Wall Street Journal article: FBI Agent Charged With Using Secret Records for Stock Scheme
By AARON ELSTEIN, LAURIE P. COHEN and GARY FIELDS
Staff Reporters of THE WALL STREET JOURNAL
The government charged an FBI agent and a former one with giving stock traders confidential information about criminal probes of public companies, in a short-selling scheme that profited by spreading unfavorable information to drive stock prices down.
The scheme was allegedly headed by Anthony Elgindy, a colorful and controversial investing figure who also is known on the Internet as Anthony@Pacific, according to an indictment announced by the U.S. Attorney's office for New York's Eastern District in Brooklyn.
The government alleged that Mr. Elgindy received information from the FBI insiders, who used the bureau's databases to tip him about public companies facing criminal problems or investigations. Then, according to the indictment, he used the information to sell the companies' shares short, advise others to do the same -- and to extort stock from companies that feared manipulation of their shares.
A short-seller unloads borrowed shares for a profit when a stock declines, so exclusive access to unfavorable information would be valuable. The six-count indictment alleged that the scheme thrived on confidential information supplied by two rogue agents -- Jeffrey A. Royer, who left the FBI's employ last December to join Mr. Elgindy's trading operation, and Lynn Wingate, who joined the bureau in 1999 and was relieved of duty Tuesday night.
Both are accused of providing confidential information to help Mr. Elgindy decide which companies to target. "The allegations in the indictment reveal a shocking partnership between an experienced stock manipulator and law-enforcement agents, undertaken for their illicit personal financial gain," said U.S. Attorney Alan Vinegrad in a prepared statement.
White-collar crime experts voiced shock at the allegations, especially the FBI agents' alleged involvement. "I've never come across a case like this one," said Robert Mintz, a former federal prosecutor who heads the government investigations practice at the Newark law firm of McCarter & English. "It seems incredibly bold to use the government's own resources to orchestrate a stock-manipulation scheme."
He said the confidential information allegedly used in the scheme -- from the FBI's Automated Case Support and National Crime Information Center databases -- would be a "gold mine" of information. The databases contain information about companies and individuals under criminal investigation and their criminal histories, as well as information about civil investigations undertaken by the Securities and Exchange Commission.
Two additional Elgindy traders, Derrick Cleveland and Troy Peters, were charged along with the other three with racketeering and securities fraud conspiracy. Messrs. Elgindy, Royer and Peters were also charged with extortion conspiracy. Ms. Wingate and Messrs. Elgindy and Royer face additional charges of obstructing a grand jury probe of the allegations. The most serious charge against each defendant carries a prison term of up to 20 years.
A person who answered Mr. Elgindy's cellphone said he wasn't available for comment. Calls to Mr. Elgindy's firm, Pacific Equity Investigations, of San Diego, weren't returned. Messrs. Royer, Wingate, Cleveland and Peters couldn't be reached. The government said all five defendants were arrested on Tuesday -- Messrs. Elgindy and Peters in California, Ms. Wingate and Mr. Royer in New Mexico, where they were most recently assigned with the FBI, and Mr. Cleveland in Oklahoma.
Stephen T. McCue, a court-appointed federal defender who represented Ms. Wingate at Tuesday's hearing, said she is now assigned to the drug squad. He said she is "a solid line agent who has done a number of different things in her time." He said Ms. Wingate "intends to plead not guilty." Mr. McCue said that her financial resources are "limited" and that counsel will be appointed for her in New York.
David Kitchen, who was Special Agent in Charge of the Albuquerque FBI office at the time of Ms. Wingate's arrival, says she came to work for him fresh out of the FBI's training academy in Quantico, Va., in the fall of 1999. Mr. Kitchen says Ms. Wingate was assigned to the bureau's bank robbery squad for about six months and was then "moved up" to the white-collar crime squad, possibly putting her in touch with publicly traded companies under scrutiny. At the time Mr. Kitchen left the FBI, in May 2000, Ms. Wingate was just getting started in her new assignment.
"I am really surprised to hear she could be involved in something like that," Mr. Kitchen said.
Court Date
Ms. Wingate was released on her own recognizance. Mr. Royer was released but must wear an electronic bracelet. Both have been ordered to appear on noon next Tuesday before U.S. District Judge Raymond Dearie in Brooklyn. Doug Couleur, the court-appointed counsel for Mr. Royer, said he will have a different court appointed counsel in New York next week, where Mr. Royer plans to plead "not guilty."
The indictment didn't say how much money the defendants netted from the scheme, though Mr. Royer was alleged to have been paid $30,425 while he was still an FBI agent. In a separate action authorities filed a civil suit seeking to seize funds from numerous accounts held by Messrs. Elgindy and Royer, as well as Mr. Elgindy's Rolls Royce, Bentley, Jaguar and Hummer automobiles and his $2.2 million home.
The indictment says that starting in 2000, Messrs. Elgindy and Cleveland "corruptly induced" Mr. Royer to provide them with confidential law-enforcement information about companies whose stock they had sold short. After leaving the FBI to join Mr. Elgindy's operation, it says, Mr. Royer allegedly persuaded Ms. Wingate to provide similar information from FBI databases.
In one alleged instance, Mr. Royer found criminal-history information in an FBI database about Paul Brown, chief executive of Nuclear Solutions Inc., a small company based in Meridian, Idaho, and passed it to Mr. Elgindy, who shorted the stock and distributed a report to his subscribers last December calling Mr. Brown "a convicted felon." Nuclear Solutions' stock fell sharply in the aftermath of Mr. Elgindy's report. Nuclear Solutions officials couldn't be reached for comment.
The indictment says Messrs. Elgindy and Peters would use the confidential information they collected from the FBI to make "extortionate demands" on companies that they knew were being investigated by federal authorities. Once these demands were satisfied, the indictment says, Mr. Elgindy would tell subscribers to his Web site to exit their short positions and cease disseminating "negative information" about the company being targeted.
Internet Celebrity
Mr. Elgindy, a 34-year-old native of Cairo, Egypt, became something of a celebrity among Internet investors during the headiest days of the technology-stock bubble. His messages on such stock-chat sites as Silicon Investor, usually recommending investors sell shares he deemed overpriced, were widely followed. Silicon Investor members demanded Mr. Elgindy be reinstated after he was suspended from the site in 1999 when his remarks got a little too caustic. He later started his own Web sites, AnthonyPacific.com4 and InsideTruth.com5, charging people up to $600 a month to see his picks first and read his often colorful comments.
Mr. Elgindy has a history of run-ins with criminal authorities and securities-industry regulators. In May 2000, he was sentenced to four months in federal prison and three years of probation for fraudulently collecting disability payments between May 1994 and February 1995 while he continued to work as a stockbroker at Bear Stearns. In 1997, he was fined $30,000 by the National Association of Securities Dealers for stock-trading violations in 1993 that included improperly using a trading system for retail customers. The NASD revoked Mr. Elgindy's membership in 1998 after he stopped making payments on the fine.
Mr. Elgindy's wasn't shy about expressing opinions about his field. Once, after a person posted on the Internet a fake Bloomberg News story saying that PairGain Technologies Inc. would be acquired, he seemed to decry such tactics. "The Internet has become the world's largest conference call," Mr. Elgindy said an Associated Press article. "And plenty of the people talking about stocks have hidden motives for what they're saying."
When he was convicted in 2000 on federal charges of mail fraud, Mr. Elgindy was forthcoming in acknowledging his misdeed. "I was a stupid kid and I did a stupid thing," he said then. "I can't hold others accountable if I'm not held up to the same standards. I have no hard feelings toward anybody."
Write to Aaron Elstein at aaron.elstein@wsj.com6, Laurie P. Cohen at laurie.cohen@wsj.com7 and Gary Fields at gary.fields@wsj.com8
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