From: Jeffrey S. Mitchell 12/15/2004 9:04:44 PM
of 88781
Elgindy Witnesses Thought It OK To Post FBI Info
12-15-04 08:15 PM EST
NEW YORK (Dow Jones)--Witnesses for the defense testified Wednesday that they didn't think anything illegal was taking place when short seller Anthony Elgindy shared law enforcement information with them.
Jeffrey Rubenstein, a former member of Anthony.pacific.com a private investment Web site set up by Elgindy for like-minded short sellers, said the site provided a trading community and a place to enhance one's trading ability.
Rubenstein said law enforcement information and the investigation of scams was a small part of the site and that most members, including himself, focused on other stocks.
Elgindy and former Federal Bureau of Investigation Jeffrey Royer are charged in the U.S. District Court for the Eastern District of New York with securities fraud, market manipulation and extortion. Others charged in the case are scheduled to be tried separately. The government alleges that Elgindy used his Web site to share confidential information he illegally obtained from Royer and that Elgindy and others traded and profited from it.
Asked about a chatlog in which Elgindy can be seen asking his webmaster to erase a log after confidential information was posted, Rubenstein said: "He clearly knew here that the FBI was investigating a company. The FBI and Tony didn't want the company to know about it. He was appraising the site about it because of the ongoing investigation. Tells Hansen (the webmaster) to erase the logs (because) he was trying to make it difficult for people to communicate what was supposed to be private."
"Some information was told in confidence to Tony and he was telling us in confidence, that was it," Rubenstein added.
Under cross-examination by Assistant U.S. Attorney Kenneth Breen, Rubenstein said that Elgindy told members explicitly that he was in contact with the FBI. " He put the FBI on audio. He was not hiding this," the witness added, referring to a function of the Web site in which participants' voices were broadcast to others online at the time. Asked how Elgindy managed to learned information that was supposed to be confidential, Rubenstein said :"He was providing information to the government, collaborating in a sense and (an agent) could have told Tony some information."
Rubenstein told Breen he never talked to Elgindy on the telephone or private messages and only met him once briefly in New York after his arrest. Rubenstein said he never met or talked to Royer or Derrick Cleveland. Cleveland was charged in the case and has pleaded guilty to conspiracy to commit securities fraud and is cooperating with the government.
Earlier Wednesday, Breen completed his cross-examination of Peter Michaelson, another site member who testified for the defense.
Like Rubenstein, Michaelson testified for the defense that he never thought that anything illegal was taking place when confidential government information was shared by members of the site.
Under cross-examination by Breen, Michaelson said that he thought that if government information was shared on the Elgindy site, it must have been okay. Asked whether he thought that Elgindy was credible when he posted information which he said came from the FBI. "Not all the time....He lied all the time, exaggerated to make himself look good," Michaelson answered. Michaelson had testified Tuesday that he had no reasons to believe that Elgindy was not being truthful when he said he had confidential information. Asked about his different answer, Michaelson said "Yesterday, I don't know what I said yesterday. I was really tired."
"Are you saying that we should disregard your testimony (from Tuesday)," Assistant U.S. Attorney Breen asked Michaelson, who answered, "I rather you would."
Reviewing his trading records, including some from an account at Canadian brokerage firm Union Securities, Michaelson said he did trade in the stock of companies for which Elgindy provided confidential information on the same days that the information was posted on the investing site. Under questioning, Michaelson also said that he purchased some of the shares of a block trade put together by Elgindy in the stock of Nuclear Solutions Inc. (NSOL). Prosecutors allege that Elgindy and others charged in the case extorted discounted stock from companies they targeted in exchange for halting their short selling of their shares. Nuclear Solutions is one of two companies that the government said was extorted by Elgindy and others charged in the case.
Rubenstein is scheduled to resume his testimony on Thursday.
- By Carol S. Remond, Dow Jones Newswires, 201 938 2074; carol.remond@ dowjones.com
Dow Jones Newswires
12-15-04 2015ET
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