From Orlando;
This seems to be getting national attention (FBI involvement gives it a unique angle)
mad2
Copyright 2002 Sentinel Communications Co.
THE ORLANDO SENTINEL
May 26, 2002 Sunday, FINAL
SECTION: MONEY; Pg. H2
LENGTH: 815 words
HEADLINE: ARRESTS SHINE LIGHT ON SHORT SELLERS' SHORT CUTS;
A CURRENT AND FORMER FBI AGENT ARE AMONG THOSE ARRESTED IN AN ALLEGED SECURITIES SCAM.
BYLINE: Thomas S. Mulligan,, James F. Peltz and Josh Friedman Business Reporters
BODY:
NEW YORK -- Amr I. "Anthony" Elgindy made a name for himself on the Internet in the 1990s battling what he said was rampant securities fraud.
Last week, the government turned the tables on the 34-year-old Encinitas, Calif., man: In an indictment unsealed in federal court in New York, the government charged Elgindy, two associates and one current and one former FBI agent with fraud. The case opens a new chapter in the wildly colorful life of Elgindy, who as a well-known "short seller" -- someone who bets that stock prices will fall rather than rise -- has become a hero to some investors for exposing companies that were far more hype than substance.
The indictment also shines a light on short sellers in general, and their relationship with others -- including securities regulators -- who have an interest in halting and preventing frauds.
The Elgindy case raises new questions about the kind of information-sharing that goes on as a matter of course between law-enforcement officers and their informants, experts said.
According to the 33-page indictment unveiled Wednesday by the U.S. Attorney's Office in Brooklyn, Elgindy and associate Derrick W. Cleveland subverted a relationship with Jeffrey A. Royer, a former FBI special agent in Oklahoma City and Gallup, N.M.
In 1999, as the Internet-stock frenzy was building to a climax, first Cleveland and then Elgindy began giving Royer tips about companies and individuals they suspected of perpetrating stock fraud, the indictment states.
For Elgindy and Cleveland, the motivation was clear: Like all short sellers, they specialize in rooting out and disseminating damaging information about publicly traded companies they believe to be overvalued.
In a short sale, an investor borrows stock (usually from a brokerage) and sells it, betting that the market price will drop. If the bet is correct, the short seller can buy back the borrowed shares at a lower price and pocket the difference between that price and the sale price.
Short sellers often have been accused of being abusive, sometimes planting false rumors about companies they have shorted to drive the stocks lower.
Beginning in 2000, the government said Wednesday, Elgindy coerced Royer to start a flow of information in the opposite direction: According to the indictment, Royer began tapping the FBI's confidential computer databases and supplying his informants with dirt from ongoing criminal investigations of companies.
Elgindy allegedly put the information out over the Internet via his $600 a month subscription service, AnthonyPacific.com, so that he and his subscribers could launch coordinated short selling attacks on the target companies.
After subscribers got first crack, much of the information was later disseminated elsewhere, such as on the Silicon Investor Web site, open to the public.
Moreover, in a classic shakedown, Elgindy, Cleveland and trader Troy Peters used the FBI information to extort payments from companies, threatening to wreck the companies ' reputations unless they agreed to pay the traders with company stock, the indictment says.
In December, Royer quit the FBI and joined Elgindy's San Diego-based investment firm, Pacific Equity Investigations. Royer's role as a funnel of confidential FBI material was soon taken over by Lynn Wingate, a special agent based in Albuquerque, N.M., the indictment states.
Former federal prosecutor Christopher J. Bebel of Houston's Shepherd, Smith & Bebel law firm, said that FBI agents sometimes trade information with sources in order to gain their trust.
"To the extent possible, the FBI generally prefers to make it a one-way street. They know they're dealing with untrustworthy people," Bebel said Thursday.
Jean Knight, a San Diego lawyer said to be representing Elgindy, did not immediately return a call seeking comment.
On Elgindy's Web sites he held little back, chastising companies he felt should be shorted, calling them "overvalued pigs." At times he admitted to reporters that he had suffered from depression, contended that he helped the government pursue other securities-fraud cases, and had gone overboard with his lavish lifestyle when he was younger.
Yet he still enjoyed the wealth that short selling and his advice to other investors provided him. There's his 3.9-acre house in the seaside town of Encinitas, in north San Diego County, valued at $2.2 million, which the FBI raided Tuesday in search of evidence. And there's a fleet of vehicles that include a 2001 Bentley with the license plate "ZEROBID," a nod to the short-seller's dream of watching a stock crash all the way to $0.
Two years ago, he served nearly four months in prison for fraudulently collecting disability payments in the mid-1990s while he continued to work as a stockbroker, according to the complaint brought by the U.S. Attorney's Office in Fort Worth, Texas.
GRAPHIC: PHOTO: Stock analyst. Amr 'Anthony' Elgindy, seen here
in a 1999 photo, is accused of using inside FBI information to make
money on the market.
NELVIN CEPEDA/ASSOCIATED PRESS
LOAD-DATE: May 26, 2002 |
