UPDATED 11/17/10 12:18 p.m.

CHICAGO (CBS) – Three owners of a bankrupt Chicago development firm that promised to adhere to Islamic law in handling investments were actually running a Ponzi scheme that defrauded victims out of more than $43 million, according to federal prosecutors.

The defendants, who owned the real estate development firm Sunrise Equities Inc., allegedly fraudulently obtained more than $40 million from more than 300 investors through the sale of promissory notes, and fraudulently obtained more than $29 million in loans from three area banks, according to the U.S. Attorney’s office.

The individual victims collectively lost about $30 million and the banks lost about $13.7 million when the scheme collapsed in the fall of 2008, according to prosecutors.

Two defendants, Salman Ibrahim, majority owner, president and CEO of Sunrise; and Mohammad Akbar Zahid, senior vice president and 10 percent owner, told investors that investments in Sunrise were Shariah compliant, meaning they would not be paid interest on investments, which is prohibited under Islamic law, the release said. Instead, investors would receive monthly payments consisting of “profit” generated from real estate development.

As a result, the defendants received investments from hundreds of Muslims in the Chicago area and around the country. Ibrahim and Zahid sold investments in the form of promissory notes, claiming funds would be invested in real estate development with annual returns of 15 and 30 percent, according to 14-count superseding indictment returned by a federal grand jury Tuesday and announced Wednesday.

“This is the first time in Chicago that an alleged fraud scheme has been uncovered that used a pillar of Islam to induce potential victims to invest,” Robert Grant, special agent-in-charge of the Chicago FBI, said in the release.

Both Ibrahim, 37, a Pakistani national; and Zahid, 59, a U.S. citizen, formerly of Chicago, have fled the country since Sunrise collapsed after being forced into bankruptcy, the release said.

They are believed to be living abroad and anyone with information should call the FBI at (312) 421-6700.

They are charged with seven counts each of mail or wire fraud and one count each of bank fraud. Ibrahim was also charged with two additional counts of bank fraud and two counts of making false statements to financial institutions. Zahid was charged with one count of making false statements, the release said. The indictment seeks forfeiture of at least $43.7 million from them.

A third defendant, Amjed Mahmood, 47, of Des Plaines, who was senior vice president and a 10 percent owner of Sunrise, was charged with one count of conspiracy to commit mail, wire and bank fraud. He will be arraigned at a later date, according to the release.

As part of the alleged scheme, Ibrahim and Mahmood obtained loans totaling about $20.3 million from Mutual Bank to construct a high-rise condo building at 24 S. Morgan St.. In June 2007, Ibrahim and Zahid obtained a $7.2 million loan from Cole Taylor Bank to construct high-rise condos at Leland and Clarendon; and Mahmood alone obtained a $1.2 million loan from Devon Bank to build a high-rise condo at 2215 W. Madison St., according to the indictments.

A total of 150 investors filed an involuntary bankruptcy petition in U.S. Bankruptcy Court in September 2008, in an effort to freeze Sunrise’s assets, according to the Chicago Tribune. The investors were mostly Indian and Pakistani Muslims.

The Sun-Times Media Wire contributed to this report.