| Short-Seller Elgindy Sentenced To More Than 11 Years
By Carol S. Remond
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--U.S. District Court Judge Raymond Dearie on Monday sentenced short-seller Anthony Elgindy to 135 months, or more than 11 years, in prison for his role in a scheme to manipulate the stocks of small-cap companies.
Dearie also sentenced Elgindy to forfeit $1.5 million.
Elgindy was convicted in January 2005 of racketeering, conspiracy and securities fraud. He and four others were charged in May 2002 in U.S. District Court for the Eastern District of New York with securities fraud, extortion and obstruction of justice.
Federal prosecutors accused Elgindy of using confidential government information obtained from Federal Bureau of Investigation special agent Jeffrey Royer to manipulate stock. Royer was found guilty of racketeering conspiracy, securities fraud and obstruction of justice.
-By Carol S. Remond, Dow Jones Newswires; 201-938-2074
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NEW YORK (AP) — A former FBI agent and an Internet penny stock adviser were convicted Monday of mining government computers for confidential information they used to manipulate the stock market.
Former agent Jeffrey Royer was convicted of racketeering, securities fraud, obstruction of justice and witness tampering for leaking details of FBI investigations and executives' criminal histories to San Diego stock picker Anthony Elgindy.
Elgindy was convicted of racketeering, securities fraud and extortion for his role in the scheme. He dropped his face into his hands and sobbed uncontrollably as the jury foreman read the verdict; U.S. marshals led him weeping from the courtroom.
Prosecutors said Elgindy bet against penny stocks and drove down their prices by publicizing damaging information he received from Royer. Elgindy also extorted companies by offering to withhold the information in exchange for cash, prosecutors said.
Royer even tipped off the Egyptian-born financial analyst to an FBI probe into whether he profited from advance knowledge of the Sept. 11, 2001, terrorist attacks by selling off stocks that plunged after the attacks, prosecutors said. Elgindy was not charged in that investigation.
Defense attorneys contended that Royer fed FBI data to Elgindy and another trader as part of a freelance effort to sniff out corporate fraud. They argued that Royer believed Elgindy needed the information as a starting point for finding out more about companies that he and Royer could investigate together.
Elgindy's defense similarly argued that the trader released the government information on his subscription Web site because he was crusading against corporate malfeasance.
Royer was an agent in the Gallup, N.M., office investigating mostly crimes on Indian tribal land. He planned to leave the FBI and work as a private investigator for Elgindy and other traders, prosecutors said. Royer also thought the trader and his associates would help him pay off tens of thousands of dollars in personal debt, they said.
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Govt Presents Evidence Of Extortion Elgindy Case
NEW YORK (Dow Jones)--The federal government presented jurors with a number of taped telephone conversations Wednesday in its effort to prove that short seller Anthony Elgindy and others conspired to extort shares from publicly traded companies.
Elgindy and former Federal Bureau of Investigation Special Agent Jeffery Royer are on trial in the U.S. District Court for the Eastern District of New York, charged with securities fraud, market manipulation and extortion.
The government alleges that Royer used FBI databases to gather information about small companies and their insiders, information that he would often share with Elgindy and others, who used it to profit from selling short the stock of these companies.
The government also maintains Elgindy and others, on at least two occasions, attempted to use information illegally obtained by Royer to extort cheap or free shares from companies they targeted in their short selling scheme. The two companies are Floor Decor Inc. and Nuclear Solutions Inc.
In the case of Nuclear Solutions, federal prosecutors say Elgindy contacted Paul Brown, the company's chief executive, in late 2001 and attempted to use what turned out to be incorrect information about Brown's previous felony conviction to scare the executive into agreeing to a deal under which he would sell a discounted block of 300,000 to 350,000 shares. The shares could then be used by Elgindy and members of his private investment Web site to cover their short positions in Nuclear Solutions stock.
Testifying for the prosecution in the Brooklyn courtroom, Tina Franco, Brown's sister, told jurors that as his secretary, she would transfer all incoming calls to her brother, who would often tape them. Franco testified that her brother, who since died in a car accident, began receiving telephone calls from Elgindy on Dec. 19, 2001. She said other people who called at about the same time were Troy Peters, Roland Chapin, A.J. Nassar, broker David Slavny and former market maker John Fiero. Franco said she heard most of the taped calls, since she was asked by her brother to transcribe the recordings, which he planned to give to the FBI.
Peters, a former broker at investment firm First Geneva in San Diego, is also charged in the case and will be tried separately. Chapin was Peters' boss at First Geneva. Nassar is the former chief executive of Floor Decor. Slavny was at the time an investment banker with J.P. Turner & Co. LLC, which with First Geneva was purportedly trying to help Nuclear Solutions raise money.
Fiero was barred by the National Association of Securities Dealers in 2001 for violating NASD and federal securities laws in manipulating small stocks. He is not charged in the case.
Franco told jurors that her brother was very upset by Elgindy's telephone calls, the tapes of which were played in open court. In two calls on Dec. 19, Elgindy could be heard harassing Brown about a previous conviction, which the short seller didn't know had been dismissed, and about the validity of Brown's college diploma.
Prosecutors also played for the court tapes of several telephone conversations between Brown and Peters. In those tapes, Peters was heard trying to reassure Brown that because he knew and was a friend of Elgindy, he could work out a deal to make short sellers who had been pressuring the stock of Nuclear Solutions "go away."
In one call, Peters could be heard telling Brown that Elgindy was not the only powerful short seller targeting Nuclear Solutions, and that Fiero and his firm, Fiero Brothers Inc., were also involved. Peters said in the call that he could easily take care of Elgindy, but that Fiero was a major force that also needed to be dealt with. Peters told Brown Elgindy would need about 100,000 shares and that Fiero would need 200,000 shares to cover their existing short positions in the stock of Nuclear Solutions.
In a later conversation also heard in court, Peters offered to put together an investment banking deal under which free trading shares could be transferred to Elgindy and Fiero to make them go away.
Elgindy's lawyers tried unsuccessfully to prevent the prosecution from introducing the recordings into evidence, claiming that their authenticity was in question. In particular, Elgindy's lawyers argued that tapped conversations between Fiero and Brown should not be admitted in evidence. In one call, discussed with the judge in a sidebar without jurors present, Fiero could be heard telling Brown that he should go to the FBI because the deal sounded like extortion.
Franco is scheduled to resume her testimony after lunch. Nassar is expected to testify Thursday.
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+DJ Federal Judge Revokes Elgindy Bail
04/19/2004
Dow Jones News Services
(Copyright © 2004 Dow Jones & Company, Inc.)
(MORE) Dow Jones Newswires
04-19-04 1646ET
*DJ Elgindy Arrested Saturday At NY Airport Using Fake ID
(MORE) Dow Jones Newswires
04-19-04 1646ET
=DJ Elgindy Arrested Saturday At NY Airport Using Fake ID
By Carol S. Remond
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Embattled shortseller Anthony Elgindy is back
in jail just over a month before the scheduled start of his trial on
charges of securities fraud and racketeering.
Elgindy was arrested in May 2002 and charged in a case involving the
use of confidential government information to manipulate the stock
of several small-cap companies.
Elgindy had been out on a $2.5 million bail, which was revoked
Monday by federal judge Raymond Dearie.
According to a sworn affidavit, Elgindy was arrested Saturday at the
MacArthur Airport in Islip, N.Y., attempting to board a plane using
a fake ID. The Southwest Airlines plane was headed to Phoenix with a
connecting flight to San Diego.
The boarding pass issued to Elgindy bore the name of Manny Velasco.
Elgindy was also in possession of a fake Montana state ID, with his
picture that listed the name Herbert Manny Velasco.
Elgindy was carrying $25,000 in cash and some $40,000 in jewelry at
the time of his arrest. He also had four cellphones and various
electronic devices. According to the affidavit, when he was
arrested, Elgindy denied that he was Tony Elgindy and said that
Elgindy was the person who he had gone to see in New York.
Elgindy and five co-defendants were charged in 2002 on charges they
conspired to drive down the price of the shares of companies they
targeted in a short-selling scheme.
Also charged in the 2002 case are two former FBI agents, Jeffrey
Royer and Lynn Wingate; two traders, Troy Peters and Derrick
Cleveland; a fund manager, Jonathan Daws; and Elgindy's Web master,
Robert Hansen.
Cleveland has pleaded guilty to racketeering and Hansen has pleaded
guilty to one count of conspiracy to commit securities fraud. Both
are cooperating with the government.
Under the conditions of his bail, Elgindy had worn a GPS bracelet at
all times while in San Diego where he resides. The bracelet was
removed when Elgindy was allowed to travel on pre-authorized trips
to meet with his lawyers in New York.
At the time of his arrest, Elgindy also carried an identification
card in the name of Heriberto M. Velazco.
<arred for life online stock short-seller Amr "Tony" Elgindy and expelled his firm from the securities industry for an alleged scheme to manipulate the price of Saf T Lok Inc. .
Elgindy could not be reached for comment.
Elgindy and his firm, Key West Securities, in 1997 inflated
the stock price of handgun safety device manufacturer Saf T Lok by entering fraudulent quotations in the Nasdaq system and then sold the stock short at the artificially high prices, the National Association of Securities Dealers' National Adjudicatory Council charged in a statement.
The charges come on top of the arrest last May of Elgindy,
two associates and two FBI agents on charges of racketeering and securities fraud.
Elgindy and Key West, who were jointly fined $51,000 on
Monday, then sent out negative research on the company, pushing down Saf T Lok shares. Elgindy is barred for life from the industry while Key West is permanently expelled from the brokerage business.
Following the May arrests, one of the FBI agents admitted
to most of the accusations against him, including allegations that he dug up information about companies in regulatory or criminal trouble in FBI databases and passed it on to Elgindy.
Last year, Elgindy owned and operated Pacific Equity
Investigations, as well as www.InsideTruth.com, a public
investment Web site, and www.AnthonyPacific.com, a subscription e-mail newsletter and subscription-based investment Web site.
Elgindy encouraged his Web site subscribers to short stocks as well, thus pushing down share prices so he and the others could maximize short-selling profits.
An investor makes money from short-selling by borrowing a
stock and selling it at a higher price and then repurchasing it at a lower price.
((Reporting by Chris Sanders, editing by Gerald E. McCormick;
chris.sanders@reuters.com; Reuters Messaging:
chris.sanders.reuters.com@reuters.net; 646 223-6343))
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FBI Agent Charged With Using Secret Records for Stock Scheme
By AARON ELSTEIN, LAURIE P. COHEN and GARY FIELDS
Staff Reporters of THE WALL STREET JOURNAL
May 23,2002
The government charged an FBI agent and a former one with giving
stock traders confidential information about criminal probes of
public companies, in a short-selling scheme that profited by
spreading unfavorable information to drive stock prices down.
The scheme was allegedly headed by Anthony Elgindy, a colorful and
controversial investing figure who also is known on the Internet as
Anthony@Pacific, according to an indictment announced by the U.S.
Attorney's office for New York's Eastern District in Brooklyn.
The government alleged that Mr. Elgindy received information from the
FBI insiders, who used the bureau's databases to tip him about public
companies facing criminal problems or investigations. Then, according
to the indictment, he used the information to sell the companies'
shares short, advise others to do the same -- and to extort stock
from companies that feared manipulation of their shares.
A short-seller unloads borrowed shares for a profit when a stock
declines, so exclusive access to unfavorable information would be
valuable. The six-count indictment alleged that the scheme thrived on
confidential information supplied by two rogue agents -- Jeffrey A.
Royer, who left the FBI's employ last December to join Mr. Elgindy's
trading operation, and Lynn Wingate, who joined the bureau in 1999
and was relieved of duty Tuesday night.
U.S. V. ELGINDY, ET AL
See the full text of the indictment, by arrangement with Findlaw. To
view the document, Adobe Acrobat is required.
Both are accused of providing confidential information to help Mr.
Elgindy decide which companies to target. "The allegations in the
indictment reveal a shocking partnership between an experienced stock
manipulator and law-enforcement agents, undertaken for their illicit
personal financial gain," said U.S. Attorney Alan Vinegrad in a
prepared statement.
White-collar crime experts voiced shock at the allegations,
especially the FBI agents' alleged involvement. "I've never come
across a case like this one," said Robert Mintz, a former federal
prosecutor who heads the government investigations practice at the
Newark law firm of McCarter & English. "It seems incredibly bold to
use the government's own resources to orchestrate a stock-
manipulation scheme."
He said the confidential information allegedly used in the scheme --
from the FBI's Automated Case Support and National Crime Information
Center databases -- would be a "gold mine" of information. The
databases contain information about companies and individuals under
criminal investigation and their criminal histories, as well as
information about civil investigations undertaken by the Securities
and Exchange Commission.
Two additional Elgindy traders, Derrick Cleveland and Troy Peters,
were charged along with the other three with racketeering and
securities fraud conspiracy. Messrs. Elgindy, Royer and Peters were
also charged with extortion conspiracy. Ms. Wingate and Messrs.
Elgindy and Royer face additional charges of obstructing a grand jury
probe of the allegations. The most serious charge against each
defendant carries a prison term of up to 20 years.
A person who answered Mr. Elgindy's cellphone said he wasn't
available for comment. Calls to Mr. Elgindy's firm, Pacific Equity
Investigations, of San Diego, weren't returned. Messrs. Royer,
Wingate, Cleveland and Peters couldn't be reached. The government
said all five defendants were arrested on Tuesday -- Messrs. Elgindy
and Peters in California, Ms. Wingate and Mr. Royer in New Mexico,
where they were most recently assigned with the FBI, and Mr.
Cleveland in Oklahoma.
Stephen T. McCue, a court-appointed federal defender who represented
Ms. Wingate at Tuesday's hearing, said she is now assigned to the
drug squad. He said she is "a solid line agent who has done a number
of different things in her time." He said Ms. Wingate "intends to
plead not guilty." Mr. McCue said that her financial resources
are "limited" and that counsel will be appointed for her in New York.
David Kitchen, who was Special Agent in Charge of the Albuquerque FBI
office at the time of Ms. Wingate's arrival, says she came to work
for him fresh out of the FBI's training academy in Quantico, Va., in
the fall of 1999. Mr. Kitchen says Ms. Wingate was assigned to the
bureau's bank robbery squad for about six months and was then "moved
up" to the white-collar crime squad, possibly putting her in touch
with publicly traded companies under scrutiny. At the time Mr.
Kitchen left the FBI, in May 2000, Ms. Wingate was just getting
started in her new assignment.
"I am really surprised to hear she could be involved in something
like that," Mr. Kitchen said.
Court Date
Ms. Wingate was released on her own recognizance. Mr. Royer was
released but must wear an electronic bracelet. Both have been ordered
to appear on noon next Tuesday before U.S. District Judge Raymond
Dearie in Brooklyn. Doug Couleur, the court-appointed counsel for Mr.
Royer, said he will have a different court appointed counsel in New
York next week, where Mr. Royer plans to plead "not guilty."
The indictment didn't say how much money the defendants netted from
the scheme, though Mr. Royer was alleged to have been paid $30,425
while he was still an FBI agent. In a separate action authorities
filed a civil suit seeking to seize funds from numerous accounts held
by Messrs. Elgindy and Royer, as well as Mr. Elgindy's Rolls Royce,
Bentley, Jaguar and Hummer automobiles and his $2.2 million home.
The indictment says that starting in 2000, Messrs. Elgindy and
Cleveland "corruptly induced" Mr. Royer to provide them with
confidential law-enforcement information about companies whose stock
they had sold short. After leaving the FBI to join Mr. Elgindy's
operation, it says, Mr. Royer allegedly persuaded Ms. Wingate to
provide similar information from FBI databases.
In one alleged instance, Mr. Royer found criminal-history information
in an FBI database about Paul Brown, chief executive of Nuclear
Solutions Inc., a small company based in Meridian, Idaho, and passed
it to Mr. Elgindy, who shorted the stock and distributed a report to
his subscribers last December calling Mr. Brown "a convicted felon."
Nuclear Solutions' stock fell sharply in the aftermath of Mr.
Elgindy's report. Nuclear Solutions officials couldn't be reached for
comment.
The indictment says Messrs. Elgindy and Peters would use the
confidential information they collected from the FBI to
make "extortionate demands" on companies that they knew were being
investigated by federal authorities. Once these demands were
satisfied, the indictment says, Mr. Elgindy would tell subscribers to
his Web site to exit their short positions and cease
disseminating "negative information" about the company being targeted.
Internet Celebrity
Mr. Elgindy, a 34-year-old native of Cairo, Egypt, became something
of a celebrity among Internet investors during the headiest days of
the technology-stock bubble. His messages on such stock-chat sites as
Silicon Investor, usually recommending investors sell shares he
deemed overpriced, were widely followed. Silicon Investor members
demanded Mr. Elgindy be reinstated after he was suspended from the
site in 1999 when his remarks got a little too caustic. He later
started his own Web sites, AnthonyPacific.com and InsideTruth.com,
charging people up to $600 a month to see his picks first and read
his often colorful comments.
Mr. Elgindy has a history of run-ins with criminal authorities and
securities-industry regulators. In May 2000, he was sentenced to four
months in federal prison and three years of probation for
fraudulently collecting disability payments between May 1994 and
February 1995 while he continued to work as a stockbroker at Bear
Stearns. In 1997, he was fined $30,000 by the National Association of
Securities Dealers for stock-trading violations in 1993 that included
improperly using a trading system for retail customers. The NASD
revoked Mr. Elgindy's membership in 1998 after he stopped making
payments on the fine.
Mr. Elgindy's wasn't shy about expressing opinions about his field.
Once, after a person posted on the Internet a fake Bloomberg News
story saying that PairGain Technologies Inc. would be acquired, he
seemed to decry such tactics. "The Internet has become the world's
largest conference call," Mr. Elgindy said an Associated Press
article. "And plenty of the people talking about stocks have hidden
motives for what they're saying."
When he was convicted in 2000 on federal charges of mail fraud, Mr.
Elgindy was forthcoming in acknowledging his misdeed. "I was a stupid
kid and I did a stupid thing," he said then. "I can't hold others
accountable if I'm not held up to the same standards. I have no hard
feelings toward anybody."
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