IN THE MONEY:Nuclear Solutions And The Elgindy Connection
By CAROL S. REMOND
A Dow Jones Newswires Column
NEW YORK -- There's a shadowy intersection on Wall Street where two often dark paths converge.
The first is traveled by short sellers, that group of traders who thrive and profit on bad news about companies. The other is traveled by very small companies that are unproven and in some cases, are run by people with storied backgrounds - the kinds of stories that raise eyebrows, not reputations.
Such is the tale of short sellers and a company called Nuclear Solutions Inc. (NSOLE). The founder of the company, who has since died in a car accident, had several run-ins with the law. His tiny company attempted a handful of financings which resulted in the transfer of millions of shares of stock, some of which mysteriously ended up overseas only later to be canceled. And it was the trading in the securities of this company that played a role in charges that led to the arrests of a renowned short seller and agents of the Federal Bureau of Investigation.
The story of Nuclear Solutions begins with Paul Brown, its founder, a college dropout who got a Ph.D. in physics from a non-accredited organization.
News reports show that in 1989, he was fined by the state of Idaho for lying about his education and selling unregistered securities. In 1992, Brown, without admitting or denying allegations made by the Securities and Exchange Commission, agreed to a permanent injunction baring him from violating federal securities laws. The SEC alleged that Brown had made false statements about a nuclear battery developed by another company he founded called Peripheral Systems. And then there were drug possession charges which were later dismissed.
After disappearing from the business world for almost a decade, Brown reappeared last August, founding Nuclear Solutions, a small Idaho-based nuclear waste disposal company. Soon he began looking for needed financing and got in touch with an Atlanta, Ga., brokerage called J.P. Turner & Co. LLC.
The relationship between Brown and J.P. Turner was the beginning of a chain of events that led Nuclear Solutions to the center of a federal investigation involving rogue federal agents and their alleged use of confidential information to help short sellers manipulate the stock of companies. In a May indictment, the government charged that short seller Anthony Elgindy, and co-defendants Jeffrey Royer of the FBI, Derrick Cleveland and Troy Peters used information gathered from FBI databases to extort stock from Nuclear Solutions and other companies.
But back to Nuclear Solutions.
J.P. Turner helped broker two deals under which Brown pledged millions of shares in exchange for financing, according to people close to Nuclear Solutions.
David Slavny, a J.P. Turner investment banker who was a key contact for Brown at the firm, declined to comment other than to say that "three or four persons were involved in trying to raise money" for Nuclear Solutions.
According to Holladay Inc., Nuclear Solutions' transfer agent, 13 million shares owned by Brown were transferred to T. Garth Collier late last year. A short time later, Collier reported that the shares were missing, according to people familiar with the situation. They said that the shares then showed up in Greece, where a bank alerted Brown that someone was trying to sell them. The shares were then canceled and reissued in Brown's name in January, according to the transfer agent.
Collier couldn't be located.
As this financing was falling apart, Elgindy and other short sellers took an active interest in the company.
Nuclear Solutions' lack of financing caught the eye of short sellers. But it was the drug charges that once faced Brown that fueled a selling frenzy which was helped by Elgindy posting a series of messages on the Internet and his websites accusing Brown of being a convicted felon.
Meanwhile, Brown agreed to another J.P. Turner-brokered deal under which he transferred five million shares in the name of a Swiss foundation called Clarisco Stiftung. This time the transaction was arranged through the account of a Liechtenstein bank at Brown Brothers Harriman in New York.
After financing once again failed to materialize, the five million shares were canceled and reissued in the name of Brown's wife in May after his death, according to Holladay.
A representative for Clarisco couldn't be located.
A spokesman for LGT Bank of Liechtenstein said the bank was acting as a nominee shareholder on behalf of its client, Clarisco, and declined to further comment.
By late December, desperate to stave off short selling pressure and close on a financing deal, Brown looked for help and found it with Slavny, the people close to Nuclear Solutions said.
The J.P. Turner investment banker told Brown that he knew someone with connections to Elgindy that may be able to help, the people close to Nuclear Solutions said.
As it turned out, Slavny, Peters and co-defendant Elgindy had worked together at the now-defunct brokerage Thomas James Associates Inc. in the early 1990s. Thomas James merged in the mid-1990s with H.J. Meyers, a firm that has since been closed by regulators.
What followed is a matter of contention.
The government claims that Elgindy, Royer, Cleveland and Peters used illegally obtained information about Brown's drug charges from the FBI databases to extort shares from him.
Peters and Elgindy, meanwhile, insist that the block of stock obtained by Elgindy was an arranged stock purchase, similar to thousands of transactions taking place in the market everyday.
"I was called by a very good friend of mine (Slavny) and asked for help, I wasn't looking at shorting the stock or anything," Peters said in a telephone interview. "Paul Brown called me at the suggestion of Slavny and asked me for my help," Peters said, adding that he was innocent of the charges filed against him.
Elgindy also insists that he's innocent.
"How do you get from arranged sale to extortion?," Elgindy asked in a telephone interview from the Brooklyn correctional facility where he remains incarcerated. "I got a call from Troy Peters and I talked to Brown," Elgindy said, explaining his purchase of a block of discounted stock that he says was 250,000 shares to 300,000 shares. Elgindy said that after several conversations, he was convinced that Brown was not a convicted felon. "I just wanted to move on," Elgindy said.
What Elgindy and others didn't know is that the transaction was closely monitored by the FBI which had begun an investigation into the behavior of short sellers after the Sept. 11 terrorist attacks in the U.S.
According to Peters, Brown and Elgindy began negotiations on a block of shares in early January and those shares traded in the open market in early February. The transaction took place through First Geneva, a San Diego brokerage for which Peters is a consultant.
Elgindy said he paid $1.05 or $1.10 a share for the stock that he bought from First Geneva.
The federal indictment alleges that Elgindy began selling short Nuclear Solutions stock around Dec. 24 and continued doing so through Jan. 25, 2002. The indictment also charges that once Elgindy secured a block of discounted shares, he would tell subscribers of his websites to stop shorting the company's stock.
Messages on one of those websites show that on Feb. 1, Elgindy recommended that subscribers to his service cover their short positions of Nuclear Solutions at $1.27. Elgindy "invited" subscribers to bid for Nuclear Solutions' shares at a price from $1.27 to $1.35 a share, indicating that he or someone he knew had shares to offer. A little over an hour later, Elgindy posted another message: "NSOL is officially gone, I'm being told," a message that indicated that those shares he earlier mentioned were now sold.
Elgindy remains in jail. A bail hearing is scheduled for later Thursday. All defendants initially pleaded not guilty, but Cleveland, a trader and former FBI informant who introduced Royer to Elgindy, has since pleaded guilty to racketeering and is cooperating with the government.
By Carol S. Remond; Dow Jones News; 201 938 2074; carol.remond@dowjones.com
Updated August 29, 2002 12:51 p.m. EDT |
