DJ: FBI Agent Charged With Using Secret Records for Stock Scheme ---- By Aaron
(Wall St. Journal Full Text 05/23 02:03:16)
Elstein, Laurie P. Cohen and Gary Fields
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 free or cheap stock from
companies that feared manipulation of their shares.
A short-seller unloads borrowed shares in hopes of turning a profit if the
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 last December to join Mr. Elgindy's trading operation, and
Lynn Wingate, who joined the bureau in 1999 and was relieved of duty
Tuesday.
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 Messrs. Elgindy and Royer and Ms. Wingate with
racketeering and conspiracy to commit securities fraud. Messrs. Elgindy,
Royer and Peters were also charged with conspiracy to commit extortion. 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. Ms. Wingate and Messrs. Royer, Cleveland and Peters
couldn't be reached. The government said all five defendants were arrested
on Tuesday.
Stephen T. McCue, a court-appointed federal defender who represented Ms.
Wingate at Tuesday's hearing, said she is 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," 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. Kevin Donovan, assistant director in charge of the
FBI field office in New York, said in a statement that the fact that a
current and former FBI special agent are "among the defendants in this
investigation is particularly distressing to the thousands of men and women
of the FBI."
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.
Ms. Wingate was released on her own recognizance. Mr. Royer was released but
must wear an electronic bracelet. Both have been ordered to appear at 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 innocent.
Mr. Elgindy was ordered detained pending a bail hearing on Friday. Jean
Knight, a lawyer for Mr. Elgindy, couldn't be reached for comment. Mr.
Peters was ordered released on a $200,000 secured bond, but he couldn't post
the bond on Wednesday and remains detained. His attorney, Ken McMullen,
couldn't be reached.
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.
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 as much as $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 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 in an Associated Press article. "And plenty of the people
talking about stocks have hidden motives for what they're saying."
05/23/2002 02:00 |
