changes to these disclosures have been made in any of the interim filings through the last Form 10-K annual report.[338]

A cursory examination of the civil liability and criminal exposure issues confronting Caribou suggests that the company and its legal counsel opted to bury the Shariah black box and to ignore what it knows or most certainly should have known are the facts that require at the very least some further due diligence on their part and fuller disclosure.

2.       Analysis

To begin, to the extent that the examination in this memorandum of the civil liability and criminal exposure issues surrounding the endogenous and exogenous elements of Shariah and SCF, respectively, are valid, this memorandum would expect to find implications for both in specific examples. Caribou certainly fits. A U.S. retail chain of coffeehouses is principally owned and operated by investors from the GCC states. These investors have organized themselves as an investment bank in Bahrain and incorporated a subsidiary in the U.S. The financial structure of this company with numerous off-shore entities is complex and convoluted utilizing literally dozens of Cayman Island offshore entities to hold the stock of Caribou. The parent company adheres to Shariah and to be certain of this has retained a Shariah advisory board. The Shariah rulings of this advisory board control not just the parent company but also the operations of the retail chain.

The former chairman of the Shariah advisory board was forced to resign following the public exposure of his open support of Palestinian and Lebanese Islamic terrorist groups. The accusations of funneling charitable contributions from the principal shareholder’s profits to terrorist groups were sufficiently alarming that the company requested a majorU.S. law firm to make certain that none of the beneficiaries of the charitable contributions were specifically designated as terrorist organizations by theU.S. government.