Hurricane Sandy had devastated his business, leaving him unable to pay his bills. His mob ties had been exposed in federal court. His financial maneuvering had just come under scrutiny by auditors.
Khan saw one way out, federal prosecutors said: He wrote hundreds of checks to himself, then raced across the city from bank to bank to deposit them in accounts under his name or those of his businesses.
In all, the prosecutors said, the checks totaled $82 million.
It was one of the largest check-fraud schemes anywhere in the country in recent years, according to the complaint against Khan and interviews with fraud experts - a brazen example of a crime that has been on the rise since the recession hit.
This is an era in which thieves steal millions with the click of a mouse. But Khan is accused of carrying out a low-tech fraud that has unexpectedly exposed holes in the security of the banking system. He took advantage of the willingness of banks to allow some customers to overdraw their accounts temporarily, prosecutors said.
The criminal complaint also sheds light on Khan, one of those extraordinary characters nurtured by the city, an immigrant whose life of operatic twists has wound through tribal Pakistan, Staten Island strip malls, fundraisers for Hillary Rodham Clinton and underground gambling halls.
The banks have recovered most of the $82 million, officials said. More than $11 million of the money Khan withdrew is frozen in an account to be distributed to the banks to help repay their losses, his lawyer said.
It appears that he spent at least $2 million of the money before he was arrested Dec. 13, according to interviews and the criminal complaint.
Khan, who declined to be interviewed, is free on $500,000 bail and trying to arrange a plea bargain with prosecutors, according to court records. His lawyer said that Khan was only trying to save his business and that he was working hard to pay back the banks.
But even experts were taken aback by the accusations.
"It blows my mind," said Frank Abagnale, the celebrated con man who inspired the Steven Spielberg movie "Catch Me If You Can" and now works as a fraud-detection consultant.
"That's way, way out there," Abagnale said.
Khan, 51, comes from a prominent family in Pakistan - relatives said he was a favorite nephew of Bashir Ahmad Bilour, a well-known politician who spoke out against the Taliban. Bilour was killed in a suicide attack in late December.
Trained as a doctor, Khan came to the United States in the 1980s but ended up working with his sister and her husband, who owned some two dozen delis across Staten Island.
From there, Khan set out on his own, building up Richmond Wholesale Co., a cigarette and grocery business that recorded $125 million in sales last year, according to Dun & Bradstreet, a financial information provider. Richmond Wholesale supplies products to delis and gas stations across the New York region. Khan also owns three delis.
Khan, until recently the chairman of the board of a prominent Staten Island mosque, was known in the borough's close-knit Pakistani community as a flashy businessman. He once had a mansion in the Todt Hill neighborhood and drove a Mercedes with a license plate that read
He was also a generous supporter of politicians of both major parties, giving more than $65,000 to more than 40 campaigns in the past decade, including those of Clinton, former Rep. Anthony D. Weiner, former Gov. Eliot Spitzer and former Gov. George E. Pataki.
His friends said that while he reveled in his achievements, he was also a hardworking entrepreneur who built a life for himself deli by deli.
"I'd rather be working in my store," he said in 2010. "I'd rather be doing my daily business."
That comment, though, hinted at the dark side of his success. He made it while testifying at a mob trial.
As he rose in the business community on Staten Island, he developed a close relationship with a soldier in the Genovese crime family, John Giglio, also known as Johnny Bull or Fat John, according to the court testimony.
Khan testified that he had used that connection to pressure at least one reluctant deli owner to sell his business to him.
Through Giglio, Khan said, he met other high-ranking organized-crime figures in gambling halls, although he was never charged in connection with these relationships. (Khan's testimony came at the trial of Anthony Antico, who was convicted of racketeering.)
Prosecutors who put together the recent criminal complaint against Khan said his fraud was an outsized version of a familiar swindle - check kiting - in which the thief takes advantage of the time it takes for banks to clear checks.
The thief deposits inflated checks and then quickly transfers the money to another account before the checks bounce.
Hurricane Sandy hit Staten Island particularly hard, leaving Khan desperate to recoup business lost during power failures and worse, his lawyer, Sharon L. McCarthy, said.
"All he was trying to do was run his business and pay his employees," McCarthy said. "He did not intend to hurt any of these financial institutions."
The transfers and withdrawals are complicated but suggested a simple plan: He deposited worthless checks and withdrew real money - tens of millions worth, according to the criminal complaint.
Over two weeks in November, he wrote hundreds of checks to himself, more than a dozen a day, drawing from accounts at about six banks, the complaint said.
The pattern of precise amounts - $886,841, then $874,532, then $461,232 - was an indication of fraud, experts said.
The pace grew increasingly frantic. He deposited $49 million worth of checks into accounts at Capital One, a mix of legitimate ones from vendors and fraudulent ones written to himself, according to court records and interviews.
The bank made those funds available without waiting for the checks to clear. That turned his fictions into millions, allowing Khan to transfer $42 million into accounts at other banks, according to a lawsuit that Capital One filed against Khan's company.
He then withdrew and transferred more money to other accounts as the fake checks kept piling up. He wrote checks worth $82 million that did not "appear to have had any legitimate purpose other than to support the 'check kiting' scheme," the criminal complaint said.
McCarthy called the $82 million figure "an artificial number" that represented the amount of overdrafts but not the banks' total loss.
Soon, auditors at some of the banks - including Capital One, M&T Bank and Flushing Savings Bank - realized what was going on.
McCarthy said Khan blew the whistle on himself, alerting the banks that he had withdrawn far more than was in his accounts and planned to pay it back.
The banks declined to comment, and several civil lawsuits against Khan are pending.
His friends on Staten Island said they were shocked by the accusations and described him as a humble man who was always on the job.
"If you had called him when he was doing cigarette wholesale, he would arrive there at 5 a.m. and be there until 8 p.m.," one of them, Suhail Muzaffar, said.
Khan's arrest has also caused turmoil at the mosque where he was chairman, Muslim Majlis of Staten Island. He resigned late last month.
He was once well-respected there. Now, mosque leaders are sharply divided in their feelings toward him. A founder of the mosque recently resigned from its board after 33 years because of the taint of the Khan case.
For now, Khan is working to stave off the charges and pay back the banks any way he can, including selling his business - the final twist in the deli king's fall.
© 2013, The New York Times News Service