FRONT MAN. But Amr ''Tony'' Elgindy, head of a Fort Worth-based firm called Key West
Securities Inc., has alleged in court papers that Belfort bought a silent partnership in his firm early in
1997. He maintains that the relationship fell apart after he resisted pressure by Belfort to open up an
office in New York City to sell stock to the public in the time-proven way, by high-pressure
cold-calling. According to Elgindy, Belfort bought into his firm using a trusted associate named Robert
LoRusso as a ''front man.'' LoRusso and Belfort vigorously deny Elgindy's allegations.
LoRusso and Belfort both maintain that Elgindy is no angel. Indeed, in September, Elgindy settled
NASD charges of alleged trading abuses by consenting to a fine and a one-year ban as principal of a
brokerage firm. He neither admitted nor denied the charges. The NASD complaint alleges that ''Elgindy
was suffering from severe mental illness'' at the time of the trading abuses. Elgindy maintains that was
a reference to severe depression. LoRusso also asserts that Elgindy misappropriated funds and failed to
disclose regulatory problems, which resulted in a suit by LoRusso to rescind his deal to buy into the
firm. LoRusso's allegations are denied by Elgindy, who settled the suit by agreeing to rescind the deal.
PASSIVE? Although Elgindy is anything but an unbiased observer, his allegations support the
assertion of chop-house brokers and traders that Belfort remains a powerful presence in the chop-stock
business. According to Elgindy, Belfort is a well-capitalized short-seller of chop stocks--an
adventurous brand of trading that is Elgindy's specialty. But, say Elgindy and other sources familiar
with Belfort's activities, Belfort also has had access to cheap stock in numerous companies and has
pushed a host of stocks through retail firms-- particularly Monroe Parker, D.L. Cromwell, and
Biltmore. In a phone conversation with Elgindy in December, 1996, that Elgindy taped, Belfort seems
to imply that he is more than just a passive observer of activities on the Street. Referring to one stock
deal, Belfort told Elgindy: ''I have access to a lot of small firms.''
Elgindy and others familiar with Belfort's activities maintain that Belfort has been a hidden power
behind the retailing of a host of stocks. Among the stocks that Elgindy says were Belfort favorites were
Big City Bagels, Luma Net, Grand Havana Enterprises, and the company that was the subject of the
possible Paragon overcharge--Environmental Technologies. Elgindy says Belfort would sometimes
supply brokers with cheap stock in the firms, which would be sold to customers at huge markups.
Belfort says he legitimately owns shares in some of those companies but denies having access to
''cheap stock'' in any. The chief executive of Grand Havana, Harry Shuster, says that he knows of no
Belfort involvement in the company for the past two years. Officials of the other companies did not
return phone calls.
STARTLING REVELATION. Elgindy maintains that Belfort sometimes would wax sentimental
about the good old days at Stratton. And taped excerpts of those conversations, which Elgindy shared
with BUSINESS WEEK, are revealing. In one conversation in December, 1996, Belfort speculated
why one particular stock both men were shorting was doing so well. ''They're paying people off,''
said Belfort. ''They're definitely paying people off with stock. I know. I owned a very large OTC
firm.... I made a zillion dollars off my deals.''
In another taped conversation, Belfort made a startling disclosure. According to Belfort's taped
account, a company called Builders Warehouse Association Inc.--which since has become a unit of
Osicom Technologies Inc.--once offered him a huge bribe in return for Stratton selling the stock. Said
Belfort: ''This guy came to me, this...kid from Utah came to me....He offered me three shares in
Switzerland for every share I sold....I had like 500 brokers,'' Belfort continued. ''I could have sold a
zillion shares.'' Belfort declined to discuss the alleged bribe offer. Osicom and Barry Witz, former
chief executive of Builders Warehouse, did not respond to requests for comment.
Whether Elgindy is a whistle-blower or a sore loser, one thing is sure: The conduct that he describes is
common in the world of chop stocks. In their efforts to clean up the world of micro-cap stocks, the
regulators have always seemed to be a day late and a dollar short--or perhaps more accurately, years late
and billions of dollars short. Their efforts to crush micro-cap fraud are well-intentioned, sometimes
vigorous--but they have failed to put more than a dent in the problem. Driving brokers out of the
industry does little good when they stay active behind the scenes. Shutting firms does little good when
other firms open to take their place. The money is simply too good: The indictment on Nov. 25, which
alleges the involvement of four ranking Mob figures in pushing a single chop stock, proves that. And it
is coming from a seemingly bottomless pit--the pockets of small investors. |
