More tidbits, from www.canada-stockwatch.com
TSX member Global's Smolensky serviced Elgindy ring
2002-05-23 17:17 PT - Street Wire
by Brent Mudry
Controversial California short Amr Ibrahim (Anthony) Elgindy, an important client of Vancouver brokerage Global Securities, in jail since his arrest Tuesday in the San Diego area, is considered a serious flight risk by U.S. authorities. Mr. Elgindy may be the only one of five defendants to be denied bail, unless his lawyer defeats the government's serious concerns.
Mr. Elgindy faces a detention hearing Friday morning before Magistrate Judge John Houston in United States District Court for the Southern District of California in San Diego. Brooklyn United States Attorney Ken Breen, of the Eastern District of New York, assisted by local United States Attorney Shane Harrigan, are expected to present, or proffer, verbal evidence arguing Mr. Elgindy should be denied bail, countered by the short's attorney, Jeanne Knight.
Details of the government's flight-risk evidence are not yet known, but Stockwatch has heard an unconfirmed report that Mr. Elgindy bought a hotel in Lebanon two months ago. (Although Mr. Elgindy has been living in the U.S. for a number of years, the New York Times notes he is a native of Cairo, Egypt.) The San Diego media has reported that one of the vehicles seized from Mr. Elgindy's home, oddly enough, was a U-haul trailer. There is no suggestion, of course, that Mr. Elgindy, although fully aware for the past seven months that the feds were moving in on him, was preparing for a hasty exit from the U.S.
San Diego associate Troy M. Peters was granted $200,000 bail Wednesday, to be fully secured by property, preferably posted by relatives. (All figures are in U.S. dollars unless otherwise noted.) Mr. Peters, who remains in custody, is expected to appear in court Friday for approval of a bail proposal. After that, Mr. Elgindy and Mr. Peters face a removal hearing June 6 in San Diego, essentially a brief identity and extradition hearing, in which the state will present probable cause, through the grand jury indictment unsealed Wednesday, a formality before shipping the pair off to New York. Presumably Mr. Elgindy will not contest his identity.
Derrick Cleveland, Mr. Elgindy's business partner at Pacific Equity Investigations, has also been released in Oklahoma City. In Albuquerque, N.M., co-accused FBI Special Agent Lynn Wingate was released on her own recognizance Wednesday, while former Special Agent Jeffrey Royer has been released on electronic monitoring after the government failed to persuade Magistrate Judge Lorenzo Garcia he was a serious enough flight risk to be denied bail. Mr. Royer and Mr. Wingate are ordered to appear noon Tuesday in Brooklyn before U.S. District Judge Raymond Dearie.
With the short-ring suspects in hand, the asset tracing and seizing operation is in high gear. Viewers of San Diego television station 10News were treated Wednesday to footage of Mr. Elgindy's Rolls Royce Bentley and Hummer loaded and hauled off on federal flatbeds from his home, along with two other vehicles. The government has laid claim to other vehicles registered in the name of Mr. Elgindy and his companies, including a Jaguar. The short's home, a $2.2-million residence in the upscale neighbourhood of Olivehain, purchased a year ago, is also targeted for forfeiture.
While the hot toys are the most visible, the government has also filed civil forfeiture actions to seize Mr. Elgindy's financial assets. Forfeiture orders, as yet unsealed, have been served on a number of financial institutions in Canada and the U.S. The government has publicly noted only that Mr. Elgindy, his wife and his companies maintain numerous accounts, although none are identified, and recipients of the orders, like subpoenaes, are forbidden from releasing any details.
The only institution noted so far is Vancouver brokerage Global Securities. As a result, the RCMP's Commercial Crime Section in Surrey has played a key support role in the investigatory and forfeiture phases, under a Mutual Legal Assistance Treaty, or MLAT, proceeding. "The RCMP is actively assisting the FBI and the U.S. District Attorney in New York," Const. Tim Alder told Stockwatch. Constable Alder, the lead field forfeiture agent, declined any further comment, referring the matter to Sergeant Grant Learned, official media liaison with the RCMP's E Division headquarters in Vancouver.
Meanwhile, the mystery broker at Global who serviced Mr. Elgindy is none other than Art Smolensky, the chairman and founder of the firm. "He is just shocked," Global president Doug Garrod told Stockwatch. Mr. Garrod, a respected Vancouver securities lawyer called in to run Global a few years ago when Mr. Smolensky himself was under investigation by regulators, says that while Vancouver brokerages, including rivals Pacific International Securities and Union Securities, have been named as conduits in numerous U.S. indictments and regulatory actions in recent years, this case is quite different.
"This (the Elgindy operation) was very clandestine, very high level stuff going on south of the 49th (parallel," says Mr. Garrod. "You could look at this account until you are blue in the face and it would never come out. It is frightening. It is not a case of knowing participation by the broker." (Presumably the feds, empowered by the grand jury investigation launched last October, kept close tabs on all of Mr. Elgindy's communications, and the wiretap and related evidence will bear this out.)
Mr. Garrod, who stresses that the indictment allegations are as yet unproven and the Elgindy ring are presumed innocent for now, was distressed to hear of the high-profile criminal case. "The mere fact the allegations are made is alarming, to say the least," he says. "Global had absolutely no knowledge of this stuff."
In the post-Sept. 11 environment, Mr. Garrod finds the Elgindy case, in which FBI database security was repeatedly breached on a serious level, quite disturbing. "It is just incredible ... this is the leading criminal investigatory agency in the United States of America. Particularly after the events of 9-11 it is just appalling, shocking and dismaying."
While Mr. Garrod cannot comment in detail, due to client confidentiality, he confirms Global Securities housed five accounts for the Elgindy ring: three related to Mr. Elgindy and his companies, and two corporate accounts related to Mr. Cleveland. The brokerage official declined to identify the account names, trading authority, stocks traded or trading volume, citing both client and law enforcement concerns. He did confirm, however, that Mr. Elgindy has been a client for about a year and a half.
"It is well known that Mr. Elgindy was an aggressive short seller. I would not disagree with that characterization," Mr. Garrod told Stockwatch. "He was aggressive."
While the Elgindy case is precedent-setting, Stockwatch has chronicled other cases involving broker Mr. Smolensky, client Mr. Elgindy and the FBI in the past year or two.
In April, 2001, Mr. Smolensky was $125,000 (Canadian) and suspended for 30 days in a consent settlement agreement with the Canadian Venture Exchange, recently renamed the TSX Venture Exchange. The settlement followed a top secret investigation and prosecution by the regulator, revealed by Stockwatch, into Mr. Smolensky personally selling shares of Global client Trooper Technologies in August, 1997, in advance of public disclosure of a major financing. Stockwatch's revelations of the Smolensky case and other secret CDNX disciplinary proceedings prompted the embarrassed regulator to come clean and begin posting its regulatory notices on its Web site.
Before switching to Global, Mr. Elgindy was a star client of another Vancouver brokerage, Pacific International, now fighting an investigation by the British Columbia Securities Commission. Besides regulatory troubles with the National Association of Securities Dealers, Mr. Elgindy also spent four months in jail in mid-2000 after pleading guilty to mail fraud.
Mr. Elgindy has complained vigorously to Stockwatch about its unflattering coverage of him, especially regarding his Pacific International trading. "You truly slapped me in the face and I have done nothing wrong and no one has ever said I'm suspected of doing anything wrong," Mr. Elgindy told Stockwatch, referring to his regulatory history. "My account was so clean bubbles popped out when anyone looked at them and I have always claimed the existence of the account on my taxes," states Mr. Elgindy. (The short was never asked about his taxes or how clean his P.I. account was.)
Mr. Elgindy initially denied being a P.I. client, then said he never had an account under the name "Anthony Elgindy," then repeatedly proclaimed his account was squeaky clean, and has since downplayed his dealings at the besieged Vancouver brokerage. "My account was never involved in anything improper and I never did anything wrong, ever while at P.I. I just bought and sold stocks like anyone else, I never bought any penny stocks and my account was never involved in any stock deals or investment banking relationships," protests the customer, who prides himself on being a fraud-buster who works for the Securities and Exchange Commission.
Mr. Elgindy is well known in penny-stock shorting circles and equally well known to officials at the NASD and the United States Bureau of Prisons, which recently hosted him as a special guest at one of its exclusive gated communities in Southern California, designed to keep riff-raff in, not out. Although the felon was convicted in Fort Worth, as he then lived in Colleyville, Tex., he served his time in California, near his new home in Encinitas.
While Mr. Elgindy did not volunteer details of his criminal record, he likes to portray himself as a fine upstanding citizen, a white knight ferreting out stock frauds as a hero of the small investor. Indeed, he was featured as such a penny-stock hero by Wired magazine, Barbara Walters on 20/20 and the Wall Street Journal. Mr. Elgindy has been credited with helping expose a number of penny-stock scams.
"Yes at one time I worked for some really crappy, crummy, lousy firms. That was four or five years before I had an account at P.I.," Mr. Elgindy told Stockwatch.
The born-again short began his penny-stock career in 1988 at Blinder Robinson, a year and a half after the SEC's bid to shut down the notorious boiler operation became widely known. "I work so hard to clean up my background to undo the damage I did as I couldn't sleep at night and I was sick to my stomach," says Mr. Elgindy, referring to his boiler-room days. That is all in the past. "Since 1993, I have led the squeaky clean life and am 1,000-per-cent dedicated to what I do now for a living," states Mr. Elgindy. (His NASD troubles date to 1993.)
This "squeaky clean life" included ripping off an insurance company to the tune of $90,645 by collecting bogus disability payments while he was working as a broker at two national brokerage firms in 1994 and 1995. Mr. Elgindy's fraudulent insurance claim had been supported by a fraudulent tax form altered to double his base 1990 insurable earnings to a purported $208,000.
This, of course, is not the sort of thing Mr. Elgindy wants to be known for. "Wall Street is a corrupt cesspool and my job is to expose it, that's what I do," he told Stockwatch. The notable P.I. client has been quite upset with recent coverage linking him to the Vancouver brokerage. "What on God's green earth did I do wrong? I'm not a party to any money laundering or any stock scams ... I didn't do anything at all at P.I. nor am I involved in any of their troubles," he states.
"What law have I broken, what charges am I accused of, what did I ever do wrong at P.I. or anywhere in your scandal-ridden country?" the American short asked the Canadian reporter last year. In a private E-mail to a fan, republished on Silicon Investor, Mr. Elgindy is especially anxious to distance himself from P.I. "I had an account there for exactly five months, and I bailed after I heard they were in trouble," he stated. "Since when are we guilty of something because we have an account somewhere?" |
