DJ: Trader, Former Agent In Alleged Stock Scam Had Data From FBI ---- By Jerry
(Wall St. Journal Full Text 05/29 02:02:28)
Markon
New York -- A FORMER FBI AGENT charged in a stock-manipulation scheme had
classified data among his belongings, and the trader he is accused of
conspiring with had investigative reports about companies that were
illegally taken from the FBI, prosecutors told a federal court judge.
The disclosures, at an arraignment in Brooklyn at which prosecutors argued
against freeing former agent Jeffrey A. Royer on bail, were the first
tantalizing bits of evidence revealed in the case against the two men along
with three others, including a current FBI agent.
Prosecutors told the court that Mr. Royer's FBI business card was discovered
paper-clipped to an envelope marked "FBI" in the office of the stock trader
and Internet commentator he is accused of conspiring with, Amr "Anthony"
Elgindy. Inside the envelope were confidential FBI reports about public
companies facing criminal or other probes.
"It's really hard to imagine a stronger case than what we have against Mr.
Royer," said lead prosecutor Kenneth Breen, who provided the information in
arguing that Mr. Royer should be put in prison at least until he stands
trial, because he could flee.
Experts say that, if proved true, the alleged involvement of FBI agents in
the scheme -- by providing information from the FBI's Automated Case Support
and National Crime Information Center databases -- is almost unprecedented.
Mr. Elgindy and other traders allegedly used the information to target
stocks by selling them short, and in some cases to extort free or cheap
stock from companies.
Short sellers seek to turn a profit by borrowing shares, selling them and
then buying back the shares at a lower price if the stock falls, pocketing
the difference. Having knowledge of a previously undisclosed government
investigation could give a short seller a trading advantage because it could
unnerve other investors, causing the stock to fall.
Mr. Breen told Judge Raymond Dearie that Mr. Royer had acknowledged, in an
interview with FBI agents after his arrest, to a relationship with Mr.
Elgindy. Mr. Royer allegedly said Mr. Elgindy would call him and ask for
information on companies, Mr. Royer would retrieve data from FBI databases,
give it to Mr. Elgindy and Mr. Elgindy would then trade on it.
But Mr. Royer's lawyer, Lawrence Gerzog, disputed that characterization. "I
don't think my client acknowledged any of that contact with Mr. Elgindy,"
Mr. Gerzog said.
Both Mr. Royer, who went to work for Mr. Elgindy after he left the FBI in
December, and the current agent, Lynn Wingate, who worked with him in the
FBI's Albuquerque, N.M., office, pleaded not guilty. Mr. Elgindy, who is
alleged to have headed the scheme is being held without bail in San Diego,
where his office is. His lawyer has said Mr. Elgindy intends to fight the
charges.
At yesterday's hearing, prosecutors told a federal judge that the
unauthorized classified reports were found among Mr. Royer's belongings in a
search of Ms. Wingate's house in Albuquerque, where prosecutors said Mr.
Royer had been staying. "There was no legitimate explanation for why he had
these files," said Mr. Breen, who added that the files were related to the
investigation of Mr. Elgindy and to "another subject matter" that he
wouldn't specify.
Mr. Gerzog said his client would "vigorously contest" the charges that he
used confidential government information to manipulate stock prices, and the
judge set a bail hearing for tomorrow for Mr. Royer, who had been released
earlier but must continue to wear an electronic bracelet. Ms. Wingate, who
joined the bureau in 1999 and was relieved of duty on May 21, the day before
the charges were announced, was released on $100,000 bail. Her lawyer
declined to comment.
While FBI officials have said the investigation of Mr. Elgindy began as part
of probes into the Sept. 11 terror attacks, prosecutors wouldn't say
yesterday whether the classified materials found in Mr. Royer's belongings
related to Sept. 11. The earlier inquiry found nothing connecting Mr.
Elgindy to terrorist groups or their financing and became a white-collar
crime probe.
Mr. Breen also didn't repeat contentions he made at a detention hearing for
Mr. Elgindy on Friday in San Diego that Mr. Elgindy may have had prior
knowledge of the Sept. 11 attacks. Those contentions -- based on Mr.
Elgindy's dual Egyptian and U.S. citizenship, his travels to the Middle East
and the fact that he had tried to liquidate his children's $300,000 fund
Sept. 10 -- were assailed by Mr. Elgindy's lawyer as "racial profiling." |
