Royer's Trading In BBAN Scrutinized In Elgindy Trial
01-04-05 11:45 PM EST
NEW YORK (Dow Jones)--A former FBI special agent on trial for market manipulation in Brooklyn invested in the stock of a company even after he was informed that one of its insiders was dirty, a federal prosecutor alleged in court Tuesday.
Documents introduced into evidence in the federal securities case against Anthony Elgindy and former Federal Bureau of Investigation agent Jeffrey Royer show that Royer bought shares of Broadband Wireless International Corp (BBAN) in January 2000, months after another FBI agent told him that Don Knight, a man who controlled much of Broadband Wireless and its stock, was likely involved in criminal activities.
Royer said in court that he didn't know at the time of his investment that Knight was involved with Broadband Wireless. But his testimony came under attack by Assistant U.S. attorney Seth Levine Tuesday.
Royer and Elgindy are standing trial in U.S. District Court for the Eastern District of New York. They and others were charged in May 2002 with securities fraud, market manipulation and extortion. The government alleges that Elgindy used a private investing Web site to share and trade on confidential information he obtained from Royer. The government also claims that Elgindy and others used some of that information to extort discounted shares from at least two companies.
Testifying for his own defense, the former agent said in court this week that he sold his shares of Broadband Wireless as soon as he became aware of the involvement of Don Knight, a man he was investigating for insurance fraud. Royer later that year worked on an FBI probe into Knight and Broadband Wireless at Oklahoma City FBI office. He was removed from the investigation in late August when a federal prosecutor became aware of his previous involvement in the stock.
Under cross-examination by Levine, Royer testified that he first realized that Knight was involved with Broadband Wireless in late February or early March 2000. Royer said he first got audio tapes from an FBI agent in Newark, Jim McGuigan, in the Summer of 2000. The tapes related to an undercover securities and mob case run by the Newark FBI office and indicated that Knight may be involved in criminal activities.
But under tough questioning by Levine, Royer admitted that he first talked to McGuigan in the summer of 1999, not 2000. Levine introduced into evidence FBI documents showing that Royer received the Knight audiotapes in September 1999, not the summer of 2000, as Royer had first claimed.
Knight disappeared in late August 2000 after the Securities and Exchange Commission and the Oklahoma State Securities Department filed lawsuits alleging that he and Broadband Wireless' president, Ivan Webb, defrauded investors by releasing untrue Internet postings to artificially drive up Broadband stock 10, 000%, from pennies to more than $12 a share. In September 2004, the SEC permanently enjoined Knight from further violating securities law. Knight remains a fugitive and according to the SEC currently resides in Alajuela, Costa Rica.
Royer told jurors Tuesday that he was investigating Knight for insurance fraud but that he didn't know that Knight was involved with Broadband Wireless, or its predecessor company, Broadcom Wireless Communications Corporation, before late February or early March 2000.
But a financial report filed by Broadband Wireless in July 2000 with the SEC shows that from July to November 1999, Broadband was negotiating with Knight, who wanted to acquire a shell company to reverse merge assets into it. Both parties signed a memorandum of understanding in November 1999. According to the filing, Broadcom, a company controlled by Knight, owned about 64% of Broadband Wireless stock and exerted control over the company until May 2000.
None of this information was public in early 2000 when the former FBI agent invested in Broadband Wireless.
But prosecutor Levine was clearly dubious of Royer's claim of ignorance, given the former agent's investigation of Knight for insurance fraud and the fact that he had received information indicating that Knight might be involved in criminal activity.
"When you traded in BBAN, you knew that Don Knight was involved, right," Levine asked Royer. "Absolutely not, there was no link between BBAN and Don Knight until February or March 2000 when I sold my stock," Royer answered.
After first telling jurors that he sold his investment in Broadband Wireless as soon as he became aware of Knight's involvement, Royer admitted, under questioning by prosecutor Levine, that he sold his shares in the company in three installments to maximize his profits.
"You sold based on the price of the stock?" Levine asked to Royer who answered, "Yes."
Evidence introduced in court shows that Royer made about $12,000 on his investment in Broadband Wireless. The former agent sold his stock on two separate occasions in February 2000 and on March 3, 2000.
Royer's cross-examination is scheduled to resume Wednesday.
-By Carol S. Remond, Dow Jones Newswires, 201 938 2074, carol.remond@ dowjones.com
Dow Jones Newswires
01-04-05 2345ET
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