Public Document .....TRUTH<----------- Long 100%........ you are just startin to see a glimpse of reality here folks
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
V. )
) CR No. 02-589(RJD)
ANTHONY ELGINDY, ET.AL. )
)
Defendants. )Hearing Date: November 21, 2003
)
______________________________)
NOTICE OF MOTION AND MOTION TO DISMISS COUNTS ONE THROUGH THIRTEEN OF THE FIRST SUPERCEDING INDICTMENT ON DUE PROCESS GROUNDS (ENTRAPMENT-BY-ESTOPPEL);EXHIBITS
LAW OFFICE OF JOEL R. ISAACSON
JOEL R. ISAACSON
1901 AVENUE OF THE STARS
SUITE 615
LOS ANGELES, CA 90067
TEL: 310 557-1188
FAX: 310 286-9969
Attorney for Anthony Elgindy
September 23, 2003
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
V. )
) CR No. 02-589(RJD)
ANTHONY ELGINDY, ET.AL. )
)
Defendants. ) Hearing Date: November 21, 2003
)
______________________________)
NOTICE OF MOTION
PLEASE TAKE NOTICE that on November 21, 2003, defendant Anthony Elgindy will hereby move this Court, pursuant to Rule 12(b) of the Federal Rules of Criminal Procedure, to dismiss counts One through Thirteen of this criminal action on grounds of due process.
This motion is based on this Notice of Motion, Memorandum of Points and Authorities in Support of Motion to Dismiss on Due Process Grounds, U.S. Const. Amend. V, this Court’s inherent and supervisory powers, argument presented at the hearing on this motion, and all other statutory and constitutional provisions and case law precedent deemed relevant by this Court.
Dated: September 23, 2003 Respectfully submitted,
_____________________
Joel R. Isaacson
Attorney for Anthony Elgindy
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
V. )
) CR No. 02-589(RJD)
ANTHONY ELGINDY, ET.AL. )
)
Defendants. ) Hearing Date: Nov.21, 2003
)
______________________________)
MOTION TO DISMISS COUNTS ONE THROUGH THIRTEEN OF THE SUPERCEDING INDICTMENT ON DUE PROCESS GROUNDS (ENTRAPMENT-BY-ESTOPPEL): MEMORANDUM OF LAW IN SUPPORT THEREOF;EXHIBITS
COUNTS ONE THROUGH THIRTEEN OF SHOULD BE DISMISSED
BECAUSE THE GOVERNMENT GROSSLY MISLED MR. ELGINDY
Counts one through thirteen of the superceding indictment charges Anthony Elgindy and others, including former FBI Special Agent, Jeffrey Royer, in a RICO conspiracy citing generally various violation of Rule 10b-5. The charges against Mr. Elgindy arise from actions undertaken in his capacity as a securities trader specializing in selling short. Short selling is the practice of selling borrowed stock in the hopes that the stock price will soon fall, thereby allowing the short seller to buy it back for a profit. The SEC has made it a legal activity for several good reasons. First, it provides the markets with more information. Short sellers, like Mr. Elgindy, often complete extensive and legitimate due diligence to try and discover facts and flaws that support their suspicion that the target company is overvalued. Their actions are considered by most as legal and conducive to the health of the market.
As a result of Mr. Elgindy’s due diligence with regard to several companies - companies that he eventually exposed as fraudulent, he and others, including two FBI agents, were charged with insider trading, market manipulation, extortion and obstruction of justice. The charges stem, in large part, from conduct involving one of the agents, Agent Jeffrey Royer.
Mr. Elgindy was introduced to SA Jeffrey Royer in 2000. Mr. Elgindy, who had already been successfully investigating and exposing fraudulent companies for several years, was asked by Agent Royer to provide information to the FBI, the SEC, and others about fraudulent companies; with the express permission of his USPO, he provided the information to law enforcement. Occasionally, other government agents and/or agencies, such as the SEC, would contact Mr. Elgindy for information on ongoing government investigations. Mr. Elgindy’s probation officer instructed Mr. Elgindy on several occasions to report information obtained through his investigations to the SEC and the FBI, while warning him that he could not work as a CI without permission from the sentencing court. Notwithstanding that restriction, Mr. Elgindy was repeatedly instructed by USPO to contact law enforcement to provide them with information to assist in the prosecution of others. In return for his assistance, Mr. Elgindy received a letter of recommendation from Agent Royer which was approved by Agent Royer’s supervisor.
The indictment alleges that at some point Mr. Elgindy corruptly induced Agent Royer to turn the flow of information and provide him with “confidential law enforcement and regulatory information concerning publicly traded companies and associated individuals.” (Indictment Paragraph 15.) Agent Royer is alleged to have obtained the confidential information by accessing FBI databases and through SEC attorneys in violation of FBI policies. This information was alleged to have been used by Mr. Elgindy and others named in the indictment to make trading decisions.
Mr. Elgindy denies any corrupt inducement of Agent Royer or any other government official and contends that he was unaware that any information he received from Agent Royer was misappropriated. All information used by Mr. Elgindy to make trading decisions was public information that anyone could have obtained, had they done the amount of extensive due diligence and research that Mr. Elgindy and others were able to do. Given the open nature of Mr Elgindy’s business dealings it was his understanding that any information Agent Royer shared with him was done so in compliance with the laws of the United States and the rules and policies of the FBI.
As will be detailed below, Mr. Elgindy further avers that at all times he reasonably believed, based on statements and conduct by SA Royer, other FBI agents, attorneys from the SEC and even his own probation officer, that his interactions with Royer were lawful and that he was investigating fraudulent companies with the blessing of law enforcement, the SEC and the United States Probation Office towards the common interest of policing fraudulent companies. At all times he believed any information shared with him by agents of the SEC, FBI or any regulatory or law enforcement agencies was shared lawfully. At no time did any employee or agent of the SEC, FBI, or any other regulatory or law enforcement agency advise him that any information being provided was provided unlawfully or without the full authority to provide it to the trading community. Mr. Elgindy did not solicit from any SEC, FBI or agent of any regulatory agency, any information that was intended to enhance or assist him in his trading, or the trading of his site members.
More importantly, chronological logs kept by Mr. Elgindy’s federal probation officer (and presumably preserved in the sentencing court file) not only document Mr. Elgindy’s mandated communications and full disclosure to federal probation, but also document conversations between Agent Royer and the probation officer. (Attached as Exhibit A.)
Moreover, as the Court may recall, at the bail hearing held on August 22 2002, the probation officer stated that he was aware of Mr. Elgindy’s business dealings. (See below and transcript of bail hearing, attached herein as Exhibit B.)
There are also numerous public internet message postings by Mr. Elgindy during the relevant time period and currently available on the internet which are instructive to his state of mind and demonstrate his policy of full disclosure of non-deceptive information. (See list of internet links and printed samples, attached herein as Exhibit C.) These postings document the public nature of Mr. Elgindy’s internet dealings and support the contention that he was at all times trading on what he believed was lawfully obtained information.
Conversely, the indictment provides no evidentiary basis for its allegation that Mr. Elgindy knowingly traded on non-public information or that he was ever aware that former SA Royer was misappropriating information.
A. Factual Basis
1. Probation Chronology
Mr. Elgindy sets forth the following excerpts from the Federal Probation Chronology, prepared by the Probation Officer in the ordinary course of business, a copy of which is attached herein as Exhbit A. In addition to illustrating the nature of Mr. Elgindy’s relationship with law enforcement in support of the estoppel by entrapment argument, (Please see Notice of Intent to Use Public Authority Defense: Entrapment by Estoppel, filed contemporaneously with the instant motion), the following represent examples of Mr. Elgindy’s good faith and full disclosure to his probation officer, disclosure which appears to have exceeded the mandates of his federal probation, and which clearly documents both the ongoing relationship between Mr. Elgindy and Agent Royer and between Agent Royer and the Probation Officer. (All emphasis supplied.)
12-12-00 PC from subject. Subject advised that in the course of his business he is conducing an investigation for the Security and Exchange Commission (SEC), and that he has uncovered a stock fraud/money laundering/tax evasion scheme. He requested guidance on who to report the matter to, as his underlying case is from Texas, and does not know who to call as he “upset a few people” on another case. Subject reported that he has already reported matter to SEC Attorneys.
. . .
02-14-01 PC from subject. He left message providing an update on his investigation on Bio-Pulse. He stated that there is now an ongoing FTC (Federal Trad Commission) investigation on the company. He stated that the FBI Agent investigating the company had contacted subject to talk to him about how identifies and investigates the “Scam Stocks”, as subject finds these out faster then the FBI. The FBI Agent requested to meet with subject in two weeks to teach them how subject conducts his investigations. Subject will keep the USPO appraised of situation. Subject requested permission to travel to Los Angeles on 02-22-01 for business.
. . .
2-28-01 PC from FBI Agent Royer . . . He is assigned to Gallop, New Mexico Office. He advised me that he has worked with subject in the past, and now is more of a contact or friend to subject. He stated that subject is a good person, and he keeps in touch with subject in a professional and personal manner. He advised me that he receives a lot of telephone calls from subject who is passing along information regarding his investigations. Agent Royer acknowledged meeting with subject over the weekend to discuss subject’s investigative methods. . . . .
06-25-01 PC from XXX XXXXX . . . . He indicated that he is an employee at “SulphCo”, and that his company is
trying to get an injunction against subject. They want subject not to print his review of their company on his internet site. They advised that the company will be filing a civil lawsuit against subject.
Received copy of legal documents file with the Nevada District Court by SulphCo, complaining about the unreleased contents of subject’s investigation. . .
PC to subject. Above matter was discussed. Subject advised that he investigated the company, and that he believes that company cannot turn water into economical fuel source, as touted by SulphCo. Subject advised that he did not perform any illegal behavior in the scope of his investigation . Subject advised that he has also sent a copy of his investigation to the FBI and the Nevada Attorney General’s Office . Subject was instructed to send a copy of his report to the USPO. . . . Subject also advised that he contacted XXXXX XXXXXX, Chief Investigator for the Attorney General of Nevada at . . . . Subject advised that according to Mr. XXXX, he Is not violating any laws.
. . .
08-01-01 PC from subject, Subject advised that his attorney is responding to the civil suit filed by SulphCo and advised that XXX XXXX has recanted his initial assertions. Subject called Mr. Orme, and via speaker phone, Mr. XXXX apologized to USPO for litigating the instant matter. . . . USPO instructed subject to provide USPO with XXX XXXX’s telephone number.
08-03-01 PC to XXXXXXX XXXXXXXX at . . . (Reno, NV FBI). USPO left message passing along XXXXX XXXXXX telephone number and advised that Mr. XXXXX is willing to discuss the SulphCo matter with the FBI.
. . .
Received email from subject indicating that the SEC is now starting an investigation into SulphCo and that SEC Attorney, XXXX X XXXXX has requested subject to provide
telephone numbers for XXXXS XXXXXX and another individual from SulphCo. According to email history, subject did provide the requested information to the SEC attorney.
08-08-01 PC from subject. Subject indicated that he has recorded, with permission of another stock broker, two other stock brokers taking/offering a $10,000 cash bribe for a broker to have a client buy a certain stock. Subject indicated the telephone call was between Scott Siek and Carl Fleming (Cobra Financial.) Subject was instructed to refer this matter to the SEC and the FBI.
PC from subject. Subject called to advise that the above information was sent to FBI Special Agent XXX XXXXXX at . . . Dallas, TX.
08-23-01 PC from subject. Per subject’s contact at FBI (Agent Royer) he indicated that Mr XXXXX met with the FBI and the SEC yesterday, and that subject is now in the clear.
08-27-01 PC from subject. Subject advised that he will be interviewed by an Australian television station tomorrow fo his work in exposing fraudulent investments. . . Subject also advised that the SEC is looking into the broker scam the he recorded and forwarded to the FBI and the SEC regarding brokers taking kick backs for having their clients buy certain stocks. . .
10-05-01 O in office for office visit. He explained his employment and web site to the undersigned. No problems to report.. .
1-31-02 Received a phone call from retired FBI Agent Jeff Royer. He wanted to explain to me that the letter he had written for O had been cleared by his supervisor in the FBI office. Said they are aware of his contact with O and do not have a problem with it. Said he has bee trying to get a hold of AUSA XXXXXXX in TX but had not talked to him yet. . . .
04-17-02 Saw O at place of business. Met former FBI agent Jeff Royer. Said Jeff was training for the next several weeks. .
It is apparent from the above chronology that not only did Mr. Elgindy speak openly about his investigations to his probation officer, but that neither he nor the probation officer were on notice that any of Mr. Elgindy’s behavior was potentially unlawful. Moreover, Mr. Elgindy was instructed by his probation officer to communicate his findings to the SEC and the FBI. This is further supported by the following excerpt from the bail hearing before this Court on August 22, 2002, during which the Probation Officer admits that Mr. Elgindy was a model probationer who fully disclosed his business dealings. More importantly, the probation office never questioned Mr. Elgindy’s business dealings nor his contact with law enforcement.
2. Bail Hearing Excerpt
Pages 41-44:
Q Now, up until that point, is it fair to say that
Mr. Elgindy was a model supervisee?
A Yes.
Q He did whatever you wanted?
A Yes.
Q Anything you ever asked of him he provided?
A Correct.
Q Indeed, when he came back, he called you even though you told him to call another probation officer, Lori Bryant?
A He may have. I don't recall.
Q Isn't it a fact he continued to make efforts to stay in touch with you in the months after he came back?
A Yes.
Q He would call you from time to time; right?
A Correct.
Q And he sent you a Christmas card?
A Correct.
Q Isn't it fair to say he would talk to you constantly
about his business?
A I don't know if he would talk about the business. He
would at times leave messages which I did not return those, I just advised Ms. Bryant he called and left a message, she should call him since it was her case.
Q But when I say his business, you knew that Mr. Elgindy was investigating companies that were bogus or fraudulent; right?
A Correct.
Q And he would talk to you about those businesses;
correct?
A He would -- if those conversations occurred, it would be just that he was looking at whatever new company or he discovered something about this company, that was the gist of the conversation.
Q And didn't he send you reports he issued on those
companies?
A When he was under my case load, yes.
Q Right. He issued a report on a company that claimed
they could turn urine into a cancer cure; right?
A Correct.
Q And he exposed that company; right?
A Yes.
Q And he sent you his reports?
A Correct.
Q And you talked to him about it?
A Briefly.
Q And you knew that he was in touch with law enforcement personnel?
A Correct.
Q And you knew that he was investing in the market;
correct?
. . .
Q You knew he had investment accounts; correct?
A Yes.
Q Did you ever ask for the investment accounts?
A No, we did not.
Q Did you care what he was investing in?
A No.
Q Did you know that he was investing hundreds of thousands of dollars in various securities?
A From his discussions with me, yes, it appeared that way.
Q Did you say show me the expenditures you made to buy a particular company or to sell a particular company, did you say that?
A No.
3. Site Address from Mr. Elgindy’s Office
by former Agent Royer
The following was presented to Mr. Elgindy’s subscribers by former FBI Agent Royer from Mr. Elgindy’s office in San Diego on January 21, 2002: (See Tape 128 (side A.), provided to the defense in discovery.
“Asked Tony if I could stop by. Been watching the chat as an agent for the FBI for 2 years. Just wanted to pass on my gratitude for what you do. The fact that there is something like this available, and can make a little money doing it, I think it's a good thing. InsideTruth.com has provided information on 9 going on 10 major investigations. Saw the NECO information last week. And . . .umm. . .it was very Newsworthy to say the least. The information cuts down man hours as far as things that we look for. I just wanted to say I am planning on keeping a relationship with the site as are others within the dept., and information that has been provided has actually raised some contacts that we didn’t otherwise have earlier. That is in part due to the info that becomes reliable from all of you. We have been in contact with fellow members of the site that have provided reliable information, and it all turns out to be very good and saves a lot of time and man hours. If there is one thing I can encourage you to do, if there is information out there, kind or like a team effort the quicker we get the information, you see how sometimes the government drags its feet, that it'll be more conducive at every level, SEC, FBI, or state or local authorities if information is timely. Thanks to Tony and everyone else for the time and energy spent...keep up the good work.” (Emphasis supplied.)
B. Applicable Legal Principles
1. Rule 10b-5
Under Rule 10b-5, a trader is liable for insider trading if he or she was “aware” of material nonpublic information at the time of the purchase or sale. The SEC believes that the “awareness of inside information inevitably leads to use of the information,” and consequently, provides an appropriate basis for liability. The Rule is not intended to modify any part of the insider trading law, other than the use/possession issue. Scienter remains a necessary element for Rule 10b-5 liability. Mr. Elgindy, who has never knowingly received any sensitive non-public information from Agent Royer or anyone else, continues to maintain his innocence.
//
///
2. Estoppel by Entrapment
In Raley v. Ohio, 360 U.S. 423, 79 S.Ct. 1257 (1959), the
Supreme Court reversed defendants' contempt convictions for refusing to answer questions put to them by Ohio’s Un-American Activities Commission based on their assertion of the state privilege against self-incrimination. The commissioners told three of the defendants during their examinations that the privilege was available to them, and they led the forth defendant to believe this through their conduct and questioning. 360 U.S. at 430-31, 79 S.Ct. at 1262-63. Later, the State of Ohio determined that the privilege was unavailable and it convicted all four defendants for contempt for refusing to answer the questions put to them by the Commission. 360 U.S. at 431-33, 79 S.Ct. at 1263. The Supreme Court reversed all of the convictions for lack of due process, except one where the defendant was unequivocally directed to answer by the Commission. 360 U.S. at 437 & 443-44, 79 S.Ct. at 1266 & 1269.
The Court explained:
This case involves more than [a lack of fair warning]; here the Chairman of the Commission, who clearly appeared to be the agent of the State in a position to give such assurances, apprised three of the appellants that the privilege in fact existed, and by his behavior toward the fourth obviously gave the same impression. . . . While there is no suggestion that the Commission had any intent to deceive the appellants, we repeat that to sustain the judgment of the Ohio Supreme Court on such a basis after the Commission had acted as it did would be to sanction the most indefensible sort of entrapment by the State--convicting a citizen for exercising a privilege which the State clearly had told him was available to him. [Citation]. . . . We cannot hold that the Due Process clause permits convictions to be obtained under such circumstances.
360 U.S. at 437-39, 79 S.Ct. at 1266-67.
///
Thirteen years later, the Ninth Circuit applied Raley to overturn a conviction for refusing to submit to military induction. In United States v. Timmins, 464 F.2d 385 (9th Cir. 1972), defendant Timmins was a conscientious objector who twice wrote to the local draft board indicating his belief that he was a conscienscious objector and requesting the proper form to apply for this exemption. Id. at 386. The local draft board initially sent Timmons a Form 150, which he mistook as the improper form because it indicated that religious training was necessary for conscientious objector status. Id. When Timmons inquired a second time, the draft board simply reiterated that Form 150 was the only form for conscienscious objectors and it sent him another copy. Id. at 387. Significantly, the draft board did not notify Timmons that he could complete Form 150 without religious training. Id. at 387. The Ninth Circuit found that such conduct misled Timmons to believe that formal religious training was a prerequisite to filing for conscientious objector status and that this discouraged Timmons from fully developing a claim that might have provided him an exemption from military service. Id. at 387. The court reversed Timmons’ conviction for the following reasons:
[F]ully informed of appellant's mistaken impressions [from his repeated requests for the proper form], the board nevertheless failed in any way to assist him to correct his mistake and obtain the true facts regarding his conscientious objection. . .
. Having thus failed to correct an important misimpression of appellant, of which it was fully aware, the board prevented or discouraged appellant from fully developing his claim. . . .
. . . Having been denied that due process which the law requires, appellant's order to report for induction was invalid and his conviction is reversed.
Id. at 387 & 388.
The court in United States v. Levin, 973 F.2d 463 (6th Cir. 1992), similarly held that entrapment by estoppel is a defense to criminal liability where a government agency announced that the charged criminal act was legal and the defendant reasonably relied on the government's announcement, with the consequence that the prosecution was deemed unfair. Id. at 468; see also United States v. Smith, 940 F.2d 710, 714 (1st Cir. 1991) (defense applies "when an official assures a defendant that certain conduct is legal, and the defendant reasonably relies on that advice and continues or initiates the conduct") (footnote omitted); United States v. Pennsylvania Industrial Chemical Corp., 411 U.S. 655, 675, 93 S.Ct. 1804, 1817 (1973) (reversing conviction for discharging refuse into navigable waters without a permit because regulations, although not purporting to define the statutory offense in question, misled defendant to believe it was acting in compliance with the law); United States v. Abcasis, 45 F.3d 39 (2d. Cir. 1995) (reversing convictions for heroin distribution because DEA agent "effectively communicate[d] an assurance that the defendant [was] acting under authorization" by enlisting defendant to participate in drug transactions); United States v. Clegg, 846 F.2d 1221, 1223-24 (9th Cir. 1987) (holding that government's solicitation and encouragement of defendant's efforts to supply weapons to Afghan rebels would, if proven, constitute a valid defense to charges of exporting firearms in violation of federal law); United States v. Tallmadge, 829 F.2d 767, 775 (9th Cir. 1987) (reversing conviction for felon-in-possession of firearm because federally-licensed gun dealer told him he could purchase firearms, and defendant confirmed this with his lawyer); United States v. Barker, 178 U.S. App. D.C. 174 (1976)(reversing conviction for Watergate break-in because defendants were asked to conduct break-in by government official with apparent authority to issue directive); see also United States v. Brady, 710 F.Supp. 290, 1989 U.S. Dist. LEXIS 3798 (1989) (noting that "the doctrine [of due process reliance on misleading government conduct] is applied most often when an individual acts in reliance on a statute or an express decision by a competent court of general jurisdiction") (citing United States v. Albertini, 830 F.2d 985, 989 (9th Cir. 1987)).
C. Mr. Elgindy Acted In Reasonable Reliance On Government Conduct Leading Him To Believe That His Actions Were Lawful and Reasonable
This case does not live up to the promise of due process guaranteed by the Constitution. The government’s actions and statements in the instant case form a pattern of grossly misleading government conduct. Due process demands that the counts of the superceding indictment stemming from Mr. Elgindy’s reliance on the government’s statements and conduct be dismissed. Cf. United States v. Kelly, 519 F.2d 794, 796 n.5 (8th Cir. 1975) ("There is a disquieting measure of unfairness when a state agency misleads an ex-offender into believing that he is exempt from a federal law"). This is unfairness should be corrected. Id. at 796 and n.5, and this prosecution must satisfy the appearance of justice. Cf. Offutt v. United States, 348 U.S. 11, 14, 75 S.Ct. 11, 13 (1971) ("justice must . . . satisfy the appearance of justice").
///
The government’s conduct here is far worse than that in the cases outlined above. Like the defendants in Raley, Mr. Elgindy was misled by a combination of law enforcement and regulatory agency statements and conduct. Unlike either of these cases, however, the government’s misleading conduct was sustained over time and involved government officials at almost every level, from agents of the FBI to the probation officers made responsible by the federal sentencing court for monitoring Mr. Elgindy while on probation. Mr. Elgindy was repeatedly misled into believing that his conduct was not only lawful, but he was duped into believing that he was working with the government.
Mr. Elgindy is a man who was essentially used as an informal informant by the government in its investigation of fraudulent companies. Although he was told by his probation officer that he could not be used as a “CI” without formal permission from the sentencing court, every month he sought and was given permission by his federal probation officer to provide information to law enforcement and to interact with known felons in his efforts to provide assistance to the government in the prosecution of others. He was instructed by probation to provide his information to the SEC and the FBI He was patted on the back and praised It is appalling that the federal government would now seek to imprison him simply for working with the government. Mr. Elgindy is not an attorney; if Agent Royer violated the FBI rules and policies and the law, Mr. Elgindy had no way of knowing and cannot be held responsible, since he is not privy to the rules and regulations to which an FBI agent is held accountable. (See Declaration of Anthony Elgindy, attached herein as Exhbit E.)
Conclusion
For the foregoing reasons, this Court should dismiss this prosecution as to counts one through thirteen.
DATED: September 23, 2003 Respectfully submitted,
____________________
Joel R. Isaacson
Counsel for Anthony Elgindy |
