TSX-V's Global client
Elgindy blasts U.S. prosecutor
Lee M. Webb
March 16, 2006
Amr (Anthony) Elgindy, a
convicted securities fraudster who did much of his trading through
Vancouver-based Global Securities Corp., says the U.S. government's arguments
for locking him up for life are flawed, unsupported and just silly.
Elgindy was arrested in May of 2002 and convicted on 11 counts of a 32-count
indictment for racketeering, securities fraud and extortion in January of 2005.
His oft-postponed sentencing is now set for March 22.
defendants have been convicted in the case and are also awaiting
Jeffrey Royer, a corrupt former FBI agent who passed
confidential law enforcement information on to the short seller, was tried along
with Mr. Elgindy and convicted on nine of 15 counts including racketeering
conspiracy, securities fraud and obstruction of justice.
client, Derrick Cleveland, a former U.S. broker and ex-convict who served time
for drug trafficking, copped an early plea to racketeering and testified against
co-accused Mr. Elgindy and Mr. Royer.
Robert Hansen, who operated a
website for Mr. Elgindy, and trader Donald Kent Terrell both pled guilty to
conspiracy to commit securities fraud and co-operated with the government.
Hedge fund manager Jonathan Daws also pled guilty to conspiracy to
commit securities fraud.
Mr. Royer's girlfriend and former FBI agent Lynn
Wingate pled guilty to obstruction of justice.
Mr. Elgindy, the central
figure in the case, will also be sentenced on a separate conviction relating to
his April 17, 2004, attempt to board an airplane using fake identification while
on pretrial release.
As previously reported by Stockwatch, Mr. Elgindy's
defence team argues that he should be sentenced to no more than two months in
connection with the airport conviction and to no more than 41 months for the
racketeering, securities fraud and extortion convictions.
prosecution, on the other hand, claims that Mr. Elgindy's crimes should draw a
Mr. Elgindy got the last written word on the matter ahead
of the scheduled March 22 sentencing hearing in a 64-page Feb. 24 reply to the
prosecution's sentencing memorandum.
Mr. Elgindy's lawyer, Barry Berke of Kramer Levin
Naftalis & Frankel LLP, opens his reply to the government's sentencing
memorandum by claiming that the prosecution "wildly overstated" its profit
figures in its forfeiture memorandum.
The amount of money involved could
have a significant impact on the sentence, so the defence's concern over this
calculation goes beyond a mere dispute over how much in ill-gotten gains the
government should be able to wring out of Mr. Elgindy.
In its initial
forfeiture memorandum, the government claimed that the short seller was
responsible for more than $9.1-million in illegal trading profits as well as
$2.7-million in AnthonyPacific.com (AP) membership fees. (All amounts are in
"Now in its sentencing memorandum, the government
concedes that its profit figures were wildly overstated by proposing three
different calculations for the court to consider as illegal gains, each one
successively smaller," Mr. Berke says.
"In fact, the government admits
that if limited to the four stocks of conviction, even its own trading profits
calculation comes all the way down to $670,000, of which only $216,000 is
attributed to Mr. Elgindy's trading, representing a 93-per-cent reduction from
the government's original forfeiture demand of $9.1-million," the lawyer
"It is a staggering revision, yet the government barely
acknowledges it in a footnote," Mr. Berke adds.
"In addition to
highlighting that the government's figures are wholly unreliable, it provides
further proof that the AP site and its members were engaged in overwhelmingly
legitimate stock discussion and investing of which only a tiny fraction involved
either Mr. Cleveland or Mr. Royer," Mr. Berke says.
Mr. Elgindy, who has
been sharply criticized by the prosecution for his posttrial commentaries posted
to Internet chat site Silicon Investor, had something to say about the
"staggering revision," too.
Once again, Mr. Elgindy offered some
thoughts on Silicon Investor regarding the prosecution's case and, in
particular, the performance of former prosecutor Kenneth Breen who has moved on
to private practice as a white collar criminal defence lawyer.
this very second, the government has admitted that the former prosecutor's
claims, gains of $12-million, were fictitious and bogus," Mr. Elgindy remarked
in a Feb. 16 post.
Mr. Elgindy, who still insists that he did not earn
"any illegal money," had more to say in a Feb. 18 post to Silicon Investor.
Among other things, Arab-American Mr. Elgindy rather pointedly suggested
that he was being treated very differently than convicted co-accused Mr. Daws
who pled guilty.
"Mr. Daws, who is white, American, didn't assist,
didn't co-operate and fought tooth and nail, will be allowed to keep over 1/2
his money, and give up only $200,000, plus he will do no more than 18 months of
incarceration," Mr. Elgindy wrote.
Mr. Elgindy went on to argue that
even the prosecution's revised calculations overstated his "alleged" illegal
"In any event, they are STILL seeking LIFE for me," Mr. Elgindy
"I have so many things to say and so much blazing around in my
head right now that I think it's best that I say nothing for a while," Mr.
Elgindy remarked. "Stay tuned."
According to Mr. Berke's calculations,
Mr. Elgindy's actual trading profits in the four stocks on which he was
convicted amount to less than $42,000.
"Yet Mr. Elgindy faces the
prospect of years and years in prison when a co-defendant like Jonathan Daws,
who had his own secret site and his own relationship with Agent Royer and who,
by the government's own revised calculations, had personal trading profits of
$397,707.20 and additional profits through his hedge fund (Gryphon) of
$1,319,030.97, faces just 18 to 24 months," Mr. Berke says.
claims that the variance between the recommended sentence for Mr. Daws and the
lengthy sentence the government is seeking for Mr. Elgindy "represents the
paradigm of 'unwarranted disparity'" that jurisprudence directs should be
"In a strange twist of
irony, the government's sentencing memorandum accuses Mr. Elgindy of asking the
court to 'ignore the convictions' and sentence the defendant without regard to
'the jury's verdict,'" Mr. Berke says.
According to Mr. Berke, the
strange twist of irony lies in the fact that the government "ignores and seeks
to subvert the verdict -- and in particular its acquittals on 18 of 29 counts."
"Beyond this acquitted conduct, the government seeks to hold Mr. Elgindy
accountable for insider trading as to the stocks of 28 additional companies,
notwithstanding the facts that there is no jury finding as to securities fraud
with respect to any one of these additional companies and the government's proof
-- such as it is -- cannot even satisfy the preponderance of evidence standard,
much less a heightened clear and convincing beyond a reasonable doubt standard
that should be applied to such uncharged and unproven conduct," the defence
Mr. Berke says that the government's approach renders
"Mr. Elgindy's right to a jury trial a nullity for sentencing purposes."
"If a defendant who has been acquitted of nearly two-thirds of the
charges against him can be sentenced as if he were convicted on all counts --
resulting in a manifold increase in his sentence -- the right to a jury trial is
meaningless, and the Sixth Amendment is but an empty shell that fails to offer a
defendant any protection," Mr. Berke argues.
Turning up the
"Apparently not satisfied with its calculation of between
many years and life in prison for Mr. Elgindy, the government attempts to turn
up the heat even further by portraying this case as 'one of the most egregious
instances of corruption of governmental functions in recent history,'" Mr. Berke
"But as with many of the government's claims throughout this
prosecution, the grandiose rhetoric is not backed up with any evidence or any
proof of any actual impact on a government investigation or a government agent,"
the defence lawyer claims.
According to Mr. Berke, the only evidence in
the record shows that Mr. Elgindy "either assisted the government in a variety
of securities investigations ... or, at worst, had no impact on the government's
Mr. Berke says that Mr. Elgindy "simply asks that he be
sentenced based only on proven facts and not on matters rejected by the jury or
theories and generalized assertions that cannot withstand scrutiny or empty and
prejudicial labels such as 'RICO' and 'racketeering.'"
After sketching the main themes of the defence's reply
sentencing memorandum in his introduction, Mr. Berke turns to a more detailed
analysis of the prosecution's claims.
According to Mr. Berke, the
government's proof and theories of market manipulation are extremely weak and
should be rejected.
"The government stubbornly refuses to accept that the
price of a stock cannot be criminally manipulated by releasing accurate
information or by making bona fide trades in reliance on that information," Mr.
"The government's theory would expose all accurate reporting
to charges of manipulation if it moved the price of a stock," the defence lawyer
continues. "Included within that umbrella of liability would be whistleblowers,
who would know (and often likely intend) that the information they release would
have a detrimental effect on the stock price of the subject company.
"That dangerous expansion of the concept of manipulation cannot be, and
is not, the law.
"The remainder of the government's market manipulation
theories are just silly."
Mr. Berke claims that the government's profit
calculation is nonsensical and unsupported by the record.
things, the defence lawyer says that trading by non-testifying and unproven
co-conspirators should be excluded from the calculation of illegal gains.
"As to the alleged 'downstream tippees' Jonathan Daws, Kendall
McGreggor, David Slotnick and Jeffrey Thorpe, the government comes up short in
providing any evidence that these people (other than Daws) were co-conspirators
or that any of them received any confidential law enforcement information about
any particular stock from Mr. Elgindy and then made trades 'informed by' that
information," Mr. Berke says.
For example, Mr. Berke says that the
government provides no evidence that Mr. Elgindy even knew of Mr. McGreggor's
existence or that he was even a member of the AP site during the time when any
law enforcement information was disseminated there.
"More egregious than
including McGreggor's trading profits, however, is the government's inclusion of
the trading profits in the 'Spinner' account," Mr. Berke claims. "The government
now for the first time asserts that Jeffrey Thorpe is responsible for this
account, but we believe that Spinner is the fund traded by Joseph Spiegel, not
According to Mr. Berke, Mr. Spiegel was an AP member for a
short time in 1999, but apparently was not a member during the alleged
"As for Slotnick and Thorpe, the government provides only
generalized evidence that Slotnick and Thorpe 'engaged in discussions concerning
stocks about which confidential law enforcement information was disseminated,'"
the defence lawyer says.
"Engaging in general discussion about a stock
is insufficient to show that they were in possession of specific law enforcement
information regarding those stocks, let alone that the information informed
their trades in those stocks," Mr. Berke argues.
Thorp, whose trades Mr. Berke claims should not be included in a calculation of
his client's responsibility for illegal profits, reportedly signed a
non-prosecution agreement in connection with the Elgindy criminal case.
As an aside, Mr. Thorp (identified as Mr. Thorpe by Mr. Berke) and three
hedge funds he managed recently settled an unrelated civil suit filed by the
U.S. Securities and Exchange Commission involving alleged PIPE deals and a naked
short selling scheme facilitated by an unidentified and perhaps entirely
faultless Canadian brokerage.
Without admitting or denying the March 14
SEC allegations, Mr. Thorp agreed to ante up $2.3-million to settle the case.
Similarly avoiding any admission of wrongdoing, his three hedge funds -- Langley
Partners LP, North Olmsted Partners LP and Quantico Partners LP -- agreed to pay
with his analysis of the prosecution's profit calculation, Mr. Berke claims that
it is flawed because in tallying the insider trading gains the government pays
no regard "to when or if the allegedly 'inside' information was disseminated to
Mr. Berke points out that in the context of short
selling, the insider sells stock short while in possession of non-public
information and then profits by covering his position after the information
becomes public and impacts the stock price.
The defence lawyer also
takes issue with the government's approach to determining how long the
information remained material and impounded the stock price following its public
"We chose three days," Mr. Berke says. "The government
chose infinity. Infinity is clearly not a rational or fair choice; we believe
that three days is."
Among other things, Mr. Berke also argues that the
government should not include all 32 stocks that it claims were the subject of
insider trading by Mr. Elgindy and others. According to the defence lawyer, the
insider trading profits should be restricted to the four stocks for which the
jury convicted Mr. Elgindy.
Not a leader
Berke challenges the government's claim that Mr. Elgindy was the leader of a
massive criminal enterprise.
According to the defence lawyer, "the only
people the government has proved to be members of any enterprise are Mr.
Elgindy, Mr. Royer and Mr. Cleveland."
"As we argued in our opening
memorandum, this was not an extensive, hierarchical conspiracy with many
members," Mr. Berke says. "Rather, it was a small group of people acting
independently of each other in furthering their own aims.
anyone was the leader, it was Cleveland, not Mr. Elgindy."
After disputing the prosecution's claim that Mr. Elgindy
acted as an investment adviser, Mr. Berke goes on to take issue with the
government's "theory that there were more than 250 victims" of the alleged
"The government apparently contends that, because the
site included many individuals who might have traded on inside information,
there must be 'hundreds or thousands' of victims on the other side of those
unidentified trades," Mr. Berke says.
According to the defence lawyer,
however, there are no victims of the alleged insider trading.
says that "the government has not been able to produce a single person who
claims to have been victimized," nor has the prosecution offered any evidence to
"The government has not only failed its burden, but it is
also just wrong about who was on the 'other side' of these trades," Mr. Berke
claims. "The 'individual counterparties' to any improper trades were no some mom
and pop 'individual' investors; the counterparties were a limited number of
professional market-makers who set bid and ask prices as they see fit and hold
blocks of shares in order to bridge the sporadic trading demand for these kinds
of stocks and, in the process, absorb many of the spikes and drops in price.
"The trade tickets show that the counterparty to each trade was a
"Yet again, no such market maker has come forward or been
identified claiming to have been a victim of the conduct involved in this case."
Mr. Berke goes on to argue that the companies that Mr. Elgindy and his
site members shorted "were overvalued and, often times, 'scams.'"
Elgindy repeatedly warned the general public to that effect, through his
InsideTruth reports and posts on SiliconInvestor.com," Mr. Berke says.
"If people chose to ignore Mr. Elgindy's warnings and bought stock in
those overvalued companies nonetheless, it is inequitable to count those people
as 'victims' in order to increase Mr. Elgindy's sentence when he warned them
against that very conduct in the first place," the defence lawyer argues.
Nearing the end of his 64-page
reply, Mr. Berke says that the government's upward departure arguments for
increasing Mr. Elgindy's sentence are unpersuasive.
Among other things,
the defence lawyer counters the prosecution's claim that Mr. Elgindy's actions
disrupted government functions.
"While the government's submission on
disruption of governmental function is long on rhetoric, it is short -- indeed,
it is entirely empty -- on actual evidence," Mr. Berke says. "The government
claims Mr. Elgindy's conduct harmed the reputation of the FBI and 'significantly
impacted' the relationship between the FBI and the SEC.
notwithstanding the facts that numerous FBI agents and close to a dozen SEC
attorneys testified at trial, and that many, many more law enforcement agents
interacted with Mr. Elgindy over the years, the government is not able to cite
to a single witness or a single piece of actual evidence establishing any of the
alleged damage or disruption or impact."
Mr. Berke also claims that,
contrary to the government's assertion, Mr. Elgindy's criminal history is not
The defence lawyer points out that Mr. Elgindy's "actual
prior criminal history includes only one conviction -- for a $55,000 insurance
"If anything, Mr. Elgindy's criminal history category
overstates, rather than understates, the seriousness of his criminal record,"
says Mr. Berke.
Not greater than
Noting that "the statutory mandate is to determine a
sentence 'sufficient, but not greater than necessary,'" Mr. Berke argues for a
downward departure from the sentencing guidelines.
According to the
defence lawyer, the court should impose a sentence of less than 41 months. Mr.
Berke claims that mitigating factors "provide multiple grounds for leniency."
Once again, Mr. Berke points to "the gross disparity" between the
government's calculation of a life sentence for Mr. Elgindy and the recommended
sentence of 18 to 24 months for co-defendant Mr. Daws.
therefore can and, we respectfully submit, should take account of this
'unwarranted disparity' in fashioning an appropriate sentence for Mr. Elgindy,"
Mr. Berke says.
Mr. Berke goes on to argue that "Mr. Elgindy's family's
dire circumstances ... cry out for leniency."
Among other things, Mr.
Berke says that Mr. Elgindy's children are "suffering under tremendous emotional
distress" and "his wife is in dire financial straits, staving off foreclosure
proceedings and living on loans from friends and relatives."
also claims that Mr. Elgindy, who has had all of his assets frozen and has so
far spent two years in prison, has already been severely punished.
addition to depriving him of his financial resources, this case has already
probably permanently deprived Mr. Elgindy of his professional reputation and his
ability to continue with the work he so loved," says Mr. Berke.
addition, as outlined in our opening memorandum, Mr. Elgindy has also been
severely, even unimaginably punished through the unfair association of unproven
and unfounded accusations relating to 9/11," the lawyer continues. "He has been
denigrated, stigmatized and humiliated in the eyes of his children and family,
his community and the world."
Barring some further delay, Judge Raymond
J. Dearie will determine the appropriate sentence for Mr. Elgindy on March 22.
Comments regarding this article
may be sent to email@example.com.
(More information regarding the Elgindy case is
available in Stockwatch articles published under the symbol *TSX on May 22, 23,
24, 28 and 29; June 3, 4, 6 and 17; July 18, 2002; March 25, 2003; Oct. 3, 2005;
Jan. 26 and 27; and March 3, 2006.)