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SEC vindicates Elgindy in NASD's Saf T Lok case
Securities and Exchange Commission *SEC

Thursday March 11 2004 Street Wire

by Brent Mudry

In a major win for Amr Ibrahim (Anthony) Elgindy, the U.S. Securities and Exchange Commission has thrown out all the serious penalties imposed against the controversial California shortseller and fraudbuster by the National Association of Securities Dealers. In a humbling defeat for the NASD, the SEC dismissed the NASD's ban, expulsion and $50,000 fine against Mr. Elgindy, after finding no credence to the industry regulator's conclusion that his shorting of Saf T Lok, a controversial penny stock promotion, was manipulative in any way.
"I'm obviously very thrilled with the decision," Mr. Elgindy told Stockwatch. "When I heard (of the dismissal) I just screamed."
The NASD saved a little face, however, as the SEC upheld its modest $1,000 fine against Mr. Elgindy for neglecting to mention in bearish press releases that his then-firm, Key West Securities Inc., was a market maker in Saf T Lok shares.
"I made a small mistake on the press release and got a ding for it, which I should have," Mr. Elgindy told Stockwatch.
The near-total vindication by the SEC comes as Mr. Elgindy prepares for the biggest challenge of his life, an unrelated four-to-six-week criminal trial set to start June 1 in New York. Mr. Elgindy, who built a reputation as whistle-blower on numerous dubious penny stock promotions, remains hopeful the jury will see through the government's charges that he allegedly used stolen FBI information to short inflated penny stocks. "I am just hoping that it is the truth that matters -- my life is on the line," he told Stockwatch.
Mr. Elgindy is no stranger to Howe Street, having used such Vancouver brokerages as Pacific International Securities and Global Securities for his shorting activities. Based on the NASD and FBI cases, the British Columbia Securities Commission imposed preliminary trading restrictions on Mr. Elgindy in mid-2002, with an update review set for April 1.
Mr. Elgindy, who proclaims innocence on all charges, suggests the criminal case is as trumped up as the flopped NASD prosecution. He finds his status as a high-profile target particularly ironic, given the extensive assistance he has provided authorities probing suspect stock deals. "I had helped so many SEC agents -- probably 45 or 50 SEC guys, five or six FBI guys and I testified for the NASD against (banned broker) Jerry Rosen."
THE SEC VICTORY
In an administrative opinion released Wednesday, the SEC dismissed virtually the entire NASD case against Mr. Elgindy and Key West. "Based on the record before us, we cannot conclude that the evidence demonstrates that applicants engaged in a manipulative scheme," stated SEC chairman William Donaldson and commissioners Cynthia Glassman, Harvey Goldschmid and Paul Atkins in the decision.
The Saf T Lok case traces back to late 1997. "By October 9, 1997, Saf T Lok was nearly insolvent and facing delisting," states the SEC. That day, however, the stock skyrocketed after a wire story reporting President Clinton had signed an agreement requiring handguns to have gun locks. On Oct. 9, the stock opened at 43 cents and shot up to $3 on volume of 12 million shares. The next day, the stock closed at $4.56 on 17.6 million shares.
Enter Mr. Elgindy, an experienced professional skeptic. According to the SEC, he called Saf T Lok and was told the Clinton edict would not benefit the company, and no handgun makers had bought its products because they were too expensive and relatively ineffective.
Mr. Elgindy issued a series of press releases dousing red-hot Saf T Lok with cold water and began shorting the stock, reaching a peak short position of 58,000 shares.
(Saf T Lok had an intriguing history before and after Mr. Elgind's short fling. In June, 1997, Nasdaq Stock Market officials notified Saf T Lok management that the company faced delisting from the SmallCap Market because its assets had fallen below the $2-million threshold. In an ill-fated bid to raise capital, Saf T Lok began negotiating with Sholam Weiss, also known an Shalom Weiss, who claimed to represent various offshore entities. Two years later, in November, 1999, Mr. Weiss fled Florida just before a jury convicted him of 78 counts in an unrelated case. He was sentenced in absentia to 845 years in jail and $248-million in fines and restitution and extradited from Austria several years ago, although he filed appeals with the United Nations human rights committee.)
Since then Mr. Elgindy has fought several rounds with NASD Regulation.
First the NASD launched a case claiming Mr. Elgindy manipulated Saf T Lok trading. This first round flopped on Dec. 30, 2001, when a hearing panel found no evidence of manipulation. Instead, Mr. Elgindy was found liable for two lesser offences: failing to honour a series of high bids and issuing the incomplete press releases, for which he was fined $2,000 and $1,000, respectively.
In round two, the regulatory appealed to its National Adjudicatory Council, which overturned the dismissal on May 7, 2003. The appeal panel found Mr. Elgindy had engaged in market manipulation. He was fined $50,000, barred from any association with any NASD member, and had his brokerage Key West expelled from NASD membership.
In the third round, Mr. Elgindy appealed to the highest level of the SEC, which threw out the key manipulation charge and the related penalties. The dishonoured-bids charge was already effectively dead, as the NASD appeal panel made no findings. This leaves Mr. Elgindy with just the $1,000 fine for his incomplete press release, the regulatory equivalent of a jaywalking ticket.
Although Mr. Elgindy accepts his lumps on this minor offence, he defends his conduct with an explanation. He says he wrote similar press releases only twice before, on desert-dirt play International Precious Metals and another company, innocently neglected to mention his status as a market maker, submitted both in advance to the NASD regional office, never heard anything back, and assumed he had done no wrong.
Mr. Elgindy's vindication by the SEC is not the first time he has beaten the folks at NASDR, who do not often lose cases.
In a separate NASDR prosecution stemming from Saf T Lok, the regulator charged him with perjury for lying to investigators in an interview. The regulator claimed he gave a false answer when asked whether he had ever entered into an immunity agreement with any prosecution office. "Never," he replied. "Never. Never. No. Everything I've ever done was voluntary. I have no immunity from anybody for any reason," he added later. Based on this answer, the regulator sought to bar Mr. Elgindy from the industry.
In an April 2, 2002, decision, the hearing panel threw out this charge as the regulator failed to show by a preponderance of evidence that Mr. Elgindy knowingly provided false testimony. The panel was critical of NASDR's assistant chief counsel for imprecise questioning of Mr. Elgindy during the contentious interview, specifically by not explaining which of several types of immunity he was talking about, and by not posing follow-up questions to clarify the issue.
In the contentious interview, Mr. Elgindy confirmed he had worked with the U.S. Attorney's Office, the U.S. Department of Justice, the SEC, the FBI and the Internal Revenue Service on a stock bribery case, which resulted in 11 convictions over a three-year period and the shutdown of Armstong McKinley, a controversial brokerage.
Oddly enough, while NASDR's Web site posts countless disciplinary cases, including those which Mr. Elgindy lost before his recent vindication, the dismissal of his serious perjury charge is absent. Mr. Elgindy would like to see this previous victory posted too, not just his previous losses.

(c) Copyright 2004 Canjex Publishing Ltd. http://www.stockwatch.com