Global client Elgindy slammed by U.S. attorney

Amr (Anthony) Elgindy, a short selling fraudster who conducted many of his trades through Vancouver-based Global Securities Corp., deserves "a very substantial term of imprisonment," according to Assistant United States Attorney John Nathanson. In fact, the U.S. government thinks Mr. Elgindy should be locked up for life.

Mr. Elgindy was arrested in May of 2002 and convicted on 11 counts of a 32-count indictment for racketeering, securities fraud and extortion last January. He is now scheduled to be sentenced on March 22.

As previously reported by Stockwatch, six other defendants have also been convicted in the case and are awaiting sentencing.

Jeffrey Royer, a 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.

Derrick Cleveland, a former 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.

In a 117-page sentencing memorandum filed on Dec. 23, 2005, defence lawyer Brian H. Berke of Kramer Levin Naftalis & Frankel argued that Mr. Elgindy should be sentenced to no more than 43 months in prison.

The prosecution filed its 88-page sentencing memorandum on Feb. 10. Not surprisingly, the government argues that Mr. Elgindy deserves a far heftier sentence than 43 months.

"Applying what the government believes to be the appropriate guidelines analysis, the guidelines imprisonment range for this defendant is life," the U.S. prosecutor claims.

Criminal enterprise

According to the U.S. prosecutor, Mr. Elgindy barely acknowledges that he was convicted of racketeering and conspiring to commit securities fraud and denies that he played any significant role in the eponymous "criminal Elgindy Enterprise."

Perhaps most tellingly, at least from the perspective of the prosecutor, Mr. Elgindy's sentencing memorandum "eschews any mention of the extraordinary scope of the corruption of governmental functions that lies at the heart of this case."

As the government sees it, Mr. Elgindy induced Mr. Royer to steal information about dozens of FBI and U.S. Securities and Exchange Commission (SEC) investigations, including investigations involving undercover agents and co-operating witnesses in cases involving organized crime and terrorism.

"Even had this defendant failed to earn a single dollar through his criminal enterprise, his role in this extraordinary breach of the public trust would warrant a lengthy sentence," Mr. Nathanson argues.

Offering an overview of Mr. Elgindy's criminal enterprise, the prosecution claims that the short seller led a group that traded on confidential law enforcement information in dozens of stocks and, using his AnthonyPacific.com and InsideTruth.com websites, manipulated the market in dozens of stocks through deceptive trading, timed release of information, exaggerated claims and other misrepresentations.

According to the government, Mr. Elgindy's racketeering enterprise revolved around and depended upon his AnthonyPacific.com website. The prosecution claims that Mr. Elgindy used the website for the controlled dissemination of confidential law enforcement information that he encouraged his members to trade upon.

The website was also something of a direct cash cow for Mr. Elgindy. Between December of 1999 and April of 2002, members paid between $200 per month and $600 per month to access the site, generating fees of more than $2.7-million over that period. (All amounts are in U.S. dollars.)

While Mr. Elgindy reportedly told members that all fees went to the maintenance of the site, in fact by early 2001 only 9 per cent of the fees were used to pay for site maintenance.

Personal FBI agent

The prosecution claims that Mr. Elgindy actively cultivated his relationship with Mr. Royer, who he referred to as "my personal FBI agent."

"In fact, it's clear that Royer essentially worked for the defendant well before he left the FBI at the end of December 2001," the prosecution claims, offering a July 12, 2001, e-mail from the FBI agent to Mr. Elgindy as a supporting example of the relationship.

"Laughed my ass off at GAHI today," Mr. Royer wrote, a reference to Global Asset Holdings Inc. "What a shit company. Take care of Derrick (Mr. Cleveland) on this one. He got some good info in my opinion."

Mr. Royer went on to offer some comments about a Dallas-based brokerage firm with a checkered reputation.

"Solomon Grey could potentially keep us in business for a long time," Mr. Royer remarked in his e-mail to Mr. Elgindy. "Meanwhile, we can drive them crazy by driving their dick in the dirt on all their turd deals."

Among other things, the prosecution notes that Mr. Royer attended a party for AnthonyPacific.com (AP) members in Las Vegas in the summer of 2001 and stayed in Mr. Elgindy's hotel room.

"As part of the Las Vegas festivities, the defendant and several AP site members were photographed with Royer's business card plastered to their foreheads," the prosecution notes, going on to add that Mr. Elgindy "partially reimbursed" Mr. Royer for his trip expenses.

The prosecution offers its assessment of what underpinned a letter that Mr. Royer wrote to Mr. Elgindy's probation officer to recommend early termination of his probation in connection with his conviction for insurance fraud in 2000.

"Royer was sufficiently in the defendant's pocket that Royer wrote a letter to the defendant's probation officer, recommending early probation-termination, in which Royer falsely claimed he was still an FBI agent," the prosecution says.

"As is clear from discussions about this letter, the defendant wanted to use Royer's position as an FBI agent in any way that satisfied the defendant's ends and Royer was willing to do anything to curry the defendant's favor," the government claims.

According to the prosecution, on Aug. 14, 2001, Mr. Elgindy told Mr. Royer that he would "need a letter saying how valuable I am to the U.S. government."

"Can I start with something like Tony is so cool he shits ice cubes or Tony is as valuable to the U.S. Government as two-ply is to toilet paper," Mr. Royer, then still with the FBI, replied. "Both of these statements are true to the best of my knowledge.

"I know I have to write a recommendation for you, but when, where and how.

"It would be great if I didn't have to due to some flunky finding out about it later and holding it against us, but whatever works, I know you don't want me to leave the bureau before it is written, all I want to know is if that will be in October, April or next October."

Mr. Royer left the FBI in December of 2001 and in January of 2002 both he and Mr. Cleveland "officially started working in the defendant's office in San Diego."

The scope of the scheme
According to the U.S. government, Mr. Elgindy traded in at least 23 stocks after receiving confidential law enforcement information from the FBI, courtesy of Mr. Royer.

"The defendant actively encouraged AP site members to do the same, in part to put downward price pressure on the stocks and thereby increase the value of the defendant's short positions," the prosecution claims.

The government also argues that Mr. Elgindy actively manipulated the share price of certain stocks, on occasion instructing members to either stop "hitting" a stock or telling them he wanted a stock at a certain price so that he could get a cheap block of stock to cover short positions.

By the prosecution's account, Mr. Elgindy was something of an information control freak.

"Indeed, the defendant closely controlled the information that was placed on the site, and would monitor and penalize members who acted in opposition to his wishes," the prosecution claims.

Mr. Elgindy's free public site, InsideTruth.com, also figured in his manipulation scheme.

"Rather than being a genuine research tool, InsideTruth's true purpose was to put out negative reports on stocks that the defendant, his co-conspirators and site members were shorting in order to cause those stocks to fall," the prosecution says.

According to the prosecution, Mr. Elgindy disseminated misappropriated information to his site members, told them how to trade on that information, reprimanded members who disobeyed him, exaggerated the significance of his research reports and lied to give the impression that he was a selfless crusader.

"Taken together, the defendant's actions artificially impacted the market prices of the shares of companies he targeted, putting the defendant's actions squarely within the definition of manipulative conduct," the government says.

The prosecution claims that Mr. Elgindy used a similar array of tactics to extort shares of Nuclear Solutions Inc. to cover a short position that he and other site members had accumulated in the stock.

Among other things, the prosecution also claims that Mr. Elgindy functioned as an investment adviser who "essentially told AP members what stocks to trade and when to trade them."

Moreover, the jury found Mr. Elgindy guilty of frontrunning and trading against advice with respect to some of his calls.

Another crime

The prosecution notes that Mr. Elgindy committed "yet another crime" while released on bail in 2004.

On April 17, 2004, two days earlier than a travel date he had given to his pretrial services supervising officer, Mr. Elgindy tried to board a plane from MacArthur Airport on Long Island using fake identification in the name of "Herbert Manny Velasco."

His destination was Phoenix, with a connecting flight to San Diego. He apparently purchased his ticket with a coupon issued in the name of yet another person, "Richard Hatch."

Among other things, Mr. Elgindy had approximately $25,000 in cash; $30,000 to $40,000 in jewelry; various prescription narcotics; a Montana identification card in the name of Herbert Manny Velasco; an expired California identification card in the name of Heriberto M. Velasco; blank cheques for a bank account belonging to his mother; and blank cheques for an account he had created showing himself as a resident of Lebanon.

Mr. Elgindy also carried a Costco card and Sam's Club card in the name of Herbert Velasco, had air flight coupons issued in a number of different names and cellphones subscribed in the name of Joseph Torelli and Hisham Sadek.

When Mr. Elgindy was questioned by airport security, he falsely maintained that he was a jewelry dealer named Manny Velasco.

"When asked the identity of Amr Elgindy, whose name appeared on various documents and prescriptions in the defendant's possession, the defendant claimed Elgindy was his lawyer," the prosecution notes. "It was not until officials discovered a California driver's license bearing the defendant's photograph that he belatedly admitted his true identity."

Mr. Elgindy's bail was revoked, he was tossed back in jail and he later pled guilty to lying to federal officials in connection with the peculiar airport incident.

Suspect crusader

In the defence's sentencing memorandum Mr. Elgindy was portrayed as something of a "crusader for propriety in the marketplace," helping the SEC and law enforcement officials bring securities fraudsters to justice. The prosecution paints a different picture.

According to the government, Mr. Elgindy boasted about having worked for boiler rooms and chop shops, including the notorious Blinder Robinson & Co., and marketed himself "as a reformed 'bad boy.'"

The prosecution apparently agrees with the "bad boy" history, but seems to doubt that Mr. Elgindy is at all reformed.

By the prosecution's account, Mr. Elgindy moved from Blinder Robinson to Thomas James & Associates where he spent just a short time before being fired for reportedly violating investment-related statutes and rules of industry standards and conduct.

Mr. Elgindy went on to run afoul of the National Association of Securities Dealers, which eventually revoked his registration.

"Additionally, before his broker license was revoked, the defendant had a history of customer complaints while at various brokerage firms, including one brought by the defendant's mother that he settled for $30,000," the government reports.

The prosecution also claims that on at least two occasions, with respect to Alco International Group Inc. and Conectisys Corp., Mr. Elgindy was an active participant in securities fraud conspiracies.

"Moreover, while the defendant touted at trial, and continues to tout his role as a 'crusader for propriety in the marketplace,' the details of his involvement with Alco and Conectisys make abundantly clear that he was, in fact, forced to help the authorities to avoid prosecution himself," the government claims.

As for Mr. Elgindy's purported more recent co-operation with the SEC, the prosecution suggests that he was of little or no assistance and, moreover, "never revealed to authorities with whom he claims he was 'working' that certain of the information he passed them was illicitly obtained from his personal rogue FBI agent."

Adding a few more brushstrokes, the prosecution points out that Mr. Elgindy committed insurance fraud and subsequently pled guilty to mail fraud in 2000 and was sentenced to four months in prison and three years supervised release.

"The defendant was arrested on at least four additional occasions and charged with crimes including 'Grand Theft Auto,' 'Assault with a Deadly Weapon,' 'Driving While Intoxicated' and 'False Report to a Peace Officer' between 1985 and 1997," the prosecution adds in a footnote. "On each of these occasions, the defendant was not prosecuted."

Coincidental concerns

As noted by the prosecution, Mr. Elgindy "relies heavily on his diagnosis of bipolar disorder as a mitigating sentencing factor."

According to the government, however, the defendant "has done little to mitigate the alleged effects of his disorder on himself and his family members."

Indeed, the prosecution seems to suggest that Mr. Elgindy's concern with his bipolar problems coincidentally surfaces when he is faced with legal problems.

The prosecution claims that Mr. Elgindy was diagnosed with bipolar disorder in 1993 but stopped seeing a therapist in 1995.

"He did not recommence therapy until after he was arrested in the instant case, seven years after he had ceased treatment, even though his disorder was addressed in connection with his sentencing on the insurance fraud conviction in 2000," the prosecution reports.

Mr. Elgindy's bipolar disorder along with claimed good works on behalf of Kosovar refugees and his concern for a son "with Tourette's Syndrome and Attention Deficit Hyperactivity Disorder" formed the basis for a downward departure motion at his 2000 sentencing for fraud.

"After hearing from several witnesses, some of whom vigorously disputed the defendant's narrative concerning his beneficence, the sentencing judge rejected the downward departure motion and pronounced the evidence regarding the defendant's humanitarian efforts 'murky,'" the prosecution claims.

"There is a reason why you have these people willing to come here and testify against you as they have," the judge in the 2000 insurance fraud case remarked. "I don't see that very often, especially in sentencing."

In any event, the prosecution suggests that Mr. Elgindy's actions are at odds with his claimed concerns.

"Despite his stated concern for his son and his other family members, immediately upon his release from jail in October 2000, the defendant -- rather than mending his ways for their sake -- became the leader of a criminal enterprise," the government claims.

Unreconstructed criminal

According to the prosecution, notwithstanding his conviction, Mr. Elgindy shows no remorse and does not accept responsibility for his crimes.

"Despite being convicted for racketeering, conspiracy to commit securities fraud, extortion and other crimes, the defendant accepts no responsibility for his conduct," the prosecution claims.

"Instead, he has smeared prosecutors and proclaimed his innocence on one of the very websites, Silicon Investor, where he found fame as an allegedly former -- but obviously unreconstructed -- criminal," the prosecution states.

Indeed, several messages from Mr. Elgindy regarding the trial -- some of them quite lengthy and, arguably, controversial -- have been posted to Silicon Investor.

The prosecution serves up some juicy excerpts from Mr. Elgindy's posttrial Internet messages.

"Witnesses were intimidated from day one," Mr. Elgindy wrote in part in a Nov. 2, 2005, message. "The search for justice took a back seat to a prosecutor's ambition, rabid zeal and refusal to concede the truth."

In a Dec. 2, 2005, post, Mr. Elgindy claimed that he "lost to hatred, prejudice and a 'convict at all cost' methodology."

On Dec. 11, 2005, Mr. Elgindy remarked that he had "publicly made allegations of serious misconduct by former AUSA Ken Breen and Seth Levine." He also suggested that prosecutors suborned perjury from Mr. Cleveland, the government claims.

"The real terrorist is out there, walking free, having used my life as a spring-board into the private sector, doing exactly what he found so distasteful by Royer," Mr. Elgindy wrote on Dec. 23, 2005, in reference to former Assistant U.S. Attorney Mr. Breen who joined a private firm as a white collar criminal defence lawyer after his prosecution of Mr. Elgindy.

"Isn't this all being done so they can finally lynch the nasty Arab guy?" Mr. Elgindy asked rhetorically in a Jan. 14, 2006, Silicon Investor post.

Evidently the prosecution did not think much of Mr. Elgindy's posttrial Silicon Investor commentaries.

"For this defendant, who finds it impossible to mind his own store, to lash out by impugning the government's integrity is unjust and irresponsible," the prosecution declares. "It is, however, sadly consistent with the defendant's need to wrongly castigate others while minimizing his own misdeeds, a theme that runs through his sentencing submission."

Major time

The prosecution devotes more than half of its 88-page sentencing memorandum to an analysis of the sentencing guidelines, insisting that Mr. Elgindy should be sent to prison for much longer than the 43 months suggested by the defence.

According to the prosecution, this case "encompasses one of the most egregious instances of corruption of governmental functions in recent history" and the "true nature of the criminal conduct would justify a sentence above the guidelines," which suggest a life sentence.

"This case involved a massive criminal enterprise dedicated to misappropriating information from the FBI, trading on that information, using it to manipulate stock prices and disseminating it to hundreds of investors who could further use it for their unjust advantage," the prosecution argues.

Among other things, the government claims that Mr. Elgindy is a repeat fraudster and liar "who routinely, over a period of many years, violated the law for personal gain."

"There is no reason to believe that this defendant has mended, or will mend, his ways," the prosecution claims. "There is, however, every reason to believe that, once released, the defendant will find a new means of taking advantage of the public."

The government evidently does not want Mr. Elgindy released any time soon.

"The defendant was the leader of a massive criminal enterprise that functioned by stealing confidential law enforcement information -- regardless of the costs to the FBI, the SEC, undercover agents, co-operating witnesses or the public -- in order to satisfy his and his co-conspirators' greed," the prosecution says.

"The defendant's punishment should fit this crime, not the unjustifiably limited, four-stock, small-profit securities fraud case that the defendant conjures up in his sentencing memorandum," the prosecution continues.

While the defence submission was quite precise in suggesting that Mr. Elgindy should be sentenced to no more than 43 months, the prosecution's concluding recommendation is vague.

"The government respectfully submits that, in keeping with the true nature of the defendant's crime, this court should sentence him to a very substantial term of imprisonment," the prosecution says in wrapping up its sentencing memorandum.

Mr. Elgindy, who reportedly already has a lawyer working on his appeal, was scheduled to be sentenced on March 6, a date "fixed in stone," according to an earlier government filing.

On March 1, however, Judge Raymond J. Dearie issued an amended notice of sentencing, setting the new date for March 22.

Intriguingly, the March 1 order contains an asterisked, bold, underlined, uppercase instruction:

"****GOVERNMENT COUNSEL IS DIRECTED TO SUBMIT A SIGNED COPY OF THE PLEA AGREEMENT, IF ANY, TO MS. MULQUEEN, FORTHWITH."

It is not clear what signed copy of a plea agreement, if any, the court is awaiting.

Stockwatch will continue to follow developments.

Comments regarding this article may be sent to lwebb@stockwatch.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; and Jan. 26 and 27, 2006.)

© 2006 Canjex Publishing Ltd.