Ex-F.B.I. Agent Defends Role in Fraud Case
By ERIC DASH
Published: January 4, 2005
For nearly two months, Jeffrey A. Royer, a former F.B.I. agent, has sat silent as prosecutors accused him of providing confidential government information to a controversial stock adviser as part of an elaborate scheme. But yesterday, taking the witness stand for the first time, Mr. Royer testified that the adviser, Anthony Elgindy, was simply "a very valuable source."
Both Mr. Royer and Mr. Elgindy are accused of securities fraud, market manipulation and extortion in a conspiracy trial that is in its eighth week in the Federal District Court in Brooklyn.
In a spirited cross-examination yesterday afternoon, Mr. Royer admitted that between March 2000 and May 2002, he gave Mr. Elgindy information about confidential government investigations. But Mr. Royer maintained that he did so for law enforcement purposes and never expected anything but information in return.
The government contends that Mr. Royer supplied Mr. Elgindy with advanced news of criminal investigations into several small companies, which Mr. Elgindy published on two Web sites he operated, in a short-selling scheme that allowed both men to profit. Prosecutors also say that Mr. Elgindy used the confidential information to extort heavily discounted and sometimes free stock from companies that feared the impact of such a disclosure.
"I was interested in getting information back," said Mr. Royer, who was soft-spoken at first but grew more feisty as prosecutors continued with their cross-examination. He said he had no idea that Mr. Elgindy would use the information to sell stocks short, which involves borrowing shares in the hope that their price will fall.
Mr. Royer said that he thought that Mr. Elgindy's network of contacts in the investment world could provide the F.B.I. with useful information, and that he showed Mr. Elgindy some confidential e-mail messages and other documents related to companies under investigation as a way of winning trust.
Through his Internet investing site, Mr. Elgindy and others "offered a unique approach to information-gathering," Mr. Royer later added. "Mr. Elgindy was an individual, a conduit to 300 people who researched stock fraud.
"By sharing information, I would allow law enforcement and regulatory authorities to shut down companies that scammed the general public. That is what I planned to do."
Three other associates of Mr. Elgindy are expected to stand trial sometime this year on separate charges related to the case.
Mr. Elgindy, who is not scheduled to testify, has been in jail since April 2004, after he boarded a plane with false identification while awaiting trial in the securities fraud case.
Mr. Elgindy, a controversial figure in the world of cheap and thinly traded shares, has been portrayed by prosecutors as the mastermind of a complicated scheme. He appeared yesterday in a dark suit, with a bloodied bandage wrapped tightly around his head - caused by a "mishap" in prison, his lawyer, Joel R. Isaacson, said.
But it is the supporting role of Mr. Royer that has provided the government with the basic foundation of its case.
Even though Mr. Royer said he was aware that Mr. Elgindy was a well-known short seller, he said that he did not know what Mr. Elgindy planned to do with the confidential information. Mr. Royer acknowledged that he used a case code for an A.T.M. theft in New Mexico when he searched a secure government database for information related to individuals at several companies that interested Mr. Elgindy. Mr. Royer also said that he took home confidential government reports after he left the F.B.I., apparently in violation of the agency's rules.
On cross-examination, Seth Levine, an assistant United States attorney, asked him: "Is it your prerogative that you could send confidential information to a convicted felon whenever you want?" Mr. Royer said that it was not.
"It's real easy for you to armchair-quarterback when you don't have anything to do with the case," Mr. Royer later said. "Pursuant to law enforcement purposes, I can do anything I want with the files."
Mr. Royer also said that after the 9/11 attacks, he learned that Mr. Elgindy was being investigated by the Justice Department for potential terrorist ties. He said that he did not inform Mr. Elgindy because he did not want to interfere with the investigation.
It was not the first time that Sept. 11 had been invoked in this case. Earlier in the trial, the fact that Mr. Elgindy was a subject of a terrorism-related investigation shortly after 9/11 was introduced into evidence. Mr. Elgindy's lawyers have argued that there is no reason to suggest that their client was connected to terrorism. And yesterday, as before, Judge Raymond J. Dearie instructed jurors to keep in mind that this case has nothing to do with terrorism.
For the first five weeks of the trial, prosecutors called on several F.B.I. agents who worked with Mr. Royer, along with former businesses associates of Mr. Elgindy, some of whom have pleaded guilty as part of a deal with the government. Mr. Royer's testimony seemed to affirm many of the events, but offered an alternative explanation that appeared to be fairly consistent with Mr. Elgindy's defense case, delivered last month.
Mr. Elgindy's lawyers have maintained that their client worked with Mr. Royer in an effort to crack down on stock frauds and that he sometimes gained confidential information in the process.
Derrick Cleveland, a stock trader who introduced Mr. Royer to Mr. Elgindy, pleaded guilty to securities fraud conspiracy, and agreed to testify for the government in the case. In his 10 days of testimony, he outlined case after case in which he claimed that Mr. Royer provided important tips that he and Mr. Elgindy used to sell stocks short. In yesterday's testimony, Mr. Royer said that the information he provided was far more limited.
F.B.I agents testifying for the government have said that Mr. Royer freely admitted to gaining access to password-protected government databases to furnish confidential S.E.C. and F.B.I. information.
They also said that Mr. Royer told them he planned to work for Mr. Elgindy and other short sellers after he left the agency in December 2001. The agents also said that Mr. Royer told them at the time that he was interested in exposing corporate fraud because he had once lost a large investment in a bogus company. Mr. Royer's testimony yesterday appeared to affirm these remarks.
Closing arguments are in the case are expected to take place as early as next week. |
