Monday, June 25, 2007

The Federal Bureau of Investments

The following information is presented complete and without commentary:

From Five, Including F.B.I. Agents, Are Named In a Conspiracy, May, 2002:

Five people, including a current and a former F.B.I. agent, were charged by federal prosecutors yesterday with using confidential government information to manipulate stock prices and extort money from companies.

The conspiracy was led by Amr Ibrahim Elgindy, a stock adviser who has clashed with regulators and is well known among traders in small stocks for his aggressive attacks on companies he considers overvalued, according to an indictment unsealed yesterday in Brooklyn. Prosecutors said that he obtained government information about publicly traded companies and then used that information to predict which stocks would fall and to persuade companies to pay for his silence. Hundreds of investors have paid up to $7,000 a year for stock recommendations from Mr. Elgindy, known as Tony Elgindy and Anthony Pacific.

On Tuesday afternoon, F.B.I. agents arrested Mr. Elgindy and four others in California, New Mexico and Oklahoma. Derrick W. Cleveland, Troy Peters, Jeffrey A. Royer and Lynn Wingate were arraigned in federal courts; a hearing for Mr. Elgindy in San Diego was postponed until tomorrow, a Justice Department spokesman said. Prosecutors hope to consolidate the case in Brooklyn next week, but some of the defendants may oppose the move. Lawyers for four of the five could not be reached for comment or declined to comment. Stephen McCue, Ms. Wingate's lawyer, said she would fight the case and denied any wrongdoing.

The 33-page indictment is another blow to the F.B.I., which already faces complaints from lawmakers about its response to warnings of potential terrorist attacks before Sept. 11. An F.B.I. spokesman said the bureau was distressed by the indictment. The charges include obstruction of justice, racketeering, extortion and insider trading.

According to the complaint, the charges arose from the work of a Justice Department task force formed one week after the Sept. 11 terrorist attacks. Mr. Elgindy has supported Muslim refugees in Kosovo. But the indictment does not mention any connection to terrorism by Mr. Elgindy, or by anyone else it names.

Mr. Royer, who worked at the F.B.I. from 1996 until December 2001, gave Mr. Elgindy and Mr. Cleveland information from confidential government databases about criminal histories and continuing criminal investigations of companies, the complaint said. In return, Mr. Royer received more than $30,000 from Mr. Cleveland, the indictment says.

Mr. Elgindy, who operates two Web sites -- and -- and an e-mail stock tip service, then gave the information to his subscribers, hoping to cause the stocks of the companies to fall, the indictment contends. Mr. Elgindy is a short seller, an investor who borrows shares and then sells them, hoping to buy them back later at a lower price, pocketing the difference.

After Mr. Royer left the bureau to join Mr. Elgindy's firm, Pacific Equity Investigations, Ms. Wingate, another F.B.I. agent, began to pass along information to Mr. Elgindy, according to the indictment. In addition, Mr. Royer and Ms. Wingate used their access to F.B.I. databases to monitor the progress of the criminal investigation against Mr. Elgindy and the other conspirators, the indictment says.

Besides publicizing bad news on companies whose stocks they sold short, the conspirators threatened other companies that they would make negative information public if the companies did not give them free stock, the indictment says.

The suspected extortion and manipulation was apparently confined mainly to smaller companies. The indictment does not identify most of the companies that Mr. Elgindy is suspected of threatening, but it indicates that several traded on the over-the-counter bulletin board market, which contains mostly very small companies with relatively few shares. The only company mentioned by name in the indictment, Nuclear Solutions, has a market value of only $2.5 million.

The indictment offers a public peek into the knotty relationship between short sellers like Mr. Elgindy, who profit when companies' stocks fall, and regulators and prosecutors.

Short sellers often detect accounting fraud before government agencies and take the information they have discovered to the F.B.I. and the Securities and Exchange Commission, hoping to prompt investigations. In general, the agencies will listen, especially if the tips come from short sellers with a history of ferreting out troubled companies.

The relationship between Pacific Equity and Mr. Royer began just that way, according to the indictment. In 1999, Mr. Cleveland began giving Mr. Royer tips ''concerning individuals and companies that Cleveland claimed were engaged in securities fraud,'' the indictment said. Some of the tips led to criminal investigations by the F.B.I.

But within a few months, the relationship shifted, and Mr. Royer began offering Pacific Equity information from confidential F.B.I. databases. On Nov. 28, 2000, Mr. Cleveland wired $8,500 to Mr. Royer, and more payments followed, totaling $30,425. The indictment does not contend that Ms. Wingate received any payments for the tips she gave.

At a hearing in Albuquerque yesterday, prosecutors asked that Magistrate Judge Lorenzo F. Garcia order Mr. Royer detained as a flight risk. But they declined to present evidence in open court to support their assertion, and Mr. Royer was released after agreeing to wear a monitoring device, according to his lawyer, Douglas Couleur. Ms. Wingate was released on her own recognizance, Mr. McCue said.

In San Diego, Mr. Elgindy was detained pending a hearing tomorrow, and Mr. Peters was ordered released on $100,000 bond, according to the Justice Department. But Mr. Peters has not yet posted the bond and remains in custody.

The indictment is a strange new turn in the career of Mr. Elgindy, who has already served four months in federal prison for collecting disability benefits while he was still working. Despite his criminal record and the fact that the National Association of Securities Dealers has revoked his broker's license, Mr. Elgindy has a loyal following of small investors and traders who pay up to $600 a month for his stock advice.

During the heights of the Internet bubble, Mr. Elgindy loudly warned his followers, and anyone else who would listen, against buying Internet and small biotechnology stocks. Many of the stocks he took aim at are now bankrupt or have fallen 90 percent or more from their highs.

Those losses, and the fees from his service, have meant big profits for Mr. Elgindy. According to the indictment, he owns several luxury vehicles, including a Bentley and a Hummer, and a home worth $2.2 million.

A follow-up, days later... from U.S. Suggests, Without Proof, Stock Adviser Knew of 9/11:

A San Diego stock adviser who is accused of bribing an F.B.I. agent to give him confidential government information may have had prior knowledge of the Sept. 11 attacks, a federal prosecutor said yesterday. But a judge disregarded that contention and the adviser's lawyer called the allegation ludicrous.

In a court hearing in San Diego, Kenneth Breen, an assistant United States attorney, said the adviser, Amr Ibrahim Elgindy, tried to sell $300,000 in stock on the afternoon of Sept. 10 and told his broker that the stock market would soon plunge. ''Perhaps Mr. Elgindy had preknowledge of Sept. 11, and rather than report it he attempted to profit from it,'' Mr. Breen said.

Mr. Breen, coordinator of the stock market unit of a government task force set up to investigate financing for terrorist groups, offered no other evidence that Mr. Elgindy had prior knowledge of the attacks.

A lawyer for Mr. Elgindy said the allegation appeared to be motivated by the fact that Mr. Elgindy is Muslim and was born in Egypt. Senior F.B.I. officials also said they had no evidence that Mr. Elgindy had prior knowledge of the attacks.

In the hearing yesterday, Mr. Breen asked Judge John A. Houston of Federal District Court in San Diego to hold Mr. Elgindy without bond. Mr. Elgindy, also known as Tony Elgindy and Anthony Pacific, recently moved $700,000 to Lebanon and is a serious flight risk, Mr. Breen said.

Judge Houston disregarded Mr. Breen's claims about Mr. Elgindy and Sept. 11. But the judge said there was enough other evidence that Mr. Elgindy might flee to justify detaining him at least until a June 6 hearing to determine whether he should be moved to New York for a trial.

Jeanne Geren Knight, a lawyer for Mr. Elgindy, said after the hearing that Mr. Breen's allegations were ludicrous and untrue. ''The government, for lack of factual evidence, has decided to smear my client with terrorist innuendoes,'' Ms. Knight said. ''This is smacking of racial profiling.''

Mr. Elgindy and four other people, including one current and one former F.B.I. agent, were charged Wednesday with using confidential government information to manipulate stock prices and extort money from companies. Jeffrey A. Royer, who was an F.B.I. agent before joining Mr. Elgindy's stock advisory firm in December, accepted $30,000 from a partner of Mr. Elgindy's in exchange for providing Mr. Elgindy with information about current criminal investigations of companies, prosecutors allege.

Mr. Elgindy and his partner, Derrick W. Cleveland, sold short the shares of companies that they learned were under investigation, according to the indictment. (Short sellers borrow shares and sell them, hoping to buy them back later at a lower price and pocket the difference.) Then Mr. Elgindy publicized the negative information on two Web sites he ran, hoping that the companies' stocks would fall, prosecutors say.

At the hearing yesterday, Mr. Breen said that on the afternoon of Sept. 10, Mr. Elgindy contacted his broker at Salomon Smith Barney and asked him to sell $300,000 in stock in his children's trust funds. During the Sept. 10 conversation, Mr. Elgindy predicted that the Dow Jones industrial average, which at the time stood at about 9,600, would soon crash to below 3,000, Mr. Breen said. Mr. Elgindy was unable to sell the stock before markets closed Sept. 10, and it was instead sold Sept. 18, the first day that markets reopened for trading after the attacks, Mr. Breen said.

The Salomon Smith Barney broker contacted the F.B.I. after the attacks to report the conversation, Mr. Breen said. He did not identify the broker. A spokesman for Salomon Smith Barney confirmed that Mr. Elgindy was a client but said that Salomon did not comment on matters relating to its clients.

Mr. Elgindy also transferred more than $700,000 to Lebanon in the months after the attacks, Mr. Breen said. When F.B.I. agents raided Mr. Elgindy's home outside San Diego on Wednesday, Mr. Breen said, they found $43,000 in cash, as well as a loose diamond and faxes indicating that Mr. Elgindy had been tipped about the raid and had given his wife a power of attorney to liquidate his assets.

Ms. Knight, Mr. Elgindy's lawyer, denied that Mr. Elgindy had any prior knowledge of the attacks.

Mr. Elgindy's wife is from Louisiana, Ms. Knight said, adding that his mother was a pediatrician and his father a professor. ''Tony isn't political at all,'' she said. ''He's a capitalist. He's not going to move to a third world country.''

Senior law enforcement officials said yesterday that investigators had no hard evidence that Mr. Elgindy had advance information about the Sept. 11 attacks. So far, they have not found anyone who had prior knowledge of the attacks, they said. But they said the investigation into why Mr. Elgindy tried to sell the shares in his children's trust accounts before Sept. 11 had raised questions that had not been fully answered.

Mr. Elgindy has been an active supporter of Muslim causes. In 1999, he arranged to bring 30 Muslim refugees from Kosovo to the United States, according to The Daily Herald of Chicago.

Mr. Elgindy said the violence in Kosovo, Serbia's southern province, appalled him, comparing it to the shootings at Columbine High School in Colorado. ''Take Columbine, have it occur five times a day for a year, and that's Kosovo,'' Mr. Elgindy told The Daily Herald.

Mr. Elgindy's father and brother are also active in Arab and Muslim causes. His father, Ibrahim Elgindy, founded an umbrella group of Muslim organizations in Chicago and led a 1998 protest on behalf of Muhammad A. Salah, whose assets were seized that year after the United States government linked Mr. Salah to Hamas, the radical Palestinian group. Mr. Elgindy's brother, Khaled, has worked for several Arab political groups.

Neither Ibrahim Elgindy nor Khaled Elgindy has ever been linked to terrorism. Khaled Elgindy did not return calls yesterday. Ibrahim Elgindy could not be reached for comment.

Mr. Elgindy himself publicly criticized the Sept. 11 attacks. In a press release that day, his company, Pacific Equity Investigations, said, ''We must seek, find, apprehend and destroy those who are responsible for this terrorist attack.''

Two days later, Mr. Elgindy put out another press release, saying that he had forwarded to the F.B.I. and the Securities and Exchange Commission ''many Internet posts and messages that may have relevance on this tragedy and the capture of the responsible parties behind it.'' He also asked that investors refrain from selling short the stocks of any United States companies or the United States dollar.

Mr. Elgindy sold the shares in his children's trusts five days later.

From Ex-F.B.I. Agent and Trader Found Guilty in Fraud Case, January, 2005:

Anthony Elgindy, a well-known figure in the Internet world of penny stocks, was convicted yesterday on charges that he used confidential information from an F.B.I. agent about criminal investigations to profit illegally in the market.

The former agent who supplied the information, Jeffrey A. Royer, was also found guilty of securities fraud conspiracy charges related to Mr. Elgindy's stock-selling scheme. The federal grand jury in Brooklyn had deliberated for four days after a 10-week trial.

The guilty verdicts end an unusual trial that invoked the Sept. 11 attacks and provided a rare glimpse into the shadowy world of thinly traded, easily manipulated stocks.

Prosecutors maintained that Mr. Royer, a Federal Bureau of Investigation agent assigned to Indian reservation crimes, provided Mr. Elgindy with information about white-collar corporate investigations. Mr. Elgindy then posted some of that information on his investment Web site, enabling him to collect at least $2.7 million from subscribers. Prosecutors said he also made "thousands of dollars" by trading ahead of those subscribers in some of those stocks, or selling shares short in anticipation that the disclosures about them would send their prices lower.

Prosecutors also said that Mr. Elgindy and his associates threatened to disclose bad news about several small companies unless they were given free or deeply discounted stock.

"Under the guise of protecting investors from fraud, Royer and Elgindy used the F.B.I.'s crime-fighting tools and resources actually to defraud the public, and to insulate themselves from detection and prosecution," Roslynn R. Mauskopf, the United States attorney in Brooklyn, said in a statement.

When the first guilty verdict was read, Mr. Elgindy, 36, placed his head in his hand and rocked back and forth, sobbing and moaning. Judge Raymond J. Dearie then stopped the proceedings so that Mr. Elgindy could be excused from the courtroom.

Mr. Royer, 41, who showed little emotion on the witness stand when he, unlike Mr. Elgindy, testified in his own defense, remained stoic after the verdict. "I honestly don't get it," he said outside the courtroom. He said he would appeal.

Mr. Royer was found guilty of racketeering and securities fraud charges. He was also convicted on obstruction of justice. Prosecutors said that Mr. Royer alerted Mr. Elgindy that the Justice Department was investigating him in relation to the Sept. 11 attacks.

Mr. Elgindy, who was never found to have terrorist ties, was acquitted of charges that he interfered with that investigation.

But he was convicted on 11 counts of securities and wire fraud, conspiracy and extortion.

Mr. Elgindy and Mr. Royer each face between 10 years and 15 years in prison when they are sentenced. Mr. Elgindy also stands to lose several million dollars in cash, stock accounts, and luxury cars the government seized after his May 2002 arrest.

Mr. Royer was set free after Judge Dearie denied a prosecution request to raise his $400,000 bail. Mr. Elgindy has been detained since he boarded a plane in April using a false name and credentials. No date was set for sentencing.

Mr. Elgindy's lawyers said they would appeal, saying that the evidence that their client was a subject of a Sept. 11 investigation was inflammatory and presented only to prejudice the jury.

The government's case is not yet over. Lynn Wingate, a former F.B.I. agent who is also Mr. Royer's ex-girlfriend, and two others are expected to stand trial separately. Three of Mr. Elgindy's associates have already pleaded guilty and are cooperating with the government, including Derrick Cleveland, who was an important prosecution witness in the case.

Prosecutors maintained that Mr. Royer provided Mr. Elgindy with confidential information for a potential job offer and a percentage of trading profits. "There was no crusade here. They were not crime-fighting heroes," an assistant United States attorney, Seth Levine, told the jury during his closing statements. "They were mercenaries."

From 6-Year Sentence in Trading Case, October, 2006:

A federal judge in Brooklyn sentenced a former F.B.I. agent yesterday to six years in prison for racketeering and securities fraud related to the inside-trading prosecution of a former stock picker, Anthony Elgindy.

The former agent, Jeffrey A. Royer, 39, who was convicted after a trial with Mr. Elgindy, will be allowed to surrender to federal prison authorities by Nov. 6, said Robert Nardoza, a spokesman for the United States attorney for Brooklyn, Roslynn R. Mauskopf.

Mr. Royer was an F.B.I. agent from 1996 to December 2001, when he left to work for Mr. Elgindy, prosecutors said.

In June, Mr. Elgindy was sentenced to 11 years and 3 months in prison and ordered to forfeit $1.5 million for using inside information to make short sales and extort money from companies he criticized in an online newsletter. He was convicted last year of racketeering conspiracy, securities fraud, wire fraud and extortion. According to witnesses at the trial, Mr. Elgindy used information supplied by Mr. Royer, then an F.B.I. agent, to spread negative publicity about companies through his Web site,

Prosecutors say Mr. Royer also supplied Mr. Elgindy with information about investigations of companies by the F.B.I. and the Securities and Exchange Commission.

Mr. Royer’s lawyer, Lawrence D. Gerzog, did not return a call made to his office after business hours seeking comment.

Short sellers seek to profit by correctly predicting a decline in a stock’s price. They sell borrowed shares, planning to buy them later at a lower price and return them to holders. Mr. Elgindy’s gains from trading shares of 32 companies using illegally leaked information totaled $3.02 million, the government said.

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