Re: United States of America v. Amr. I Elgindy; Superseding Indictment (Part 1 of 4)
EOC:KMB
F. #2001R02074
ELGINDY.SUPIND1
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA
- against -
AMR I. ELGINDY,
also known as "Tony Elgindy"
and "Anthony Pacific,"
JEFFREY A. ROYER,
JONATHAN DAWS,
TROY M. PETERS and
LYNN WINGATE,
Defendants.
S U P E R S E D I N G
I N D I C T M E N T
Cr. No. 02-589 (S-1)(RJD)
(T. 15, U.S.C., §§
78j(b) and 78ff;
T. 18, U.S.C., §§ 371,
981, 982, 1343, 1346,
1503, 1512(b)(3),1951(a), 1962(d), 1963,
2 and 3551 et seq.; T.
21, U.S.C., § 853(p);
T. 28, U.S.C. §
2461(c))
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THE GRAND JURY CHARGES:
At all times relevant to this Superseding Indictment,
unless otherwise indicated:
INTRODUCTION
The Defendants
i) The defendant AMR I. ELGINDY, also known as "Tony Elgindy" and "Anthony Pacific," was a trader, a financial analyst and the owner and operator of Pacific Equity Investigations, a business based in San Diego, California.
ii) The defendant JEFFREY A. ROYER was a Special Agent with the Federal Bureau of Investigation ("FBI") from November 12, 1996 through December 21, 2001. From March 7, 1997 through November 6, 2000, ROYER was assigned to the FBI’s Field Office in Oklahoma City, Oklahoma. On November 6, 2000, ROYER was transferred to the FBI’s Resident Agency in Gallup, New Mexico. On or about December 21, 2001, ROYER resigned from the FBI and began to work for the defendant AMR I. ELGINDY
iii) The defendant JONATHAN DAWS was a fund manager and partner at Gryphon Partners, L.P., a hedge fund based in Dallas, Texas.
iv) The defendant TROY PETERS was an investor affiliated with Geneva Capital & Finance Group and First Geneva Securities, a broker-dealer of securities registered with the United States Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers, Inc. ("NASD"), based in San Diego, California.
v) The defendant LYNN WINGATE was a Special Agent with the FBI from May 9, 1999 through May 21, 2002, and was assigned to the Albuquerque, New Mexico Field Office.
Overview of the Defendants’ Schemes
vi) The defendants AMR I. ELGINDY and JONATHAN DAWS, together with Derrick W. Cleveland and others, specialized in "short selling" shares of stock of various companies whose respective stock prices appeared to be vulnerable to the release of negative news and selling pressure. Short selling is a technique in which investors make money only if the price of a stock falls. Specifically, short selling involves "borrowing" stock from another party and selling it, with an agreement to return the stock to the other party at a later date. The short seller hopes that the stock’s price will fall, allowing the short seller to buy the stock back later at a lower price and return the stock to the lender. Thus, short sellers profit from decreases in the price of a stock that they have sold short. Conversely, short sellers lose money when the price of a stock that they have sold short rises.
vii) In order to earn greater profits for themselves and obtain an unfair advantage over other investors, the defendants AMR I. ELGINDY, JEFFREY ROYER, JONATHAN DAWS, TROY M. PETERS and LYNN WINGATE, together with Derrick W. Cleveland and others, engaged in a variety of schemes to defraud investors in connection with the purchase and sale of stock of certain targeted companies (collectively, the "Targeted Companies"), including but not limited to Broadband International Wireless Corp. ("Broadband"), Nuclear Solutions, Potomac Energy Corp. ("Potomac"), and Company No. 1, Company No. 2, Company No. 3, Company No. 4, Company No. 5, Company No. 6, Company No. 7, Company No. 8 and Company No. 9 (the names of which are known to the Grand Jury).
viii) The defendants’ illegal schemes included insider trading, stock price manipulation and extortion. The insider trading involved the defendants’ trading – usually by selling stock short – based upon material, non-public law enforcement and regulatory information, which ROYER and WINGATE misappropriated from the FBI. The stock price manipulation involved, among other things, the defendants’ dissemination of negative, and sometimes false and misleading information, to profit from the artificial deflation of the stock price. The extortion involved the defendants’ demand of stock and other things of value from individuals associated with companies which the defendants targeted for short selling and price manipulation.
ix) The defendants AMR I. ELGINDY, JEFFREY ROYER and LYNN WINGATE, together with others, also took steps to obstruct the investigation of their conduct by law enforcement authorities.
The Defendants’ Use of the Internet
x) For the purpose of advancing his illegal stock trading schemes, the defendant AMR I. ELGINDY and other co-conspirators communicated with other short sellers nationwide, including short sellers and other investors within the Eastern District of New York, via the Internet, e-mails, electronic messages, the telephone and facsimile transmissions. To facilitate these communications, ELGINDY founded Pacific Equity Investigations, which operated a public website named InsideTruth.com, and a subscription e-mail service and website named AnthonyPacific.com. The service provider for ELGINDY’s websites was Electronic Information Management Systems ("EIMS"), an Internet hosting service operated by a co-conspirator from his home in Melbourne, Florida.
xi) In addition to hosting the websites, EIMS received and processed subscription fees paid by the members of AnthonyPacific.Com, including subscribers who lived and worked in the Eastern District of New York ("EDNY Subscribers"). The subscribers of AnthonyPacific.com paid fees of up to $1,400 per month. Subscribers to ELGINDY’s e-mail newsletter paid up to $100 per month. The fees enriched ELGINDY and funded the cost of maintaining the websites.
xii) The defendant AMR I. ELGINDY used the Internet and e-mails to spread negative, and sometimes false and misleading, information and to advise others to join him in short selling the stock of the Targeted Companies, which was calculated to have the effect of driving down the price of the stock of those companies, and which, in turn, increased the short-selling profits of ELGINDY and others.
xiii) In part as a result of the defendants’ extensive use of the Internet, the securities trading activity in furtherance of the defendants’ schemes took place nationwide, including within the Eastern District of New York. For instance, victims of the securities fraud scheme, including (1) insider trading victims, who bought stock when the co-conspirators were selling, and vice versa, and (2) manipulation victims, who were disadvantaged in their trading because the market prices for the targeted companies’ stocks were manipulated, were located in the Eastern District of New York. In addition, some such trades were executed through "market makers" who were located in this District. A market maker is a broker-dealer in securities who enters "bid" and "ask" prices for securities traded in the over-the-counter market, indicating the price at which it is willing to buy or sell the securities.
Insider Trading - The FBI Tipper
xiv) In or about early 2000, the defendant JEFFREY A. ROYER was introduced by Derrick W. Cleveland to the defendant AMR I. ELGINDY. ELGINDY then began providing ROYER with negative information concerning the companies that ELGINDY had short sold or was considering short selling.
xv) Beginning in and around 2000, the defendant AMR I. ELGINDY and Derrick W. Cleveland corruptly induced the defendant JEFFREY A. ROYER to provide them with confidential law enforcement and regulatory information concerning publicly traded companies and associated individuals. ROYER obtained the law enforcement information from law enforcement personnel and from the FBI’s National Crime Information Center database ("NCIC"), which contained confidential criminal history information, and the FBI’s Automated Case Support database ("ACS"), which contained confidential criminal investigation information. Access to confidential law enforcement information is strictly limited to law enforcement personnel for law enforcement purposes. ROYER obtained the regulatory information from attorneys at the SEC, who unwittingly provided it to ROYER in his capacity as a Special Agent with the FBI.
xvi) As part of the corrupt inducement to the defendant JEFFREY A. ROYER, the defendant AMR I. ELGINDY offered ROYER a high-paying job. The job offer was not communicated to the FBI until shortly before ROYER intended to leave the FBI in December 2001. In addition, Derrick W. Cleveland agreed to share his trading profits with ROYER and wired funds to ROYER, while ROYER was a Special Agent with the FBI, in the following amounts on the following dates: (1) $8,500 on November 28, 2000; (2) $5,000 on January 30, 2001; (3) $9,925 on May 22, 2001; and (4) $7,000 on May 31, 2001. The payments were not reported to the FBI.
xvii) The defendants AMR I. ELGINDY, JEFFREY A. ROYER and JONATHAN DAWS, together with others, used the confidential law enforcement and regulatory information to make decisions whether to buy, hold or sell the stocks of the companies to which the information was relevant.
xviii) After short selling the stocks of such Targeted Companies, the defendants AMR I. ELGINDY and JONATHAN DAWS, together with others, also disseminated confidential law enforcement and regulatory information to other short sellers, in the Eastern District of New York and elsewhere, via the Internet and other means, as described above, in order to encourage them to short sell the stock as well.
xix) The defendant AMR I. ELGINDY and others managed the release of information and short selling recommendations in a manner designed to maximize their ability to control the market impact. The defendants generally released information and short selling recommendations first to website subscribers, then to e-mail subscribers, and only later, and not in all cases, to the investing public. Thus, subscribers had the opportunity to short sell stocks before the public release of ELGINDY’s recommendations. Once the decision was made to disseminate the information publicly, ELGINDY and his subscribers also posted it on various Internet bulletin boards, chat rooms and on related websites, often assuming fictitious identities to do so. The widespread dissemination of this negative information had the intended goal of exaggerating the downward pressure on the stock prices of Targeted Companies so as to increase the short sellers’ profits. The subscribers, including EDNY Subscribers, passed a portion of their profits back to ELGINDY in the form of subscription fees.
Market Manipulation
xx) Often, after short selling the stocks of Targeted Companies, the defendants AMR I. ELGINDY, JONATHAN DAWS, and TROY PETERS, together with Derrick W. Cleveland and others, engaged in additional manipulative activity designed to exaggerate the negative market sentiment for the stocks, including making false and misleading statements, and coordinating their short selling with the release of that information. The defendants made and disseminated false and misleading statements with regard to, among other things, the Targeted Companies and associated individuals, and the timing, share price and size of the defendants’ own trading.
xxi) To assist the market manipulation, the defendant AMR I. ELGINDY and others routinely communicated with the subscribers, including EDNY Subscribers, in chat room discussions and by e-mail, fax and telephone, to, among other things, (1) disseminate negative, and sometimes false and misleading, information to the subscribers, (2) encourage the subscribers to assist in the dissemination of the information to the investing public once the decision had been made to release the information, and (3) give directions to the subscribers regarding trading.
xxii) The defendants AMR I. ELGINDY, JONATHAN DAWS and TROY PETERS, together with others, sometimes reported negative information about the Targeted Companies to the FBI and the SEC in order to initiate or hasten regulatory and law enforcement action, which they knew would cause the stock prices to fall sharply once such action became public.
Extortion
xxiii) As a result of the above actions, the defendant AMR I. ELGINDY cultivated the perception that he had the ability to cause a significant decrease in a Targeted Company’s stock price using the unlawful means described above. ELGINDY and defendant TROY PETERS, together with Derrick W. Cleveland and others, used that perception to extort below-market-price or free shares of stock, and other things of value, from the Targeted Companies and their owners in exchange for the defendants’ agreement no longer to short sell the companies’ stock or spread negative information about the companies.
xxiv) The defendants AMR I. ELGINDY and TROY PETERS, together with others, used the confidential law enforcement and regulatory information obtained from the defendant JEFFREY A. ROYER to assess whether the Targeted Companies were susceptible to extortion.
xxv) To implement the extortion scheme, the defendant AMR I. ELGINDY and others routinely communicated with his subscribers, including EDNY Subscribers, in chat room discussions and by e-mail, fax and telephone. Once the extortionate demands of the defendants AMR I. ELGINDY and TROY PETERS were satisfied, ELGINDY communicated to his subscribers, including EDNY Subscribers, via the Internet, as described above, that they should stop short selling, cover their short positions by buying stock and refrain from further dissemination of negative information regarding the targeted company.
Obstruction of Justice
xxvi) On or about September 18, 2001, the U.S. Department of Justice initiated an investigation of certain financial and other criminal offenses. Shortly thereafter, the United States Attorney's Office for the Eastern District of New York initiated a grand jury investigation (the "EDNY Grand Jury Investigation") to investigate whether the defendant AMR I. ELGINDY and others, had engaged in certain financial and other criminal offenses.
xxvii) Beginning in or about October 2001, the defendant JEFFREY A. ROYER regularly accessed ACS to obtain detailed information concerning the EDNY Grand Jury Investigation. ROYER then advised ELGINDY and Derrick W. Cleveland of the direction of the EDNY Grand Jury Investigation and that ELGINDY was a target. All the while, ROYER continued to provide confidential law enforcement and regulatory information to ELGINDY and others, in order to guide their buying and selling of the stocks of Targeted Companies or companies being considering for targeting, and to assist in their assessment of the susceptibility of these companies to extortion.
The FBI Tipper Becomes a Tippee
xxviii) On or about December 21, 2001, the defendant JEFFREY A. ROYER resigned from the FBI and immediately took a job with the defendant AMR I. ELGINDY at Pacific Equity Investigations.
xxix) After joining Pacific Equity Investigations, the defendant JEFFREY A. ROYER actively sought new confidential law enforcement and regulatory information from law enforcement personnel with access to NCIC and ACS and from SEC attorneys, which he then provided to the defendant AMR I. ELGINDY and others.
xxx) In or about and between March 2002 and April 2002, the defendant LYNN WINGATE gathered confidential law enforcement information from ACS regarding criminal investigations of public companies and associated individuals. WINGATE then communicated this information to ROYER so that ROYER, together with the defendant AMR I. ELGINDY and others, could collectively make decisions whether to buy, hold or sell the stocks of companies to which the information was relevant.
xxxi) In or about and between March 2002 and April 2002, the defendant LYNN WINGATE also accessed ACS and collected confidential law enforcement information concerning the EDNY Grand Jury Investigation. WINGATE communicated that information to ROYER, who then informed ELGINDY and others. The defendant LYNN WINGATE also searched ACS for references to her own name to determine whether she herself was a subject or target of the EDNY Grand Jury Investigation.
xxxii) In early 2002, the defendant JEFFREY A. ROYER also attempted, unsuccessfully, to persuade another FBI Special Agent to access ACS for confidential law enforcement information.
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