For those who didn't have the time or patience to read Tony's 25 page letter (which I hope you reconsider and do), here are some of the highlights, IMO...
1. 9-11
Why was this case brought to trial in New York, when I traded and lived in California, my servers were in Florida and my broker was in Canada? There was only one obvious reason. There could be no better place for the government to try an Arab American who “may” have known about 9-11 than in a jurisdiction next to ground zero. From that day until the verdicts were read, the dark cloud of 9-11 tainted every single aspect of this case. The words “terror” and “9-11” are mentioned over 350 times throughout the 37 day trial... Despite that, not once before or after the jury was empanelled, was anyone permitted to ask A SINGLE QUESTION of any juror about their feelings or possible involvement in 9-11 and/or its aftermath.
...
2. RICO
I was convicted by this NY jury of various securities related charges under a “RICO” indictment. In my case, the government prosecutors loosely connected a number of defendants to each other under the umbrella of RICO, a very powerful and frightening tool that was used to transform me from a well known, credible, partly comical and partly offensive hyperbole ranting trader into an enemy of the United States overnight. By utilizing RICO, the prosecutors were able to intimidate and frighten literally hundreds of witnesses, thereby ensuring that their fictitious allegations would be presented to a jury virtually unchallenged. This is the first time since May, 2002, that anyone has discussed any aspect of this case IN DEPTH publicly; not surprisingly it’s ME who is doing it now.
...
3. Actual Realized Gains / Victims
This case involved 6 stocks originally, but was later expanded to cover 41 unique stocks, thus forcing us to effectively defend 41 “mini-trials” within a trial. Factor in different defendants, a hedge fund or two, and the parameters become obscene. I was also charged with “extorting” 2 CEO’s of small scam companies for reasons that no one has ever offered. During the trial the government only managed to introduce “evidence” for 19 of the 41. Of these 19, I was convicted of only 4 of them. My calculated gains resulting from “inside trading” in these four add up to a little over $41,000.00. If one calculates the gains on all 19 mentioned but not proven to the jury, the amount tops out at approximately $160,000.00.
...
The Government was not unable to find any huge amounts of money made by me in any of these tiny scams that Cleveland and Royer searched, nor could they find any victims. They had no choice but to dig into minutia of thinly traded stocks that, on average, made me $10,000 each. The significance of these transactions are put in perspective by understanding that I made more trading HAND, the rival of PALM, than ALL of the stocks mentioned in the indictment combined. These thinly traded scam stocks were more for my entertainment than for profit.
This was part of the government’s strategy – confuse the jury, and then offer simplistic, contrived “explanations” to make them think they understood when they clearly didn’t. The jury was faced with an enormously complex case, which made it easier for them to be persuaded by the government’s pre-packaged account of the facts as well as the prosecutor’s own bias against short selling in general.
I was convicted even though I did exactly what I said I was going to do. No fraud, no testimony of fraud. Can you imagine a stock fraud prosecution in which the prosecutor never tells the jury the price at which the defendant bought or sold the stock? Where the prosecution never shows harm as a result of the trade, or puts a single “victim” of the alleged fraud on the witness stand?
...
4. Royer and Cleveland
Royer testified in his defense. He testified that indeed I never asked or solicited any information from him. He testified that he did searches at Cleveland’s request, or as a result of his own curiosity in connection with a “legal purpose” that only he knew... Extremely experienced officers and agents believed this man. Everyone trusted this man. If trained, professional and veteran FBI agents, SEC attorneys and police officers believed in him when he was with the FBI and continued to do so after he left the FBI, how can I be held to a different standard? How was I better equipped to know he was “no good?” If anything, I was more easily impressed, more flattered and more trusting. I was honored that an agent of the world’s top law enforcement agency, the FBI, saw value in what I did. For their argument to be valid, it would have been necessary that I was a better judge of character than all of the experts.
...
Agent Royer conducted over 1500 illegal searches during his 5 year tenure with the FBI. EACH of these searches is a felony, punishable by 10 years in prison. Agent Royer potentially faces 15,000 years in prison for these searches, however he was never charged for those crimes. Why? Because those searches showed that Royer considered these FBI confidential databases to be personal “super-google” machines. All these searches put together show a much different picture than the one the prosecutor needed to paint. Mr. Breen wasn’t interested in the 1500 felony searches, he was only interested in the few dozen searches he could forcibly link and attribute to me, through Cleveland. The evidence also showed that the searches were always initiated by either Cleveland or Royer himself. Cleveland testified that he was the one who decided which stocks among the thousands discussed on my site, should be checked by Special Agent Royer. Not once did Cleveland testify that I solicited any information from Royer.
...
If this trial proved anything at all, it was that Jeff Royer was indeed a rogue and possibly corrupt agent. The corrupt relationship, if in fact there was one, existed between Derrick Cleveland and Jeff Royer. I use the word “possible” because I have yet to understand where or how exactly Royer benefited.
The government initially alleged that payments in excess of $30,000.00 were made by me through Derrick Cleveland, for the purpose of corruptly inducing Royer to give me confidential FBI information. This theory was later abandoned when the government was unable to document a single red cent passing from me to Royer or anyone else for information. Unable to support their initial allegations that money was exchanged for information, the prosecution theory then morphed into allegations that the corrupt inducement was a “lucrative job offer.”
Agent Royer had been interested in working for me, and we did have serious discussions about that, but he wanted to live in Denver, near his children; I on the other hand, had little interest in an out of state employee. Discussions about possible employment therefore were not actively pursued, and Jeff Royer was never hired. He remained unemployed for the entire five months from his resignation from the FBI until the day he was arrested.
...
Cleveland testified that Royer was to remain a secret source of information and that both he and I knew that. The evidence, however, showed the opposite. I routinely and readily admitted on the site that some information was received from Royer; our relationship was not kept secret because I believed I had nothing to hide. My criminal liability necessarily must depend upon a showing that I knew Jeff Royer breached a fiduciary duty to the FBI-which evidence simply does not exist. Had I known there was something illegal about Jeff Royer’s comments, why would I so openly discuss them on my site that was comprised of hundreds of members? Even more baffling, why would I tell my probation officer (http://adserv.stocksite.com/images/tonyscan2.jpg ) exactly who I was meeting with, and what I was doing? Why would I put in writing-to a federal law enforcement official no less-that which I believed to be illegal?
Cleveland similarly testified that the chat alias “APCork” was Jeff Royer, but testimony by Robert Hansen, site administrator, showed that to be a lie as well.
Cleveland testified that he traded BIOP based exclusively on the “inside information” he received from Royer regarding a raid by Mexican authorities. Yet another lie, since the evidence showed that this information came from a publicly available news story reported on Bloomberg News 10 minutes earlier. (http://adserv.stocksite.com/images/tonyscan5.jpg ) There was no access of the FBI database about any raids; Cleveland simply made it up. The jury once again was misled. Too complex and convoluted doesn’t begin to describe the prosecutors’ tactics to distort the truth rather than to seek justice.
...
5. SEVU
It was not until January 12, 2001 that Special Agent Royer told me that there were three investigations into SEVU. I then told the site members what he told me, verbatim, and then documented it in my notebook and sent it to my US probation officer (http://adserv.stocksite.com/images/tonyscan2.jpg ). This investigation was MINE, all mine. I started it, and I provided all the information to the FBI.
...
In both the initial and superseding indictments, the prosecution repeatedly references this specific chat excerpt. On January 12, 2001, I identified in the chat room the three investigations into SEVU, and I made the comment “Hansen, erase the logs.” I said this as I stated in the chat room later, because I didn’t want to jeopardize an ongoing FBI investigation by having anyone posting this information on public message boards. Unfortunately it was already too late, since Ken Cook had made that information public 5 days earlier. In post # 17,954, long since deleted, and 5 days before January 12, after being debriefed by the FBI, Ken Cook announced that both the SEC and the FBI were investigating SEVU. Mr. Cook made this post on a public SEVU message board located at Raging Bull.com, a popular public site for stock traders to exchange information and opinions. His post was noticed immediately by site members and the following exchange occurred on January 7, 2001:
[12:52] DMG >> Is KCPoisenArrow, Ken Cook? Look at the last bullet item! Who is putting this out?
ragingbull.altavista.com
[12:52] stirlingmoss >> he denied being Ken Cook in an earlier post, but who
knows
[12:53] DMG >> "ONGOING FBI SEC CRIMINAL INVESTIGATION.
When I remembered that Ken Cook had already made that public disclosure, I decided not to erase the chat logs-nor were they EVER erased-since we realized the information had already been made public in a public forum frequented by both SEVU shareholders and management. The jury was never told that the chat was not deleted. Robert Hansen incorrectly testified that he deleted this chat when in fact he had not done so. The prosecutors solicited this testimony, and then embraced it instead of correcting it.
...
I dealt with 12 different Law Enforcement agents/officers regarding SEVU. The jury found me guilty of inside trading in SEVU... I reported my contacts with Law Enforcement and S/A Royer to my probation officer. Once again I am stumped and frustrated because I don’t know what I could have done differently. Something is very wrong with this picture.
...
6. Misappropriation Theory
When I initiate an investigation that is beneficial to the investing public by exposing a fraud, I obviously possess an informational advantage as a result of my due diligence and hard work. However, under the misappropriation theory of insider trading with which I was charged, a person violates the law when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction.
Agent Royer’s fraud was consummated, not when he gained the confidential information, but when, without disclosure to the FBI, he or his tippee used the information to purchase or sell securities. The securities transaction and the breach of duty thus coincide. The government was required to prove that I knew Special Agent Royer was sharing material, confidential, non-public information in violation of his fiduciary duty to the FBI, and that I traded on that information. Yet there was NO EVIDENCE that this was the case. On the contrary, if I had known that what Special Agent Royer said or did was wrong, would I have openly repeated it to my site members, and more importantly, would I have reported that information to my probation officer (http://adserv.stocksite.com/images/tonyscan2.jpg )? My site had between 150-200 people logged on at any given time during market hours, yet not a single one ever spoke up and said “Hey, what’s going on here?” No one ever filed a complaint with anyone. The words “FBI” and “SEC” appear over 4000 times in chat and there was ONE deletion, eventually recovered. I am simply confused as to what I could have done differently.
...
7. Collusion
The government alleges that my website members sometimes coordinated to sell their shares all at once to pressure stock prices downward. I would point out that it is completely legal for a large group of people to buy or sell a stock at the same time. However by simply making these allegations, the prosecution was somehow able to invent a brand new crime during the trial. They called it “group trading,” defined by their witness as “Trading where everybody is trading in the same direction, same stock, with the same results of stock going down.” To support their allegations of criminal activity, they cite my own words in chat where I am describing my understanding of “collusion”. Collusion involves non-bona fide buy or sell orders placed by more than two people with the sole intent of creating a false market picture. There were never any such trades by anyone, nor is anyone alleged to have ever entered any fake orders. Groups of people are legally permitted to buy or sell a stock, and there is no such law that states otherwise.
...
8. Front Running
The front running allegations and convictions were especially incredible. Interestingly the prosecution never once in the indictment or in the trial disclosed my execution price, not even when it is directly related to my conviction, such as in the front running conviction for INIV... Amazingly I was convicted of fraud through the act of front running my site members by selling INIV at $4.45 at 12:44 PM, then suggesting INIV was a good short at $4.45 a few minutes later. In chat we see a member at 12:58 referencing a 20,000 share print on INIV at $4.45, then 11 minutes after the short call at $4.45, another member is filled at $4.45. Anyone who knows trading must be shaking his/her head in disbelief. The jury simply did not get it.
Can we for a moment examine what front running actually is? As defined by the SEC itself, front-running occurs when a licensed broker executes a proprietary trade while in possession of unexecuted customer orders for the same security to the detriment of his customer. Was I a licensed broker? Absolutely not. Was there a scintilla of evidence of harm to ANYONE as a result of my trades? No, there was not. Further, the “directives” or “advice” which is how the government mistakenly characterize my opinions and beliefs on the site, were all at specific prices at which I believed a good short position should be executed. There was not a single example presented by the government that I encouraged or suggested that someone sell at a price less favorable than my very own execution. Yet I stand convicted of front running and trading against my own advice?
...
9. Trading Against OWn Advice
Common sense tells you that you don’t make money unless you take your profits. Especially in scam companies, one never knows when the next false press release will generate a 20-50 or 400% rise in the stock price. I was always trading the scams from the short side, but as a trader part of my discipline is always to book profits when they become available. We called it the 15-20% profit rule on the site.
It was further pointed out that in every one of my reports was a disclaimer stating that “I can and often do maintain a position consistent with my reports.” By extension this also means that I may NOT maintain such a position, although I usually did. Somehow the prosecution believed that partially covering a profitable short position, just like selling some of a profitable long position was not smart trading but rather trading against my advice and against my site members. It is a ludicrous concept, but yet that’s what the jury was led to believe. It is just another example of how confusing and contrived their presentation was, and how the jury really was misled. The fact that there was no trade that I broadcast that I did not actually do at a similar time as the broadcast, or that there was no evidence of a price differential to my benefit or to a site members’ detriment simply did not matter.
...
10. Spreading False and Misleading Statements
The allegations of “spreading false or misleading statements” concern two statements taken from hundreds of thousands of public statements made about thousands of topics over a period of many years. The first statement was my accusation in an email that Paul Brown was a convicted felon and the second was a statement that Insidetruth.com had uncovered ties between Adnam Kashoggi and Osama Bin-Laden. This latter report was released on September 25, 2001, AFTER trading in GENI had already been halted by the NASDAQ. Incidentally, after that report was published, GENI shares NEVER traded again.
The Paul Brown accusation was the result of a routine criminal background search that was conducted by a site member on December 18, 2001 showing Paul Brown to be a convicted felon. The site member “Quack” testified that he sent me that information the next day, December 19, 2001. I then contacted the Idaho Dept. of Corrections, and on a taped, site-wide audio broadcast phone call confirmed with them that Paul Brown was indeed a convicted felon. It was only later that I learned that Paul Brown’s conviction had been expunged, which I acknowledged to him both privately and publicly. At all times, however, I believed what I said to be true.
Meanwhile the alleged Osama Bin-Laden and Kashoggi link, it came from a published Dutch report that we had translated into English and once again we believed it was a true statement. During the trial, SEC attorney Rob Long admitted that the SEC itself was investigating the possible connection. Regardless of whether or not such a connection between a well known arms trader and Osama Bin-Laden existed, we believed it to be true-or at least plausible-just as others far more knowledgeable than ourselves did. More importantly, since when is it a crime to publicly express an opinion, even a mistaken opinion? The true perverse irony of the government’s accusation-that I wrongly tied a high-profile individual to terrorism in order to capitalize on the ensuing negative hype-is exactly what the prosecutors did to me. The difference was that if I did so, I did it unknowingly.
...
11. FBI Tap
In the middle of trial I learned for the first time ever purely by accident that the NY FBI office had obtained an undercover membership on my private site. The NY FBI office had signed up undercover on my site as a regular subscriber/member beginning December 7, 2001 through my arrest in May, 2002. They were present, and monitoring the site in real time. They started several weeks after September 11, and two weeks before Royer left the FBI.
During the time these “illegal activities” were allegedly ongoing in private chat rooms, the NY FBI had the capacity, at ANY TIME, to log the chat in any of those chat room, and preserve those logs to aid in their prosecution of whatever crimes they thought were being committed. In other words, they had the opportunity to monitor, capture and preserve the best evidence in the world. They had complete and unfettered access to every audio broadcast from December 7, 2001 through May 22, 2002, the day of my arrest, and chose to preserve and capture none of that. Instead they had to rely on Cleveland to describe what was said in those chat rooms and on the audios.
...
12. Paul Brown / Extortion
...there was nothing secret, hidden or covert about the NSOL transaction. In fact very few of the thousands of trading calls I made were as well advertised or explained. Unfortunately I was not allowed to confront my accuser or cross examine the alleged victim of my extortion because the fake doctor Paul Brown had gotten himself killed late one night drag racing.
At trial the allegations of extortion were supported only by testimony from Cleveland and Paul Brown’s sister who claimed she could hear her brother’s calls through his walls.
The truth is that it was Paul Brown himself who sought help from others to see how he could get rid of the short sellers. He actively pursued a meeting with me to get me out of his stock; he was told to contact me through Troy Peters by a third party, David Slavney, who is the same person who suggested another CEO, A J Nassar contact us for the same purpose. Nassar, like Paul Brown, was operating a scam company, and wanted the short sellers out of his stock. Why? Because short sellers make noise, tell the truth to the public and expose the lies generated by the company. The entry of short sellers into a stock usually marks the demise of the “pump” phase, NOT because of any alleged manipulation on their part, but because of the END of the manipulation by the insiders. Truthful dissemination of facts leads to market efficiencies, NOT inefficiencies.
I was acquitted of extorting Mr. Nassar, the only living CEO who claimed to have been extorted, yet convicted of extorting a man who could neither testify nor be cross-examined. Instead the jury was allowed to hear from his grieving sister, weeping on the witness stand. The jury was allowed to review chat that showed me making a seemingly callous and insensitive remark about Paul Brown after the site learns that he died drag racing. Upon hearing of his death I stated that “he is now worm food.” The jury was told that Mr. Brown died in a “tragic car accident” We were unable to introduce evidence that he died, much the way he had lived: breaking the law. He died when he endangered not only himself but others around him, in a drag racing incident. My requirement for covering NSOL and not publicly or privately discussing NSOL was simple. I agreed to terminate coverage of NSOL if Mr. Brown could prove to me that he was not a convicted felon, which he did. We then covered our short position at the very same price NSOL had recently received for another large block of stock in a private transaction on January 17, 2002, only two weeks earlier. It was in no way a secret or illegal transaction.
...
Writing an InsideTruth report, exposing past frauds in which he participated, debunking Paul Brown’s false claims are all legal activities. Even if I had the ability to convince every investor to sell their NSOL stock, or to go short NSOL stock, that would not amount to extortion. Moreover, Jeff Royer’s accessing of Paul Brown’s record from the FBI database was only done AFTER the site had uncovered the felony conviction, and Royer’s information was obviously not disclosed to me, nor did I rely on it to trade. Don Terrell, (alias “Quack”) a co-defendant turned government witness, testified that he only gave me the public information on Brown, and that he and Cleveland kept Royer’s information to themselves. Only Cleveland knew the truth, and that’s reflected in his LACK of trading in NSOL.
...
13. FBI Coverup
Agent Chavez testified that I was initially under investigation for a possible terrorism connection, and that this was extremely sensitive and important. Indeed, in late 2001, few investigations could have been more sensitive than one into possible terrorism connections. Given the importance of such a “terrorism” investigation, particularly during the months immediately following 9-11, it simply defies credibility that the NY FBI would not have preserved a SINGLE AUDIO broadcast, or a SINGLE CHAT LOG from my website between December 7, 2001, and May 22, 2002, the day of my arrest.
...
It is implausible that the NY FBI office, the most sophisticated, resourceful and arguably the most motivated following 9-11, could have gone undercover onto my site in a “terrorism” investigation, yet not have the minimal resources needed for wire taps, or even simple recording devices. It defies logic that they stood by and watched as extortion and stock manipulation transpired, while recording none of that evidence. That is why I believe there WERE recordings, and they DID save the chat logs which, when they proved to be exculpatory, then disappeared.
I believe the reason they secreted the truth is because it did not reveal what they wanted. It became necessary for them to allow Derrick Cleveland, a proven liar and criminal, to invent what was said on those audios and in those unlogged chartrooms. The government relied, in great measure, on the credibility of this one man, Derrick Cleveland. We proved, and he later admitted to fabricating SEC documents identifying the existence of an SEC investigation into SEVU when there was none. Once again, his version went unchallenged.
I am making a formal request for the recordings made during the time the NY FBI office was present on my site, undercover as “Mohammed Rahman.” I am further requesting the names of any and all agents who monitored my site during the period from December 7, 2001 through May 22, 2002.
...
14. Non-Reliance on FBI Info to Trade
My position is and always has been that knowledge of an SEC or FBI investigation is useless for trading purposes, despite the prosecutions characterization to the contrary. These stocks were good shorts because they were scams, not because they were under investigation by any Law Enforcement agency. They were under investigation presumably because someone at the FBI or the SEC also believed they may have been scams, and chances are they got their information from a short seller.
My trading was not based on these investigations. My experience taught me long ago that the existence of an investigation is virtually meaningless. To demonstrate this clearly, I can simply direct you back to the infamous chat of January 12, where I disclosed the details of the FBI investigations into SEVU to the site. Cleveland said this is the “best information in the world.” If this were true, where are the trades? One would expect, IF this information was considered material and was relied upon by myself and others to enter trades, one would expect dozens of short sales to be introduced into evidence by the government. There were NONE. No short sales by me or anyone else. Cleveland doesn’t short SEVU, Hansen doesn’t short SEVU, neither does Quack, nor does Daws. His hedge fund doesn’t short SEVU, nor did I. None of us shorted SEVU after getting “the best evidence in the world”.. This information that the FBI was proceeding with an investigation that I STARTED, based upon information provided to them by my site and sources, informed no one’s trading.
...
15. Sentencing Inequity
I am being asked to forfeit $11.8 million, which includes profits in 32 additional stocks for which the government received no conviction. These profits are from co-defendants Robert Hansen, Jonathan Daws, (alias, “Archer”), Don Terrell, (alias “Quack”), Jeffrey Thorpe, (alias “Mweka”) Gryphon Partners, Jonathan’s employer, David Slotnick, (alias “Ectopy”) and Derrick Cleveland. My sentence should be computed on the basis of the underlying racketeering activities with which I was charged in the indictment and any relevant conduct relating to those underlying charges, yet despite making only $41,000 in trading gains, the government is seeking forfeiture of $11.8 million from ME ALONE, while seeking nothing from the other convicted co-conspirators. All defendants are subject to a criminal fine and forfeiture of their "interests" in and "proceeds" from participation in a RICO enterprise, yet only I am asked to forfeit anything. There has never been a case in the history of the United States where one person is asked to forfeit “illegal gains” of others who are then allowed to keep those “gains.”
Even more outrageous is that Jonathan Daws, aka “Archer”, who did NOT cooperate, testify for the Government, or assist them in ANY WAY and fought them tooth and nail until my trial was finished, made $6.6 million for himself and Gryphon Partners. An analysis of Daws’ guilty plea suggests that the government attributes to him, for the purpose of his sentencing, a gain of between $120,000 and $200,000. At worst, this smacks of sentence manipulation by the government, and at best seems to raise an Eighth amendment issue of sentence proportionality. Strict proportionality between a crime and its punishment is not required by the Eighth Amendment, but an extreme disparity between the crime and the sentence offends the Eighth Amendment. If ever there was such an extreme disparity, this is it.
...
16. Implications
For as long as I remain on this earth, I simply will never understand this prosecution and conviction, and the single minded, almost obsessive zeal with which it was pursued. For the first time, telling the truth about a company can be considered “manipulation.” For the first time, even one’s own research can be considered “non-public information.” The unfortunate reality is that in their zealous drive to destroy me, you all have been silenced as well.
This trial had nothing to do with the truth. It was a contrived affair from the first day Mr. Breen stood in that California courtroom making 9-11 allegations that had no merit or foundation. Witnesses were intimidated from day one. The search for justice took a backseat to a prosecutor’s ambition, rabid zeal and refusal to concede the truth. The pressure of prejudice, intimidation, and the overwhelming power of the prosecutor’s office succeeded in obscuring the truth and confusing the jury. I believe there was willful disregard for the truth, and serious misconduct that should frighten and offend every American. |
