Stock Adviser, on Trial for Fraud, Is Portrayed as a Crusader

By Eric Dash
New York Times
November 2, 2004

Anthony Elgindy, the San Diego stock adviser accused of using confidential government information from an F.B.I. agent in a stock manipulation scheme, looked attentively at the jury in federal court in Brooklyn yesterday as his lawyers and prosecutors presented conflicting accounts of his business behavior.

As Mr. Elgindy appeared to listen carefully, prosecutors accused him of participating in a stock-selling arrangement by conspiring with Jeffrey A. Royer, an F.B.I. agent who was also in court, to publish confidential government information about small, thinly traded companies as a way of gaining an unfair advantage in the market.

His lawyers said that Mr. Elgindy was using his stock-advisory Web sites to expose phony companies, and that the conspiracy the prosecutors suggested did not make sense.

Mr. Elgindy took notes as prosecutors portrayed him as an opportunist, seeking personal profit. His lawyers, quoting a government lawyer he once assisted, described him as a "crusader for propriety in the marketplace."

He sat silently, with his family looking on from the front row of the courtroom, while prosecutors said that Mr. Elgindy boarded a plane in April using a false name and credentials. His lawyer dismissed the claim as a red herring and "putty to fill in the holes" in the government's case.

But what the jury never heard, and its admissibility is still to be decided, is perhaps the most speculative contention in the case: that Mr. Elgindy knew in advance about the Sept. 11 terrorist attacks, and rather than report the threat, he attempted to profit from the attacks.

Judge Raymond J. Dearie said in a pretrial session yesterday that he would not allow the claim in opening statements but that he would broach the subject as the trial continued. "I think it is part and parcel to the case," Judge Dearie said, "but I want to know what the government wants to elicit from its witnesses."

The trial is expected to shed some light on the relationship between short-sellers like Mr. Elgindy, who may profit by raising questions about companies, and regulators, who often rely on the short-seller's tips and sometimes share information to benefit their own investigations.

In a straightforward opening statement, prosecutors outlined their case against Mr. Elgindy. "This is a case about fraud, corruption and betrayal," said Valerie Szczepanik, assistant district attorney.

Ms. Szczepanik contended that Mr. Elgindy and his associates used information obtained from F.B.I. databases to drive down the price of stocks they were trading or planned to sell short. From November 2000 to May 2002, she said, Mr. Royer provided Mr. Elgindy and Derrick Cleveland, a business associate, with information about investigations into small and thinly traded companies. Mr. Cleveland testified yesterday as a government witness in exchange for pleading guilty to a related securities fraud conspiracy charge.

Ms. Szczepanik said that under the pretext of working to expose fraudulent companies, Mr. Elgindy would secretly sell his stocks short and then would release negative news about the companies to subscribers of two Web sites he operated, hoping to drive down the price of the stocks even further to maximize his gain.

Ms. Szczepanik said that Mr. Elgindy was an opportunist "who saw Agent Royer as his winning lottery ticket." Prosecutors also accused Mr. Elgindy of engaging in extortion by using information obtained through the government databases to threaten a Florida company and its chief executive.

Barry Berke, a lawyer for Mr. Elgindy, said that his client deserved to be praised, not prosecuted, for his work exposing phony companies. He used the opening statement to debunk the government's case.

He conceded that Mr. Elgindy was a businessman, but he said that his client and the investors who subscribed to his Web sites also wanted to expose fraud.

"These people would become like junior detectives," Mr. Berke said, citing several company schemes that he contended Mr. Elgindy helped uncover and prodded the government to examine.

He said that Mr. Elgindy experienced death threats and lawsuits and was a "lightning rod" for those who did not like him challenging their businesses.

Federal prosecutors acknowledged that Mr. Elgindy sometimes contacted law enforcement officials, but Ms. Szczepanik maintained that "any tips to law enforcement were to enrich his own pockets."


[ RGM Short Selling Home page ]