J.Y Wang: Per Your Request Here is The WSJ Article ....
July 22, 1999
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An Online Maverick
Sells the Internet Short
By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL
DEL MAR, Calif. -- Online chat rooms are crowded with legions of buy-happy day traders who have helped to push Internet stocks to dizzying heights.
Then there is Anthony Elgindy, one of the leaders in a sort of cyberspace countermovement -- investors who are trying to make money when Internet stocks fall, and sometimes actively working the chat rooms feverishly to make them fall.
One of his latest targets: Firstwave Technologies Inc., a small Internet software company, which announced a business deal with Microsoft Corp. on Monday. Firstwave's stock more than quadrupled to $8.675 on volume of 16 million shares, 5,000 times its trading volume on Friday.
Hearing the news, Mr. Elgindy swung into action. He and an online colleague sent e-mail messages to selected Internet stock traders suggesting that Firstwave shares be "shorted" -- which involves selling borrowed stock in hopes of replacing it later at a lower price.
Next, Mr. Elgindy issued a press release estimating that the Microsoft contract was for only about $100,000 of software, a relative pittance compared with Firstwave's annual revenue of $14.5 million. On Tuesday, Firstwave's stock fell back more than 25% to $6 on the Nasdaq Stock Market on volume of 4.2 million shares. It fell a further 13% Wednesday, closing at $5.25.
For Mr. Elgindy -- a 31-year-old native of Cairo, Egypt, who now resides near this Southern California seaside community -- Firstwave was one more adventure in a tumultuous, and sometimes controversial, stock-trading career. Before he went online, he both acted as a witness for the U.S. Securities and Exchange Commission, and was disciplined by the National Association of Securities Dealers, for stock-trading violations in 1997.
The past and present controversy surrounding Mr. Elgindy hasn't prevented him from attracting a loyal following. A recent list from Silicon Investor, a popular Internet stock-chat operation, shows that Mr. Elgindy, under the moniker Anthony@Pacific, has become its third most "bookmarked" name.
Certainly, with the recent roller-coaster ride for many Internet issues, Mr. Elgindy has been keeping busy with his focus on what he calls "overhyped, overvalued, fraudulent stocks."
Short selling is a risky form of investing. A trader borrows stock and sells it in the expectation that the price will drop; if it does, a profit can be made by replacing the borrowed shares with stock bought at a lower price. But traders can suffer a big loss if the price moves against them. Indeed, when it comes to volatile Internet stocks, one can get into "extreme trouble, extremely quickly," says John Fiero, a veteran short seller.
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But Mr. Elgindy and his fellow Internet shorters say such volatility has profit potential. Each trading day, Mr. Elgindy prowls stocks to short as he sits in front of four computer screens in the first-floor study of his home. At his feet, lies his German shepherd guard dog Steef, while a pistol rests on a table behind him -- protection, he says, against death threats he has received over the years.
His online style can be abrasive. Recent Elgindy e-mails on Silicon Investor have referred to one company as "junk," another as an "overinflated pig," while a third firm was being run by "two little snots" who "make me want to puke." Fans laud his trading and stock-picking abilities and show him some unusual trust. Rob Rill, who runs a small consumer-finance company in Gainesville, Fla., says he wired $20,000 to Mr. Elgindy and asked the trader to take a short position on his behalf even though the two had never met, except online. Mr. Rill says he made a profit on the transaction.
In recent months, Mr. Elgindy has taken aim at such names as Amazon.com Inc., USA Talks.com Inc. and Findex.com Inc. Among other things, Mr. Elgindy says he looks for small, obscure firms ballyhooing ties with bigger, better-known companies.
In the case of Firstwave, fellow online short sellers alerted Mr. Elgindy to the company's announcement, which gave no financial information about the deal but talked about Firstwave being chosen as the "Customer Relationship Management solution" by a Microsoft unit.
Mr. Elgindy says he called both Microsoft and Firstwave, and determined that the software involved would produce about $100,000 in licensing revenue and about $18,000 a year in service fees. In one e-mail message, Mr. Elgindy called the Firstwave press release "A DECEPTION OF MASSIVE PROPORTION" and pronounced it "A Criminal Shame" that the announcement propelled the stock up so much.
Firstwave spokesman Stephen Luce says the company believes its press release was proper and accurate. While Mr. Luce declines to give a specific dollar value to the Microsoft order, he says the $100,000 figure is "in the ballpark."
Not all Mr. Elgindy's suggestions work out so well. An e-mail in late May declared that Healtheon Corp., an online health-care service provider, was "a pig [that] can't fly" at $80 a share. Anyone who made a short-term bet shorting the stock would have lost money, as the shares closed that day at $87. But since then, his call has looked on target, as Healtheon shares have steadily fallen, closing Wednesday at $61.9375 on Nasdaq.
Mr. Elgindy came to Internet stock trading after a decade as a licensed securities broker where he also specialized in short selling. In the early 1990s, he was co-owner of a small, now-defunct San Diego brokerage firm that came under federal criminal investigation in connection with illegal stock trading. The scheme led to several convictions. Mr. Elgindy says he didn't know about the illegal scheme and was never charged. In a court hearing, the federal prosecutor on the case acknowledged Mr. Elgindy's cooperation.
Mr. Elgindy says he has subsequently supplied information to the SEC and others about suspected stock frauds. Indeed, he was featured on a 1997 segment of ABC's "20/20" news program as someone trying to help clean up Wall Street.
In a 1997 civil stock-manipulation trial in Los Angeles federal court, Mr. Elgindy was the "killer witness" who helped the SEC win the case, says Irving Einhorn, the attorney for one of the defendants. However, Mr. Einhorn, a former head of the SEC's Los Angeles office, argues that if his client was guilty, Mr. Elgindy should have also been charged since he took part in the allegedly illegal trades. Mr. Elgindy says he did nothing wrong. An SEC spokesman declines to comment.
The same year, the NASD suspended Mr. Elgindy for up to a year from various brokerage activities and assessed him $30,000 for 1993 stock-trading violations that included improperly using a trading system set up for retail customers. In its decision, the NASD noted Mr. Elgindy's help in bringing "potential securities law violations to the attention of regulators."
Mr. Elgindy says his trading violations were inadvertent and came at a time when he was depressed by the criminal investigation involving his firm. Last year, Mr. Elgindy decided to leave the securities industry and stopped making payments on the monetary penalty from the NASD case. As a result, the NASD revoked his license.
Some of his fans see Mr. Elgindy's past dealings with law enforcement as a plus that gives him greater credibility in uncovering stock fraud. But others see it differently. "He is using his government connections to terrorize people on the Internet," says Joe Park, who as TokyoMex has long been Silicon Investor's most-bookmarked name.
Mr. Park is under an SEC investigation that he says was sparked by Mr. Elgindy, who recently started a private stock-chat Web site that charges up to $600 per month. "He came after me so he could open his own Web site," says Mr. Park, who has his own private Web site. Mr. Elgindy says that his only motive for sending the SEC some 1,600 pages of material about Mr. Park was to make sure that the SEC was aware of Mr. Park's activities. An SEC spokesman says that while the agency welcomes leads from online traders, nobody gets special treatment as a result. The spokesman declined to comment about the Park investigation. Mr. Park denies any wrongdoing.
Ironically, though Mr. Elgindy spends much time online, he says he still places all of his trading orders by phone through a live broker. If something goes wrong with an order, "I need someone to hang. You can't do that with an electronic system," he says.
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