=DJ Govt Presents Evidence Of Extortion In Elgindy Case
By Carol S. Remond
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The federal government presented jurors with a number of taped telephone conversations Wednesday in its effort to prove that short seller Anthony Elgindy and others conspired to extort shares from publicly traded companies.
Elgindy and former Federal Bureau of Investigation Special Agent Jeffery Royer are on trial in the U.S. District Court for the Eastern District of New York, charged with securities fraud, market manipulation and extortion.
The government alleges that Royer used FBI databases to gather
information about small companies and their insiders, information that
he would often share with Elgindy and others, who used it to profit
from selling short the stock of these companies.
The government also maintains Elgindy and others, on at least two
occasions, attempted to use information illegally obtained by Royer to
extort cheap or free shares from companies they targeted in their
short selling scheme. The two companies are Floor Decor Inc. and
Nuclear Solutions Inc.
In the case of Nuclear Solutions, federal prosecutors say Elgindy
contacted Paul Brown, the company's chief executive, in late 2001 and
attempted to use what turned out to be incorrect information about
Brown's previous felony conviction to scare the executive into
agreeing to a deal under which he would sell a discounted block of
300,000 to 350,000 shares. The shares could then be used by Elgindy
and members of his private investment Web site to cover their short
positions in Nuclear Solutions stock.
Testifying for the prosecution in the Brooklyn courtroom, Tina
Franco, Brown's sister, told jurors that as his secretary, she would
transfer all incoming calls to her brother, who would often tape them.
Franco testified that her brother, who since died in a car accident,
began receiving telephone calls from Elgindy on Dec. 19, 2001. She
said other people who called at about the same time were Troy Peters,
Roland Chapin, A.J. Nassar, broker David Slavny and former market
maker John Fiero. Franco said she heard most of the taped calls, since
she was asked by her brother to transcribe the recordings, which he
planned to give to the FBI.
Peters, a former broker at investment firm First Geneva in San
Diego, is also charged in the case and will be tried separately.
Chapin was Peters' boss at First Geneva. Nassar is the former chief
executive of Floor Decor. Slavny was at the time an investment banker
with J.P. Turner & Co. LLC, which with First Geneva was purportedly
trying to help Nuclear Solutions raise money.
Fiero was barred by the National Association of Securities Dealers
in 2001 for violating NASD and federal securities laws in manipulating
small stocks. He is not charged in the case.
Franco told jurors that her brother was very upset by Elgindy's
telephone calls, the tapes of which were played in open court. In two
calls on Dec. 19, Elgindy could be heard harassing Brown about a
previous conviction, which the short seller didn't know had been
dismissed, and about the validity of Brown's college diploma.
Prosecutors also played for the court tapes of several telephone
conversations between Brown and Peters. In those tapes, Peters was
heard trying to reassure Brown that because he knew and was a friend
of Elgindy, he could work out a deal to make short sellers who had
been pressuring the stock of Nuclear Solutions "go away."
In one call, Peters could be heard telling Brown that Elgindy was
not the only powerful short seller targeting Nuclear Solutions, and
that Fiero and his firm, Fiero Brothers Inc., were also involved.
Peters said in the call that he could easily take care of Elgindy, but
that Fiero was a major force that also needed to be dealt with. Peters
told Brown Elgindy would need about 100,000 shares and that Fiero
would need 200,000 shares to cover their existing short positions in
the stock of Nuclear Solutions.
In a later conversation also heard in court, Peters offered to put
together an investment banking deal under which free trading shares
could be transferred to Elgindy and Fiero to make them go away.
Elgindy's lawyers tried unsuccessfully to prevent the prosecution
from introducing the recordings into evidence, claiming that their
authenticity was in question. In particular, Elgindy's lawyers argued
that tapped conversations between Fiero and Brown should not be
admitted in evidence. In one call, discussed with the judge in a
sidebar without jurors present, Fiero could be heard telling Brown
that he should go to the FBI because the deal sounded like extortion.
Franco is scheduled to resume her testimony after lunch. Nassar is
expected to testify Thursday.
-By Carol S. Remond, Dow Jones Newswires; 201-938- 2074;
carol.remond@dowjones.com
(END) Dow Jones Newswires
12-01-04 1526ET
- - 03 26 PM EST 12-01-04
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