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Elgindy, Royer Found Guilty of Securities Fraud
13:14 EST Monday, January 24, 2005 - 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.
Messrs. Elgindy and Royer were charged in a May 2002 racketeering indictment with securities fraud, extortion and obstruction of justice.
The government alleged Mr. Royer was a corrupt federal agent who misappropriated confidential information from FBI computers, which he shared with Mr. Elgindy and others. Federal prosecutors told jurors during the 10-week trial that Mr. Elgindy used the information to manipulate shares of small companies. The prosecutors also alleged that Mr. Elgindy used some of the information he obtained from Mr. 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, Mr. Elgindy used a private investing Web site to share some of the information he gained from Mr. Royer and other law enforcement officers with site members. The government alleged that Mr. Elgindy organized site members in order to maximize the impact of the release of negative information on the price of targeted companies.
Making copious use of logs of online exchanges among some of the 300 members of Mr. Elgindy's Web site, the prosecution argued in court that Messrs. Elgindy and Royer were engaged in a corrupt relationship and that they used non-public 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.
Messrs. 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 Messrs. Elgindy and Royer. Assistant U.S. Attorney Ken Breen told jurors during the government's rebuttal that Mr. Royer shared information about the Sept. 11 investigation with Mr. Elgindy and that the short seller took steps to flee to Lebanon.
Mr. Royer, who admitted in court that he shared confidential information with Mr. Elgindy and others, had argued he only did so because he wanted to get information from them in return. Mr. 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 Mr. Elgindy about it.
Barry Berke, one of Mr. Elgindy's lawyers, argued in his closing argument that Mr. 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. Mr. 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 Mr. Royer were arrested on May 21, 2002.
Mr. Royer was also charged with witness tampering because of a telephone call he made to a former colleague after his May 2002 indictment. Prosecutors alleged that Mr. Royer attempted to influence the potential testimony of Michael Mitchell, a police officer whom Mr. Royer used to access confidential government information after he left the FBI.
Meanwhile, Mr. 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 advice to them.
(Carol S. Remond contributed to this report.)
-By Eric J. Weiner, Dow Jones Newswires; 201-938-2429
Dow Jones Newswires
01-24-05 1311ET
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