Broker Who Aided U.S. Going on Trial for Fraud
The 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. Anbthony Elfindy, 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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