TSX member Global's client Elgindy noted in new charge

Brent Mudry
Canada StockWatch
March 25, 2003
There is a new member of the Elgindy Five, a San Diego-based shortselling ring which traded through Vancouver brokerage Global Securities and allegedly used information from corrupt FBI agents. Authorities in New York have arrested Robert Hansen, of Melbourne, Fla., the Webmaster for high-profile short Amr Ibrahim (Anthony) Elgindy, of Encinitas, Calif. Apart from having the rather extraordinary Mr. Elgindy as a client, and an interesting one at that, there is no suggestion that Global Securities partook in any of the monkey business outlined below.

In an affidavit and complaint in support of arrest warrant unsealed Monday in United States District Court for the Eastern District of New York in Brooklyn, authorities claim Mr. Hansen conspired with Mr. Elgindy, making up to a potential $15,000 a month handling the short's Web site, that he made personal shorting profits of at least $100,000 on illicit information and that he perjured himself to an FBI agent last October before telling the truth the next day to a grand jury. (All figures are in U.S. dollars.)

The arrest of Mr. Hansen comes 10 months after a grand jury indictment was unsealed May 22 naming Mr. Elgindy, Derrick Cleveland, of Oklahoma City, Okla., former FBI Special Agent Jeffrey Royer, of Encinitas, who left the FBI five months earlier to work with Mr. Elgindy at Pacific Equity Investigations, Special Agent Lynn Wingate, of Albuquerque, N.M., and Elgindy associate Troy M. Peters, of Carlsbad, Calif. All except Mr. Elgindy are free on bail.

Mr. Cleveland, the No. 2 man in the ring, pled guilty last July and agreed to co-operate with authorities. Mr. Elgindy and the other defendants maintain their innocence.

Mr. Elgindy is mounting a particularly expensive defence. Although his assets were initially frozen, the Department of Justice agreed Jan. 13 to release $1-million to Mr. Elgindy's counsel for the sole purpose of paying attorneys' fees and litigation costs, including litigation in a related civil forfeiture case. In a court agreement, Mr. Elgindy agreed not to seek the release of further funds for legal costs until May 1.

In the current affidavit, FBI Special Agent David Sutherland notes the evidence against Mr. Hansen came from two main sources: a co-operating witness who pled guilty, presumably Mr. Cleveland, and corroboration from relevant records of Internet chat logs, law enforcement data bases and securities trading records.

Mr. Elgindy owned and operated several investment services, including InsideTruth.com, a public Web site, and AnthonyPacific.com, a subscription E-mail newsletter and subscription Web site.

"After Elgindy sold short the stock of certain companies, Elgindy and others engaged in various manipulative activities designed to lower the price of such stock, including spreading false negative information about the companies, spreading false information about their own trading, and encouraging others to short-sell the stock in a manner that would drive the stock price down and yield large profits to Elgindy and others," states Special Agent Sutherland in the affidavit. (It should be noted that notwithstanding the federal case, Mr. Elgindy has generally been credited with exposing a number of fraudulent or suspect stock promotions to the United States Securities and Exchange Commission and the investing public, and much of the damaging information he spread was substantiated. Any FBI information he allegedly used was also presumably true.)

Mr. Royer was a key source of illicit information, according to authorities. The FBI claims that between January, 2000, and December, 2001, the former special agent accessed more than 2,000 computer records from the force's Automated Case Support system, although only a very small percentage related to investigations in which he participated.

The FBI affidavit notes Mr. Hansen, the president of Electronic Information Management Systems, a Web hosting service operated from his home, was the service provider for AnthonyPacific.com and Insidetruth.com. EIMS also received and processed subscription fees for the subscriber site, which had about 200 to 300 subscribers at any given time.

"The fees paid by subscribers to AnthonyPacific.com totalled approximately $60,000 to $100,000 per month. Defendant Hansen received a percentage of these fees, ranging from 9 per cent to 15 per cent per month," states the court filing.

Mr. Elgindy boasted of his research sources, according to the FBI. "My review of the chat logs revealed that Elgindy frequently stated to his subscribers that he was receiving his information from a source at the FBI. On occasion, Elgindy explicitly informed his subscribers that this information was non-public information and that anyone who shared it would be prosecuted," states Special Agent Sutherland in the affidavit.

The court filing alleges that Mr. Elgindy also sometimes commented on the need for Mr. Hansen to edit the archived version of the chat log so subsequent site visitors would only view a sanitized version with no reference to FBI information.

One such chat log, dated Jan. 12, 2001, related to a federal investigation of a Florida-based underwater camera company, not identified by name in the affidavit.

"The three investigations are wire fraud, mkt manipulation, and mail fraud officially by the FBI SEC is dong a title 15 investigation.. and none of this can leave or go public.. if you do you willbe pros. thats a fact directly from the FBI," stated Mr. Elgindy in his postings. (The affidavit keeps the original typographical errors, missing punctuation and abbreviations.)

Mr. Elgindy then added a reminder, "erase the log hansen."

"if anyone even mentions FBI on a message board I think you will get in a woreld of trouble," stated Mr. Elgindy in another posting.

According to the FBI, Mr. Elgindy even treated his subscribers to hearing a private conversation with the SEC on Feb. 9, 2001, regarding a California-based marketing company under investigation. "The defendant Robert Hansen participated in the electronic chat and, as webmaster, arranged for Elgindy's subscribers to eavesdrop, via the Internet, on a telephone conversation that Elgindy was having with a representative of the SEC," states the affidavit.

Afterwards, Mr. Elgindy commented on his chat room. "although there is an official investigation into (name deleted in affidavit) .. it is now classified as Formal and Non public. So it can not be mentioned publicly," stated Mr. Elgindy. "Thank You for being so trustworthy with the info i share with you all."

Two days later, on Feb. 11, 2001, Mr. Elgindy gave Mr. Hansen instructions in advance of his scheduled appearance in the chat room.

"hansen delete the log when I come on tonight please," stated Mr. Elgindy.

"ok ap," replied Mr. Hansen.

"anytime i mention any gov't agency other than the SEC delete it," stated Mr. Elgindy.

"ok," replied Mr. Hansen. "done."

The FBI affidavit claims a subsequent exchange the following day confirms that Mr. Hansen understood Mr. Elgindy was relying on him to edit out any FBI references on the chat logs.

"When Elgindy whimsically typed 'fbi fbi fbi fbi .... (the camera company) .... whatchya gonna do when they come for you,' Hansen immediately answered, 'dang, now i have to edit the log again,'" states Special Agent Sutherland.

Mr. Elgindy also allegedly boasted to subscribers on May 11, 2001. "my info comes directly from the Dept of J," stated Mr. Elgindy. "my info is untouchable and so accurate you can cut yourself on its edges just don't publish it," he stated.

One of Mr. Elgindy's subscribers even helped out with a friendly reminder. On Dec. 12, 2000, Mr. Elgindy told subscribers about a federal investigation of the underwater camera company.

"Nothing said here leaves this private investigative site .... I just don't want any one even slippin up and sayin anythin inadvertent," stated Mr. Elgindy.

"Immediately thereafter, a subscriber in the chat room stated, 'be sure to purge the logs,'" states the affidavit.

Special Agent Sutherland also notes he interviewed Mr. Hansen on Oct. 3.

"Hansen confirmed that he was the administrator of Elgindy's websites, that he frequently monitored the electronic conversations occurring in the chat room and that he sometimes traded the stocks that were discussed by Elgindy on the site," states the FBI agent in the affidavit.

"However, Hansen specifically denied that he had ever erased chat logs containing references to the FBI or otherwise containing material non-public law enforcement information."

The next day, Oct. 4, Mr. Hansen decided to tell the truth when he testified in front of a grand jury in Brooklyn. "Hansen admitted to the grand jury that at Elgindy's direction he had erased logs to delete sensitive information to the FBI.