** Book Extract featuring Tony Elgindy
The following was scanned (by permission) from the book "Scam Dogs & Mo-Mo Mamas; Inside the Wild and Woolly World of Internet Stock Trading" by John Emshwiller. I've proofed the text as best I can but I don't claim to have caught all scanning errors. I'm not getting compensated for posting this; I just thought people here might find it interesting. Anyone wishing to know more information should check out the following:
amazon.com
shop.barnesandnoble.com
Today's selection is Chapter 9, and features Tony Elgindy (Anthony@Pacific).
=====
CHAPTER NINE
On NOVEMSER 30, 1998, at 8:46 P.M. Eastern standard time, a new message board was born on Silicon Investor. Given the fireworks that would follow there, the opening message by the founder was relatively low-key. It read, in part:
"This thread is dedicated to helping investors maximize the profits and minimizing their losses, I deal primarily with overhyped, overvalued, fraudulent, promoted, spammed, or suspect equities. I will almost always carry a personal position that is consistent with my postings. My positions may be considerable and may change and often times do change without notice.. A simple request will always result in the most truthful answer possible. Those who tout and or hype can find other threads to satisfy their needs."
The message board's title managed to be bland, personal, and vaguely official all at the same time. It was called Anthony@Equity Investigations, Dear Anthony.
The new board's founder went by the online moniker Anthony @Pacific. In real life, his name is Amr Ibrahim Elgindy, though he prefers to be called Tony.
Tony Elgindy is what's known in the securities business as a "short seller." Unlike the average "long" investor, who buys shares of a company in hopes the price will rise, a short seller looks to profit when stock prices fall. Though there are variations, the traditional method of short selling goes like this: find a stock you think is overvalued; find an investor who will lend you some shares of that company; sell the borrowed shares; hope the price then falls so you can buy back shares at a lower price to replace the borrowed ones and pocket as profit the difference between your selling and buying prices.
Of course, if the price of the stock goes up after you sell and you have to replace the borrowed shares at a higher price, short selling can produce fast and large losses. That's one reason short selling is generally considered a riskier investing strategy than going long, where the investor often has months or years to realize a profit.
Yet short selling has been a fixture in the stock market since the beginning. Sometimes the role of short sellers is honored. In the middle of the nineteenth century, according to one stock market history, short seller Jacob Little was so well known that his portrait hung at the offices of the New York Stock Exchange.
More often, though, people simply want to hang short sellers. After all, stock markets tend to be filled with optimists, who believe that, gravity notwithstanding, the natural direction of stocks is up. Such sunny dispositions tend not to appreciate pessimists peeing on their parade.
Plus, short selling doesn't generally attract passive investors. Besides looking for overinflated stocks, many short sellers carry their own arsenal of pins designed for bubble bursting. There is a long history, of shorts attacking stocks, by fair means and foul. Sometimes they dig up real dirt on a company; sometimes they just make up the dirt. Some put out press releases attacking their targets. More often their attacks move as whispers through the market, frequently planted first in the ear of a reporter in return for a promise of anonymity. Given their line of work, short sellers have traditionally preferred the shadows--sometimes out of legitimate concerns for their own safety, financial and otherwise, and sometimes out of the knowledge that they are doing some pretty slimy things.
At the same time, short sellers can provide an important, even essential, service to the investing public. The natural optimism of the markets often gives way to hyperbole, a.k.a, hype. And hype is the kissing cousin of fraud. While regulators are supposed to help guard the public against fraud, they tend to be too few and too slow to do much good in many cases.
That's where the short seller comes in. He or she has an immediate, often substantial, economic interest in uncovering any seamy seams of a company. And some are quite good at doing it. As a species, short sellers tend to be smarter and quicker than their counterparts on the long side. Short sellers quickly discover that there are no companies anxious to give them access and feed them mounds of information. Like predators, they don't get dinner invitations from their prey.
Perhaps no stock market in history needed a short dose of pessimism more than the Internet-driven bull stampede of the late 1990s. The entry of a figure such as Elgindy marks, in a sense, a new phase of the craze. Cynics such as Shell and Mitchell may be bright, but they are still relative amateurs. They even disdain any economic interest in the stocks they attack. By contrast, players such as Elgindy have very real economic interests--and act accordingly.
Elgindy is a professional short seller, and had been for several years at the time he made his Silicon Investor debut. He knows much about the scummy side of Wall Street because he has lived there and wallowed in it. He has done business with swindlers, taken part in and profited from their swindles--and then fingered them to the cops. (Elgindy says that he didn't knowingly do anything wrong and didn't break any laws.) He came to the Internet loaded for bear, so to speak, and looking to build a short-selling machine that would suck in companies and spit out profits. There is nothing amateur or laid-back about Tony Elgindy.
He also happens to be a smart, some say brilliant, trader with a keen eye for baloney in the meat market of stocks. He shows an eagerness to wrap himself in the mantle of public servant. (He doesn't shy away from talking about his accomplishments. One day, for example, he sent an e-mail to some fellow traders with a link to an online IQ test. Elgindy wrote that he had just taken the test and scored 169, which an accompanying chart showed to be well above the "definitely genius" level and in a range reached by less than half of 1 percent of all IQ test takers. "I was having an off morning," he added.)
To online critics who assert that his trashing of stocks actually hurts investors, Elgindy responds that they are looking at it from the wrong perspective. Going after a bad company
"has to be done quickly and harshly . .because I cant usually sdave trhe momops and pops that refuse to take my advice and who want tic hold on.. But I can prevent hundreds of future investors [from being hurt],"
he wrote in one e-mail.
"But the key is TIMING and Strategy and PSYCHOLOGY," he explained in another message.
"By figuring out how the criminals and hypsters make their money ..you can figure out how to take it away from them."
Elgindy recognized that the communicating power of the Internet added a potentially huge new weapon to his short-selling arsenal. It allowed him, from the comfort of his computer terminal, to play Paul Revere and warn the investing countryside about suspect companies. In the frenzied market of the '90s, there seemed to be no shortage of candidates.
Sometimes they were as close as the next press release. One day, for instance, Elgindy was scrolling through various online news and discussion sites when he came across an announcement from Firstwave Technologies Inc. The press release from the small Internet software company announced a business deal with Microsoft-a name almost any small company would love to ally itself with. Fueled by this news, Firstwave shares more than quadrupled in price to over $8.50 a share on a volume of 16 million shares, an eyepopping 5,000 times its trading volume of the day before.
The release didn't smell right to Elgindy. For one thing, it didn't give details about the size of the Microsoft deal. So Elgindy started working the phones, reaching officials at both Firstwave and Microsoft. Though they declined to give him dollar figures, he wheedled out enough information to conclude that the Microsoft order was worth only about $100,000, a relative pittance compared with Firstwave's annual revenue of $14.5 million.
In his low-key way, Elgindy started launching online bombs. He described Firstwave's press release as a
"DECEPTION OF MASSIVE PROPORTION"
and pronounced it
"A Criminal Shame"
that the announcement had moved the stock price so much. Though a Firstwave spokesman defended the release as fair and accurate, he acknowledged in an interview with me that Elgindy's dollar estimate of the contract was "in the ballpark." From its frenzied high, Firstwave's stock fell some 40 percent in price over the next two days.
Like other short sellers, Elgindy is always on the lookout for any evidence tying a company to individuals who have a history, of legal problems, particularly in the area of securities law. Legal problems of a civil nature are okay, especially if it's a lawsuit by the SEC. Of course, criminal problems are better, with criminal securities fraud being the short seller's equivalent of blackjack. While a corporation's connection to an alleged scofflaw doesn't necessarily speak to the firm's products, services, or business prospects, it does cast a nice pall--from a short seller's perspective, that is--over the enterprise. And in the world of shorting, pall can just be another way to spell profit.
Which is why a little company called FindEx.com blipped into Elgindy's field of interest screen one day. By the time FindEx found its way to Elgindy, the stock was well on its way to rocketing to over $18 a share from about $1 a. share. That kind of rush up, alone, would have attracted the attention of any self-respecting short seller.
Based in Omaha, Nebraska, FindEx.com planned to become "the premier financial content provider, on the Internet," according to a company press release. That same release announced that a software industry executive named,.Joe Szczepaniak had just been named the company's president and chief executive officer?
What interested Elgindy about that FindEx.com press release wasn't so much what it said but where it led. The contact phone for Szczepaniak was in Florida, not Nebraska. Dialing that number connected the caller to the telephone extensions of two men, Lionel Reifler and Yanni Koutsoubos.
Reifler had been the target of civil injunctive action by the SEC for alleged violations of federal securities laws, according to agency records. SEC records also showed that in August 1989, Reifler had pled guilty to criminal securities fraud.
In a 1999 phone interview with me, Reifler acknowledged his past legal problems but said he had nothing to do with FindEx.com and doesn't know how the phone number made its way to the company's release.
Koutsoubos, whom I interviewed that same day, just an extension away, said that he personally wasn't connected to FindEx.com. However, a company for which he worked was an investor. He acknowledged knowing Szczepaniak. But, like Reifler, Koutsoubos said he doesn't know why his office phone number is on the FindEx.com release.
In 1995, a Texas-based retailer called 50-Off Stores, Inc. filed suit against Koutsoubos and others in San Antonio federal court for allegedly obtaining shares in the company but never paying for them. In that litigation, 50-Off. which later changed its name to LOT$OFF Corp., described Koutsoubos as also being Ioannis Koutsoubos, who was sued by the SEC in a 1991 case involving the allegedly illegal trading of shares in an Arizona company. LOT$OFF Corp. obtained a $30 million default judgment against Koutsoubos when he didn't respond to the charges.
In my phone interview with Koutsoubos, he acknowledged being sued by 50-Off but didn't comment beyond that about the case. He denied being the Ioannis Koutsoubos who was sued by the SEC. He said Koutsoubos is a common name in Greece. He added that out of curiosity he even once tried to contact Ioannis Koutsoubos but got no reply. When I asked how he tried to make that contact, Koutsoubos paused and then said that he put a message out over the Internet.
FindEx.com's Szczepaniak, during a mid-1999 phone interview, said he knows Koutsoubos and through him once met Reifler. Szczepaniak said that the pair's phone number shows up on the press release because he met the previous FindEx.com chief executive at their offices in connection with getting his new job. He said that as far as he knows neither of the two had any role at FindEx.com.
Szczepaniak admitted, however, that there were some gaps in his knowledge about his new company. For instance, he didn't yet have a list of the firm's shareholders. He said he was working on one. Also, the company didn't yet have a board of directors. He was working on assembling one. Where was his predecessor, who gave him the chief executive's job? Don't know, said Szczepaniak. (Szczepaniak didn't respond to later interview requests or e-mailed questions.)
With the names of not just one but two suspect figures to bandy about, Elgindy began his e-mail offensive against FindEx.com. At the time, the stock was dancing around $17 a share.
"Pure shit ...... very strong smell,"
wrote Elgindy, evidently not wanting to have his feelings about the company lost in subtlety.
"Everyone should already be short FIND,"
he counseled in another message. He also started passing the word to reporters, including myself.;
The names Yanni and Lionel begin popping up in the messages of other Internet posters. On the Raging Bull message board for FindEx, someone using the moniker "cantFINDme" posts the Florida phone number and says this
"is where the real info on this non-company is. When you get a hold of Lionel ,ext 107, ask him his last name and then search the SEC enforcement archives to FIND out who is really behind FIND."
Another Raging Bull poster using the moniker "k.yanni" writes that
"FINdex is a real company with a real ecommerce business and fantastic prospects."
This person adds that
"you should buy some stock at this price and hold until it gets to $35,"
To which a message writer using the name FUKuREIFLER responds:
"Dear Rotten #######. You and Lionel are going back to jail shortly. Make sure you bring soap with you,"
(This poster is inaccurate on at least one point. There isn't any evidence that Koutsoubos ever had a criminal violation.)
Within two weeks of this battling breaking out, FindEx stock has fallen as low as $6 a share, though it then rebounds to about $10 a share.
From the time of his entry into cyberspace, Elgindy knew he needed allies to accomplish his goals. And with the communicating power of the Internet, he found them. Or they found him. Indeed, within a few months of starting his Anthony message board at Silicon Investor, Elgindy was able to join the ranks of the Democrats and Republicans and Elks. He held a convention. Of short sellers. |
