2nd UPDATE: Elgindy , Royer Found Guilty
DOW JONES NEWSWIRES
January 24, 2005 4:07 p.m.
(Adds comment from U.S. attorney and sentencing information in last three paragraphs.)
By Eric J. Weiner and Carol S. Remond
Of DOW JONES NEWSWIRES
NEW YORK -- Short-seller Anthony Elgindy was found guilty Monday of racketeering and securities fraud charges.
Former Federal Bureau of Investigation special agent Jeffrey Royer was also found guilty of racketeering conspiracy and securities fraud charges.
Elgindy was downcast as he entered the courtroom, appearing nervous, with his eyes closed or focused on his lap. The jury found Elgindy guilty of 11 counts against him, including five counts of securities fraud, a count of racketeering conspiracy, a count of securities fraud conspiracy, a count of extortion, a count of extortion conspiracy, and two counts of wire fraud.
As the jury read the verdict, there were gasps and cries from the crowd and defense table, leading Judge Raymond Dearie to halt the proceedings so that Elgindy could be taken from the courtroom.
Royer was found guilty of nine of 14 counts against him, including four counts of securities fraud, a count of securities fraud conspiracy, a count of racketeering conspiracy, a count of obstruction of justice conspiracy, a count of obstruction of justice and a count of witness tampering.
Prosecutors argued that Elgindy and Royer are significant flight risks and that their bail should be set accordingly. A bail hearing is pending.
Elgindy and Royer were charged in a May 2002 racketeering indictment.
The government alleged Royer was a corrupt federal agent who misappropriated confidential information from FBI computers, which he shared with Elgindy and others. Federal prosecutors told jurors during the 10-week trial that Elgindy used the information to manipulate shares of small companies. The prosecutors also alleged that Elgindy used some of the information he obtained from Royer to extort discounted shares from two companies, Floor Decor Inc. (FLOR) and Nuclear Solutions Inc. (NSOL).
Three other defendants in the case, Lynn Wingate, Troy Peters and Jonathan Daws, will be tried separately. Three defendants, Derrick Cleveland, Robert Hansen and Kent Terrell, have pleaded guilty and are cooperating with the government.
According to the indictment, Elgindy used a private investing Web site to share some of the information he gained from Royer and other law enforcement officers with site members. The government alleged that Elgindy organized site members in order to maximize the impact of the release of negative information on the stock price of targeted companies.
Making copious use of logs of online exchanges among some of the 300 members of Elgindy 's Web site, the prosecution argued in court that Elgindy and Royer were engaged in a corrupt relationship and that they used nonpublic information to push down the price of the shares of companies they sold short.
Short sellers sell shares in the anticipation that they will profit when the price of these shares goes down.
Elgindy and Royer were also accused of having conspired to obstruct a post-Sept. 11 investigation into suspicious trading that took place shortly before the terrorist attacks on the U.S. That probe soon turned into a federal investigation of the peculiar relationship between Elgindy and Royer. Assistant U.S. Attorney Ken Breen told jurors during the government's rebuttal that Royer shared information about the Sept. 11 investigation with Elgindy and that the short seller took steps to flee to Lebanon.
Royer, who admitted in court that he shared confidential information with Elgindy and others, had argued he only did so because he wanted to get information from them in return. Royer also admitted in court that he told Derrick Cleveland, a cooperating defendant in the case, about the Sept. 11 investigation, but he denied that he told Elgindy about it.
Barry Berke, one of Elgindy 's lawyers, argued in his closing argument that Elgindy didn't know about the Sept. 11 probe and that his client's trip to the Middle East and transfer of money to Lebanon were innocuous events unrelated to the investigation. Elgindy returned to the U.S. in December 2001 and had requested permission to travel back to Lebanon in early 2002. That request was denied. He and Royer were arrested on May 21, 2002.
Royer also was charged with witness tampering because of a telephone call he made to a former colleague after his May 2002 indictment. Prosecutors alleged that Royer attempted to influence the potential testimony of Michael Mitchell, a police officer whom Royer used to access confidential government information after he left the FBI.
Meanwhile, Elgindy was charged with several counts of securities fraud and wire fraud for trading ahead of members of his Web site or contrary to his advise to them.
In a statement released after the verdict, U.S. Attorney Roslynn R. Mauskopf said, "Under the guise of protecting investors from fraud, Royer and Elgindy used the FBI's crime-fighting tools and resources actually to defraud the public, and to insulate themselves from detection and prosecution. Elgindy 's conviction marks the end of his public charade as a crusader against fraud in the markets."
Under federal sentencing guidelines, the extortion and racketeering charges each carry a maximum sentence of 20 years in prison, while the securities fraud and obstruction of justice charges each carry a maximum sentence of five years in prison.
A date for sentencing hasn't been set. |
