November 3, 2006
Closing a long criminal case against short sellers who used confidential information obtained from government databases, a federal judge, Raymond Dearie, Thursday sentenced Robert Hansen to three years of probation and a $2,500 fine.
Hansen was arraigned in March 2003 on conspiracy charges in the case against notorious short seller Anthony Elgindy. The government alleged that Hansen, who ran Elgindy's investing Web site, facilitated a plot to use illegally obtained, nonpublic information to manipulate stocks of small companies.
Hansen pleaded guilty in July 2003 to one charge of conspiracy to commit securities fraud and later testified against Elgindy.
Elgindy and former FBI Special Agents Jeffrey Royer and Lynn Wingate were indicted in New York in May 2002. The government alleged that the two federal agents used confidential Federal Bureau of Investigation databases to guide Elgindy's short-selling strategies.
Elgindy was found guilty of racketeering, conspiracy and securities fraud in January 2005. He was later sentenced to more than 11 years in prison and ordered to forfeit $1.5 million. Royer was convicted of racketeering conspiracy, securities fraud and obstruction of justice in the case and was later sentenced to six years in prison.
Wingate received probation for her part in the case. Two traders, Donald Terrell and Derrick Cleveland, and hedge fund manager Jonathan Daws also received probation for their roles in the conspiracy.
Short sellers typically borrow shares then sell them with the expectation the price will go down before they have to buy shares and return them to the lender.
The case against Elgindy emerged from a wide-ranging investigation into suspicious trading ahead of the Sept. 11, 2001, attacks on the U.S. after several people, including family members, a stock promoter with whom he had feuded and a Wall Street trader, reported the Egyptian-born Elgindy to federal authorities.
Federal prosecutor Kenneth Breen, shortly after charges were brought, raised the possibility that Elgindy may have had advance knowledge of the attacks, in part because he tried to liquidate stock positions the day before.
Elgindy was never charged with any links to or foreknowledge of the attack, nor have any been shown. Judge Dearie ruled in November 2004 shortly after the beginning of Elgindy and Royer's trials that jurors in the case shouldn't hear testimony related to allegations of ties to terrorism.
But because the investigation into Elgindy's alleged securities violations evolved from the 9/11 probe, jurors did hear evidence during the 10-week trial that Elgindy had been investigated for terrorism and that former FBI Special Agent Royer and his girlfriend Wingate had been keeping tabs on the terror investigation and reporting back to Elgindy.
The National Commission on Terrorist Attacks Upon The United States said in its September 2004 report that investigation by various federal law enforcement organizations found "no evidence that anyone with advance knowledge of the terrorist attacks profited through securities transactions."
Elgindy's lawyer Josh Dratel wasn't immediately available for comment. It's likely that Breen's comment that the short seller may have had advance knowledge of the attacks and indirect references to terrorism during his trial will be front and center in Elgindy's upcoming appeal of his conviction.