Broker Who Aided U.S. Going on Trial for Fraud
Eric Dash, New York Times, November 1, 2004

The federal court in Brooklyn is no stranger to stock fraud cases. But while the federal court in Manhattan typically gets the headline-grabbing Wall Street and corporate accounting scandals, the Brooklyn court is often home to the grittier, more shadowy investing world of penny stocks.

One of the more unusual of these cases goes to trial today. Anthony Elgindy, who for more than a decade has been a controversial figure in the world of cheap and thinly traded stocks of small companies, is accused of conspiring with an F.B.I. agent to obtain information about government investigations and using that information to manipulate stock prices. Prosecutors contend that Mr. Elgindy also used that information to persuade companies to pay for his silence.

But the case against Mr. Elgindy, who was known as Amr Ibrahim Elgindy before legally changing his name last year, has also attracted attention because of a prosecutor's suggestion at the time of his arrest in May 2002 that Mr. Elgindy might have had prior knowledge of the Sept. 11 attacks.

At a court hearing that month, the prosecutor, Kenneth Breen, said that Mr. Elgindy, who was born in Egypt, contacted an unidentified broker at Salomon Smith Barney on Sept. 10, 2001. Predicting that the Dow Jones industrial average would soon collapse by about two-thirds, the prosecutor said that Mr. Elgindy asked the broker to sell $300,000 in his children's trust funds. Mr. Elgindy, however, was unable to sell that day and did not sell until the markets reopened for trading on Sept. 18.

"Perhaps Mr. Elgindy had pre- knowledge of Sept. 11, and rather than report it, he attempted to profit from it," Mr. Breen said at the hearing.
Mr. Elgindy's lawyers have called the contention ludicrous, and the judge at the hearing disregarded it. Prosecutors have not since raised the possibility of a link, and Mr. Breen declined to comment about that assertion and all other matters related to the case before opening statements begin today.

The trial in Brooklyn may be the end of a long dance Mr. Elgindy has had with regulators and prosecutors. In the early 1990's, Mr. Elgindy, who had worked at several so-called pump-and-dump brokerage firms, confessed to authorities that he and others had accepted bribes from stock promoters seeking to manipulate shares. In exchange for immunity, he agreed to work as a government informant.

At a time of rampant fraud in penny stocks, Mr. Elgindy showed investigators how the schemes worked and helped prosecutors win several convictions for white-collar crimes. Around the same time, though, Mr. Elgindy defrauded an insurance company by collecting disability benefits while working at two Texas brokerage offices in 1994 and 1995. In 2000, he was convicted and served four months in federal prison.

By the late 1990's, Mr. Elgindy, who also went by the names Tony Elgindy and Anthony Pacific, had gained a loyal Internet following as a stock picker, selling tips for $600 a month. And he carved out a new role for himself: a short seller, or one who bets on a decline in a stock price, who was not afraid to tell the truth about corrupt companies and shady promoters.

At the same time, according to the indictment, Mr. Elgindy and his associates had "corruptly induced" an F.B.I. agent for personal gain. Mr. Elgindy's lawyers contend that their client is a victim of Justice Department and Wall Street venom for his own corporate detective work.

"Like Howard Stern on the radio, he outgrew the government,'' said Joel R. Isaacson, one of the two lawyers representing Mr. Elgindy. "He was just too much of a personality, and he was like the little boy at the parade that kept pointing out the emperor's naked.

"He developed a lot of enemies and a million allegations have been made against him. We are looking forward to getting into a courtroom and responding."

The jury trial is expected to take about six weeks. It comes more than two years after Mr. Elgindy and four associates were arrested and faced charges related to obstruction of justice and securities fraud. Jeffrey A. Royer, an F.B.I. agent who is accused of going into the agency's confidential databases to provide Mr. Elgindy with tips and eventually became a business partner, will be tried with him. Jonathan Daws, a hedge fund operator; Lynn Wingate, a former F.B.I agent; and Troy M. Peters, a stock trader, are expected to stand trial separately sometime next year. Derrick W. Cleveland, another trader who worked with Mr. Elgindy, has pleaded guilty to one count of conspiracy to commit securities fraud.

But Mr. Elgindy, who has been in jail since last April after trying to board a domestic flight with two fake identification cards, remains at the center of this case.

In the 33-page indictment, prosecutors contend that between November 2000 and May 2002, Mr. Royer was paid to provide Mr. Elgindy and Mr. Cleveland with information obtained from confidential government databases about the criminal histories and continuing investigations of tiny, publicly traded companies.

Based on that information, the complaint said, Mr. Elgindy and Mr. Cleveland sold the stock of those companies short - borrowed and then immediately sold shares in anticipation of buying them back at a lower price for a profit. Mr. Elgindy then published the negative information on two Web sites he operated, hoping the price would plummet further.

Federal prosecutors also charge that Mr. Elgindy and his associates engaged in extortion, telling several small companies they would disclose bad news about them if they did not give them heavily discounted, and sometimes free, stock.

Mr. Elgindy's lawyer said his client often investigated fraudulent companies on his own and noted that the information he obtained, though negative, was often truthful. "Working hand-in-hand with many government agents, he learned of many phony companies, and he did not ever believe that he was being given confidential or secret information that he shouldn't have," Mr. Isaacson said.

Federal prosecutors, however, are expected to tell a somewhat different story during the trial. Mr. Elgindy and his associates, the indictment said, were manipulating the market by "trading on material, nonpublic information that had been misappropriated from law enforcement databases."
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Witness in Brooklyn trial says FBI agent gave sensitive information

   
 
Michael Weissenstein, Associated Press, November 4, 2004

NEW YORK -- A corrupt FBI agent in cahoots with inside traders revealed a steady stream of sensitive information, including one corporate executive's alleged ties to the Russian mob and an undercover agent's presence at another firm, according to court testimony Thursday.

The companies' negative information was posted on the Web site of San Diego financial analyst and self-styled stock guru Anthony Elgindy, who profited when their stock went down, a former Elgindy associate testified in federal court in Brooklyn.

Derrick Cleveland testified that he rewarded the FBI agent, Jeffrey Royer, with a pickup truck and half the proceeds from trades based on the government information.

Cleveland is cooperating with prosecutors against Elgindy and Royer in their trial on racketeering and fraud charges.

Lawyers for Elgindy deny the charges, saying their client had a solid reputation for protecting investors by working with regulators to expose fraud by small publicly traded companies. Royer's attorney told the jury that he was an ambitious agent who recruited Cleveland and Elgindy as confidential informants and shared information with them with no corrupt intent.

Royer did a terrible job of concealing his tracks, Cleveland testified Thursday. He sent Cleveland a photocopy of the pickup truck title from the fax machine at the FBI's Gallup, N.M., office. The fax arrived bearing an FBI stamp and was introduced into evidence Thursday.

Royer also partied in Las Vegas with Elgindy and associates and chatted about his job as a federal agent in a chat room run by Elgindy for traders who paid him a monthly fee, Cleveland said.

Prosecutors showed the jury photographs of Elgindy and fellow traders cavorting in Vegas with Royer's FBI business cards stuck to their foreheads.

Also on display was the transcript of an online chat among Royer, Elgindy and his subscribers that included the boasts, "FBI in the house" and "FBI rules."

Cleveland described a near-constant flow of information from Royer about small companies with penny stocks, including several that were under Securities and Exchange Commission investigation, one whose CEO had Russian mob links and another that was the subject of an undercover federal probe.

Royer, who left the FBI before his arrest, did not jeopardize any federal investigations, said Bill Elwell, a spokesman for the bureau's Albuquerque office.

Cleveland told the jury he was protective of his FBI source and cautioned Royer against direct contact with Elgindy and the other traders.

"I told Royer that I didn't think it was very smart that he did that," Cleveland testified.

Cleveland said he made thousands of dollars on some trades and lost money on many others. He said he agreed to a 50/50 split with Royer and planned to help the agent purchase a new home, until his wife put her foot down.

After his arrest in late 2002, prosecutors suggested the Egyptian-born Elgindy may have known about the Sept. 11, 2001, terrorist attacks. The charge, which his lawyers dispute, has not been mentioned again in court.

Elgindy telephoned his broker on Sept. 10, 2001, and asked him to liquidate his children's $300,000 trust account, prosecutor Ken Breen said at the time. The defendant predicted that the Dow Jones industrial average, then trading at about 9,600, would drop to 3,000, Breen said.

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TRIAL'S 9/11 TWIST
 Kati Cornell Smith,  New York Post, Janury 4, 2005

A former FBI agent, defending himself against charges he stole law-enforcement information to commit stock fraud, tried to turn the tables yesterday with a wild claim he could have prevented 9/11 if he was allowed do his job.

Jeffrey Royer testified that early in 2001, his supervisors overreacted to a problem with an informant, and shut down a probe of a smuggling ring with ties to Hamas that had exploited security weaknesses on an Indian reservation bordering Canada.

"I shelved it. C'est la vie," Royer, who retired from the FBI on Dec. 25, 2001, said flippantly.

"Then 9/11 happened."

The ex-agent told his lawyer, Lawrence Gerzog, that "the bureau had messed up" by taking the heat off a corrupt Customs official who could have helped terrorists enter the United States.

Royer made the bizarre assertion as he denied charges that he helped stock guru Anthony "Pacific" Elgindy manipulate the market.

Royer and Elgindy are co-defendants in the Brooklyn federal court trial.

Royer claimed Elgindy needed confidential information to perform his work as an FBI informant and credited him with launching several important probes, including one of suspicious stock trades on Sept. 10, 2001.

But during cross-examination, Royer admitted other agents had told him Elgindy was actually a suspect in the terror probe and that he still leaked protected FBI information to a close associate of the stock genius.

Elgindy is on trial for using information about investigations into various companies to commit stock fraud and extortion but has not been charged with any terror-related crime. Asked by Assistant U.S. Attorney Seth Levine if he knew he was violating his official oath by dispensing confidential law-enforcement information without permission, Royer said he was not in "junior high" and enjoyed "autonomy" as an agent.

"I told them I would protect and serve the Constitution of the United States," Royer said bluntly.

"I didn't say I would follow the rules of the FBI."

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Stock Picker Bragged of FBI Contact, Jury Is Told

Bloomberg News, November 4, 2004

Former San Diego stock picker Anthony Elgindy told subscribers to his online tip sheet about "my personal FBI agent" who was illegally passing him inside information, then warned them to keep it secret, a former associate testified Wednesday.

Derrick Cleveland, who is testifying for the government in Elgindy's trial on racketeering and fraud charges in New York, read excerpts from Internet chat room logs in which subscribers discussed the agent, Jeffrey Royer.

Elgindy, 36, who also went by the name Anthony Pacific, and Royer, 41, are on trial in federal court. Royer is accused of tipping off Elgindy about companies under FBI scrutiny.

On one occasion in 2001, Cleveland said, Elgindy told the website's administrator to "erase the log," warning that "none of this can leave or go public. If anyone even mentions FBI on a message board, I think we'll get in a world of trouble."

Armed with secret information from Royer, Elgindy made insider trades and extorted money from firms that paid to stop the flow of negative news on his website, authorities claim.

 
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Judge in Stock Adviser's Trial Bars Testimony on Terrorism
Eric Dash, New York Times, November 9, 2004

For five days, jurors have seen dozens of e-mail messages, a litany of Internet chat room logs and countless company reports as federal prosecutors presented their conspiracy case against Anthony Elgindy, the San Diego stock adviser accused of obtaining illegal information from an F.B.I agent to manipulate the stock market.

But they will not hear evidence supporting an assertion that prosecutors once made suggesting that Mr. Elgindy might have had advance knowledge of the Sept. 11 terrorist attacks, a judge said yesterday.

The matter came up in the fourth full day of testimony in United States District Court in Brooklyn. Derrick Cleveland, a former business associate of Mr. Elgindy who is now a government witness, was asked by an assistant United States attorney, Kenneth Breen, about a mid-September 2001 F.B.I. investigation into Mr. Elgindy. When Mr. Cleveland responded that the investigation was related to "terrorism," Judge Raymond J. Dearie brought the hearing to a halt.

"This case has nothing to do with terrorism," he said to the jury in a planned set of instructions. "You will hear no evidence that Mr. Elgindy or others were involved in 9/11."

Mr. Cleveland was allowed to continue with his testimony, recounting how he learned that Mr. Elgindy was a subject in a criminal investigation. Mr. Cleveland said that Jeffrey A. Royer, an F.B.I. agent who was the source of that information and a defendant in the case, told him that investigators were looking into $6 million that Mr. Elgindy had liquidated from two brokerage companies, Charles Schwab and Salomon Smith Barney, shortly before Sept. 11.

Mr. Royer also relayed information that the government was examining the money Mr. Elgindy gave to Mercy International, which Mr. Breen described as a "Middle Eastern charity."

Mr. Royer promised to "keep an eye" on the case, Mr. Cleveland testified, "and as new things came out, he would let me know."

The judge's comments emerged from a 25-minute discussion early yesterday between the prosecutors and the lawyers for the defendants before the trial resumed, and sought to resolve months of legal wrangling.

In public reports and in court, Mr. Elgindy's lawyers have argued that there is no basis for suggesting that their client had ties to terrorism.

But in May 2002, Mr. Breen argued in a bail hearing that the decision of Mr. Elgindy to sell $300,000 in stock on the afternoon of Sept. 10 might suggest that he had "preknowledge of Sept. 11 and rather than report it he attempted to profit from it."

An F.B.I. spokesman said yesterday that "no evidence was found about any individual" to support that assertion. The judge's comments come a week into a trial on securities fraud. Mr. Elgindy is accused of having published negative information on several Internet chat rooms about small-capitalization companies to drive down their stock price. The information had been obtained by Mr. Royer from confidential government databases.

Mr. Elgindy also faces extortion and obstruction of justice charges related to the stock-selling arrangement.

 
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Prosecutors at Fraud Trial Say Profit Was True Motive
Eric Dash, New York Times, January 15, 2005 

In a final attempt to refute the claims of the two defendants, prosecutors argued yesterday that there was "overwhelming evidence" that the two, Anthony Elgindy and Jeffrey A. Royer, were working together to commit securities fraud and not to expose corporate crime.

Mr. Elgindy, a controversial Internet stock trader, is accused of receiving confidential government information from Mr. Royer, a former F.B.I. agent, and using it in an elaborate stock-selling scheme.

Yesterday, prosecutors in Federal District Court in Brooklyn made a final effort to persuade the jury that both men should be convicted of securities fraud, market manipulation and obstruction of justice.

When the case resumes on Tuesday, the 10th week of trial, Judge Raymond J. Dearie will instruct the jury and it will begin deliberations.

Lawyers for the defendants maintained that prosecutors presented an "Alice in Wonderland" view of the evidence, distorting statements and events to bolster their case.

But prosecutors said yesterday that the facts were clear: Mr. Elgindy and Mr. Royer might talk about their ambitions for law enforcement glory but their motives were corrupted by financial gain.

"It was a made-up rationale to hide their true financial motives," the prosecutor, Kenneth Breen, an assistant United States attorney, said. "The relationship with the S.E.C. and the F.B.I. served as a cover story" so that Mr. Elgindy "could pretend to get information - not glean it."

Prosecutors said that the information about criminal investigations into companies was valuable to a short-selling stock trader like Mr. Elgindy. They suggested Mr. Royer had a profit-sharing agreement with Derrick Cleveland, one of Mr. Elgindy's associates who pleaded guilty to securities fraud and testified for the government. Defense lawyers argued that any agreement was made up by Mr. Cleveland, whose story, they said, could not be corroborated or believed.

Yesterday, Mr. Breen offered documents and testimony from several witnesses in an attempt to show that Mr. Cleveland was telling the truth.

Earlier yesterday morning, Mr. Elgindy's lawyer, Barry Berke, told the jury that the government's case was far from clear.

He argued that the prosecution's timetable was not always consistent, though Mr. Breen pointed out that the defense's version omitted crucial events. Moreover, Mr. Berke raised the question of venue and urged jurors to consider it in making a decision. The case is being tried in Brooklyn, which has long been the site of penny stock fraud cases.

But Mr. Elgindy ran his Web site in San Diego, Mr. Berke said. And Mr. Royer was an agent working in New Mexico and Oklahoma.

Mr. Breen said the government was justified in trying the case in Brooklyn because several of Mr. Elgindy's Internet followers lived there and it was where the investigation he and Mr. Royer are accused of interfering with had begun.

Mr. Berke told the jury again that his client never believed he was doing anything wrong.

But Mr. Breen maintained that it was all part of a larger effort to keep law enforcement at bay while concealing the truth. The defense would have you believe that "Mr. Elgindy was a caped crusader and a crime-buster extraordinaire," he said. "I submit to you he was a criminal."


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Elgindy, Royer Found Guilty of Securities Fraud

Eric J. Weiner, Dow Jones Newswires,  January 24, 2005

NEW YORK -- Short-seller Anthony Elgindy was found guilty Monday of racketeering and securities fraud charges.

Former Federal Bureau of Investigation special agent Jeffrey Royer was also found guilty of racketeering conspiracy and securities fraud charges.

Messrs. Elgindy and Royer were charged in a May 2002 racketeering indictment with securities fraud, extortion and obstruction of justice.

The government alleged Mr. Royer was a corrupt federal agent who misappropriated confidential information from FBI computers, which he shared with Mr. Elgindy and others. Federal prosecutors told jurors during the 10-week trial that Mr. Elgindy used the information to manipulate shares of small companies. The prosecutors also alleged that Mr. Elgindy used some of the information he obtained from Mr. Royer to extort discounted shares from two companies, Floor Decor Inc. (FLOR) and Nuclear Solutions Inc. (NSOL).

Three other defendants in the case, Lynn Wingate, Troy Peters and Jonathan Daws, will be tried separately. Three defendants, Derrick Cleveland, Robert Hansen and Kent Terrell, have pleaded guilty and are cooperating with the government.

According to the indictment, Mr. Elgindy used a private investing Web site to share some of the information he gained from Mr. Royer and other law enforcement officers with site members. The government alleged that Mr. Elgindy organized site members in order to maximize the impact of the release of negative information on the price of targeted companies.

Making copious use of logs of online exchanges among some of the 300 members of Mr. Elgindy's Web site, the prosecution argued in court that Messrs. Elgindy and Royer were engaged in a corrupt relationship and that they used non-public information to push down the price of the shares of companies they sold short.

Short sellers sell shares in the anticipation that they will profit when the price of these shares goes down.

Messrs. Elgindy and Royer were also accused of having conspired to obstruct a post-Sept. 11 investigation into suspicious trading that took place shortly before the terrorist attacks on the U.S. That probe soon turned into a federal investigation of the peculiar relationship between Messrs. Elgindy and Royer. Assistant U.S. Attorney Ken Breen told jurors during the government's rebuttal that Mr. Royer shared information about the Sept. 11 investigation with Mr. Elgindy and that the short seller took steps to flee to Lebanon.

Mr. Royer, who admitted in court that he shared confidential information with Mr. Elgindy and others, had argued he only did so because he wanted to get information from them in return. Mr. Royer also admitted in court that he told Derrick Cleveland, a cooperating defendant in the case, about the Sept. 11 investigation but he denied that he told Mr. Elgindy about it.

Barry Berke, one of Mr. Elgindy's lawyers, argued in his closing argument that Mr. Elgindy didn't know about the Sept. 11 probe and that his client's trip to the Middle East and transfer of money to Lebanon were innocuous events unrelated to the investigation. Mr. Elgindy returned to the U.S. in December 2001 and had requested permission to travel back to Lebanon in early 2002. That request was denied. He and Mr. Royer were arrested on May 21, 2002.

Mr. Royer was also charged with witness tampering because of a telephone call he made to a former colleague after his May 2002 indictment. Prosecutors alleged that Mr. Royer attempted to influence the potential testimony of Michael Mitchell, a police officer whom Mr. Royer used to access confidential government information after he left the FBI.

Meanwhile, Mr. Elgindy was charged with several counts of securities fraud and wire fraud for trading ahead of members of his Web site or contrary to his advice to them.