Famous shorter's crimes in detail (part1)
EOC:KMB
F. #2001R02074
ELGINDY.IND1
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA I N D I C T M E N T
- against - Cr. No.
(T. 15, U.S.C., §§
AMR I. ELGINDY, 78j(b) and 78ff;
also known as “Tony Elgindy” T. 18, U.S.C., §§
and “Anthony Pacific,” 371, 1503, 1951(a),
JEFFREY A. ROYER, 1962(d), 1963, 2 and
DERRICK W. CLEVELAND, 3551 et seq.)
TROY M. PETERS and
LYNN WINGATE,
Defendants.
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THE GRAND JURY CHARGES:
At all times relevant to this Indictment, unless
otherwise indicated:
INTRODUCTION
The Short Selling Scheme
1. The defendant AMR I. ELGINDY, also known as Tony
Elgindy and Anthony Pacific, was a trader and financial analyst
who “short sold” shares of stock of various companies whose
respective stock prices appeared to be vulnerable to the release
of negative news and selling pressure. Short sales involve
“borrowing” stock from another party and selling it, with an
agreement to return the stock to the other party at a later date,
thereby betting that the stock’s price will fall, allowing the
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borrower to buy the stock back later at a lower price and return
the stock to the lender. Thus, short sellers profit from
decreases in the price of a stock that they have sold short.
Conversely, short sellers lose money when the price of a stock
that they have sold short rises.
2. After the defendant AMR I. ELGINDY short sold the
stock of certain companies, ELGINDY and others engaged in various
manipulative activities designed to lower the price of such
stock, including spreading negative information about the
companies and encouraging others to short sell the stock in a
manner that would yield large profits to ELGINDY and others.
3. In order to maximize the adverse impact on the
prices of certain stocks that he short sold, and, therefore,
maximize his gain, the defendant AMR I. ELGINDY communicated with
other short sellers nationwide, including short sellers within
the Eastern District of New York, via the Internet. For this
purpose, ELGINDY founded a business named Pacific Equity
Investigations, based in San Diego, California, which operated a
public investment website, named InsideTruth.com, a subscription
e-mail newsletter and a subscription-based investment website,
named AnthonyPacific.com. ELGINDY has used these means of
communications to spread negative information and to advise
others to join him in short selling the stock of certain
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companies (hereinafter referred to collectively as “Targeted
Companies”).
4. The defendant AMR I. ELGINDY released information
and his short selling recommendations first to his paying
subscribers, and only later, and not in all cases, to the
investing public. ELGINDY initially communicated negative news
about the Targeted Companies and his short selling
recommendations to the subscribers of AnthonyPacific.com, who
paid him up to $600.00 per month, so that these subscribers would
have the opportunity to short sell stocks before the public
release of ELGINDY’s recommendations. ELGINDY next advised
subscribers of his e-mail newsletter, who paid up to $100.00 per
month. In some instances ELGINDY also published the negative
information and his recommendations on his public website
InsideTruth.com. Once the information was publicly available,
ELGINDY and his subscribers also posted it on various Internet
bulletin boards, chat rooms and on related websites, often
assuming fictitious identities to do so. The widespread
dissemination of this negative information had the intended goal
of exaggerating the downward pressure on the stock prices of
Targeted Companies.
5. The defendants DERRICK W. CLEVELAND and TROY
PETERS were short sellers who assisted the defendant AMR I.
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ELGINDY in the operation of Pacific Equity Investigations and its
newsletter and websites.
Market Manipulation
6. Often, after short selling the stock of a Targeted
Company, the defendants AMR I. ELGINDY, TROY PETERS and DERRICK
W. CLEVELAND, together with others, coordinated the release of
negative, and sometimes false, information with short selling in
a manner designed to exaggerate the negative market sentiment for
the stock. ELGINDY’s paid subscribers received the information
and recommendations first, so that they could position themselves
to profit if the broader market reacted to the exaggerated
negative market sentiment for the stocks. The subscribers,
including subscribers in the Eastern District of New York, passed
a portion of their profits back to ELGINDY in the form of
subscription fees.
7. The defendants AMR I. ELGINDY and TROY PETERS,
together with others, sometimes reported negative information
about the Targeted Companies to the U.S. Securities and Exchange
Commission (“SEC”) and the Federal Bureau of Investigation
(“FBI”) in order to initiate or hasten regulatory and law
enforcement action, which they knew would cause the stock prices
to fall sharply once such action became public.
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The FBI Tipper
8. The defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, together with others, traded on material, non-public
information that they obtained from the defendant JEFFREY A.
ROYER.
9. The defendant JEFFREY A. ROYER was an FBI Special
Agent from November 12, 1996 through December 21, 2001. From
March 7, 1997 through November 6, 2000, ROYER was assigned to the
FBI’s Field Office in Oklahoma City, Oklahoma. On November 6,
2000, ROYER was transferred to the FBI’s Resident Office in
Gallup, New Mexico.
10. While the defendant JEFFREY A. ROYER was assigned
in Oklahoma, in or about 1999, the defendant DERRICK W. CLEVELAND
began providing ROYER with information concerning individuals and
companies that CLEVELAND claimed were engaged in securities
fraud.
11. In late 1999, the defendant JEFFREY A. ROYER was
introduced by the defendant DERRICK W. CLEVELAND to the defendant
AMR I. ELGINDY. ELGINDY then began providing ROYER with negative
information concerning the companies that ELGINDY had short sold
or was considering short selling. Because ROYER was not assigned
to investigate securities fraud, ROYER referred some of ELGINDY’s
information to other FBI offices so that criminal investigations
would be initiated.
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12. Beginning in and around 2000, the defendants AMR
I. ELGINDY and DERRICK W. CLEVELAND corruptly induced the
defendant JEFFREY A. ROYER to provide them with confidential law
enforcement information concerning companies that ELGINDY,
CLEVELAND and ELGINDY’s subscribers had short sold or were
considering short selling. ROYER obtained the information that
he provided to ELGINDY, CLEVELAND and others from the FBI’s
National Crime Information Center database (“NCIC”), which
contained confidential criminal history information, and the
FBI’s Automated Case Support database (“ACS”), which contained
confidential criminal investigation information. Access to these
confidential databases is strictly limited to law enforcement
personnel for law enforcement purposes.
13. As part of the corrupt inducement to the defendant
JEFFREY A. ROYER, the defendant DERRICK W. CLEVELAND wired funds
to ROYER, while ROYER was an FBI Special Agent, in the following
amounts on the following dates: (1) $8,500 on November 28, 2000;
(2) $5,000 on January 30, 2001; (3) $9,925 on May 22, 2001; and
(4) $7,000 on May 31, 2001. These payments were not reported to
the FBI.
14. The defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, together with others, used the confidential law
enforcement information that they obtained from the defendant
JEFFREY A. ROYER in order to make decisions whether to buy, hold
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or sell the stocks of the companies to which the information was
relevant.
15. After short selling the stocks of such Targeted
Companies, the defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, and others, also disseminated confidential law
enforcement information to other short sellers, in the Eastern
District of New York and elsewhere, via the Internet, as
described above, in order to encourage them to short sell the
stock as well. As described above, ELGINDY’s paid subscribers
received the information and recommendations first so that they
could position themselves to profit if the market reacted to the
public release of the information.
Extortion
16. As a result of the above, the defendant AMR I.
ELGINDY, cultivated the perception that he had the ability to
devastate a Targeted Company’s stock price. ELGINDY, together
with the defendants TROY PETERS and DERRICK W. CLEVELAND, and
others, used that perception to extort cheap or free shares of
stock from the insiders of Targeted Companies in exchange for
agreeing no longer to short sell the companies’ stock or spread
negative information about the companies.
17. The defendants AMR I. ELGINDY and TROY PETERS,
together with others, used the confidential law enforcement
information obtained from the defendant JEFFREY A. ROYER to
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assess whether the Targeted Companies were susceptible to
extortion, based upon the premise that companies that are in
peril of regulatory or criminal investigation would be
disinclined to complain to law enforcement about such
extortionate demands. Sometimes extortionate demands were
coupled with threats to report a company’s activities to the SEC
or FBI.
18. Once the extortionate demands of the defendants
AMR I. ELGINDY and TROY PETERS were satisfied, ELGINDY then
communicated to his subscribers, in the Eastern District of New
York and elsewhere, via the Internet, as described above, that
they should stop short selling, cover their short positions by
buying stock and refrain from further dissemination of negative
information regarding the targeted company.
Obstruction of Justice
19. On or about September 18, 2001, the U.S.
Department of Justice, Criminal Division set up a Capital Markets
Unit within a Task Force to investigate certain financial and
other criminal offenses.
20. On or about October 25, 2001, the United States
Attorney's Office for the Eastern District of New York initiated
a grand jury investigation (“the EDNY Grand Jury Investigation”)
to investigate whether the defendant AMR I. ELGINDY and others,
had engaged in certain financial and other criminal offenses.
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21. Beginning in or about October 2001, the defendant
JEFFREY A. ROYER regularly accessed ACS to glean detailed
information concerning the EDNY Grand Jury Investigation. ROYER
then advised ELGINDY and the defendant DERRICK W. CLEVELAND of
the direction of the EDNY Grand Jury Investigation and that
ELGINDY was a target. All the while, the defendant JEFFREY A.
ROYER continued to provide confidential law enforcement
information to the defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, and others, in order to guide their buying and selling
of the stocks of Targeted Companies or companies being
considering for targeting, and to assist in their assessment of
the susceptibility of these companies to extortion.
22. In connection with the above described trading,
the defendant AMR I. ELGINDY gave the defendant JEFFREY A. ROYER
authority to execute trades in at least one account held in the
name of ELGINDY.
The FBI Tipper Becomes a Tippee
23. On or about December 21, 2001, the defendant
JEFFREY A. ROYER resigned from the FBI and immediately took a job
with the defendant AMR I. ELGINDY at Pacific Equity
Investigations, where ROYER and ELGINDY worked together with the
defendant DERRICK W. CLEVELAND.
24. While employed at Pacific Equity Investigations,
the defendant JEFFREY A. ROYER obtained additional confidential
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law enforcement information and provided it to the defendants AMR
I. ELGINDY and DERRICK W. CLEVELAND to guide them in buying and
selling the stocks of Targeted Companies or companies being
considered for targeting.
25. The defendant JEFFREY A. ROYER also actively
sought new confidential law enforcement information from law
enforcement personnel with access to NCIC and ACS, which he then
provided to the defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, and others, and which they all collectively used to
make decisions whether to buy or sell the stocks of the companies
to which the information was relevant.
26. In or about and between March 2002 and April 2002,
the defendant LYNN WINGATE, an FBI Special Agent assigned to the
Albuquerque, New Mexico Field Office, gathered confidential law
enforcement information from ACS regarding criminal
investigations of public companies and associated individuals.
WINGATE then communicated this information to ROYER so that
ROYER, together with the defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, and others, could collectively make decisions whether
to buy, hold or sell the stocks of companies to which the
information was relevant.
27. Moreover, in or about and between March 2002 and
April 2002, the defendant LYNN WINGATE accessed ACS and collected
confidential law enforcement and grand jury information,
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including a description of subpoenaed documents, concerning the
EDNY Grand Jury Investigation of ROYER and AMR I. ELGINDY.
Shortly thereafter, WINGATE communicated that information to
ROYER, who then a short time later informed ELGINDY and the
defendant DERRICK W. CLEVELAND. The defendant LYNN WINGATE also
searched ACS for references to her own name to determine whether
she herself was a subject or target of the EDNY Grand Jury
Investigation.
28. Earlier this year, the defendant JEFFREY A. ROYER
attempted, unsuccessfully, to persuade another FBI Special Agent
to access ACS for confidential law enforcement information
regarding a company whose stock ROYER and ELGINDY had sold short.
THE ENTERPRISE
29. Between approximately November 2000 and May 2002,
both dates being approximate and inclusive, the defendants AMR I.
ELGINDY, JEFFREY A. ROYER, DERRICK W. CLEVELAND, TROY M. PETERS
and LYNN WINGATE, together with Pacific Equity Investigations and
certain subscribers to AnthonyPacific.com and others, were
members and associates of an enterprise as defined in Title 18,
United States Code, Section 1961(4), that is, a group of
individuals associated in fact (hereafter, the “Enterprise”).
The Enterprise operated in the Eastern District of New York and
elsewhere in the United States as well as abroad. The Enterprise
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engaged in, and its activities affected, interstate and foreign
commerce.
30. The chief purpose of the Enterprise was to obtain
money for its members and associates by trading on material, nonpublic
information that had been misappropriated from law
enforcement databases, by manipulating the market to deflate
artificially the price of stocks that they had been short sold,
and by extorting free shares of stock from company insiders.
31. Among the means and methods by which the
defendants AMR I. ELGINDY, JEFFREY A. ROYER, DERRICK W.
CLEVELAND, TROY M. PETERS and LYNN WINGATE, and other members and
associates, conducted and participated in the conduct of the
affairs of the Enterprise were various criminal activities,
including conspiracy to commit securities fraud, extortion and
obstruction of justice.
32. The Enterprise was led by the defendant AMR I.
ELGINDY who owned and, together with the defendant DERRICK W.
CLEVELAND, operated Pacific Equity Investigations, and its public
investment website, named InsideTruth.com, its subscription email
newsletter and its subscription-based investment website,
named AnthonyPacific.com. The defendants JEFFREY A. ROYER and
LYNN WINGATE were Federal Bureau of Investigation (“FBI”) Special
Agents who, at various times, accessed FBI databases to gain
information for use in making trading decisions, and obstructed
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the investigation of the Enterprise. ROYER was a member of the
Enterprise, while WINGATE was an associate. The defendant TROY
M. PETERS was a colleague of ELGINDY’s who assisted ELGINDY in
manipulating stock prices and extorting stock from Targeted
Companies. The Enterprise constituted an ongoing organization
whose members functioned as a continuing unit for a common
purpose of achieving the objectives of the enterprise.
COUNT ONE
(Racketeering Conspiracy)
33. The allegations contained in paragraphs 1 through
32 are realleged and incorporated as if fully set forth herein.
34. In or about and between November 2000 and May
2002, both dates being approximate and inclusive, within the
Eastern District of New York and elsewhere, the defendants AMR I.
ELGINDY, also known as “Tony Elgindy” and “Anthony Pacific,”
JEFFREY A. ROYER, DERRICK W. CLEVELAND, TROY M. PETERS and LYNN
WINGATE, togther with others, being persons employed by and
associated with an enterprise as defined in Title 18, United
States Code, Section 1961(4), that is, a group of individuals
associated in fact (hereafter, the “Enterprise”), knowingly and
intentionally conspired to violate Title 18, United States Code,
Section 1962(c), that is, to conduct and participate, directly
and indirectly, in the conduct of the affairs of the Enterprise,
which engaged in, and the activities of which affected,
interstate and foreign commerce, through a pattern of
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racketeering activity as defined in Title 18, United States Code,
Sections 1961(1) and 1961(5). Each defendant agreed that at
least two acts of racketeering would be committed in the conduct
of the affairs of the Enterprise as set forth in the pattern of
racketeering described below.
PATTERN OF RACKETEERING ACTIVITY
Racketeering Act One
(Securities Fraud Conspiracy)
35. The defendants AMR I. ELGINDY, JEFFREY A. ROYER,
DERRICK W. CLEVELAND, TROY M. PETERS and LYNN WINGATE committed
the following acts involving securities fraud, any one of which
alone constitutes the commission of Racketeering Act One.
A. Securities Fraud Conspiracy - Insider Trading
36. The allegations contained in paragraphs 1 through
32 are realleged and incorporated as if fully set forth herein.
37. In or about and between November 2000 and May
2002, both dates being approximate and inclusive, the defendants
AMR I. ELGINDY, also known as “Tony Elgindy” and “Anthony
Pacific,” JEFFREY A. ROYER, DERRICK W. CLEVELAND, TROY M. PETERS
and LYNN WINGATE, together with others, did knowingly and
willfully conspire to use and employ manipulative and deceptive
devices and contrivances directly and indirectly, by use of means
and instrumentalities of interstate commerce and the mails, in
contravention of Rule 10b-5 of the Rules and Regulations of the
United States Securities and Exchange Commission (Title 17, Code
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of Federal Regulations, Section 240.10b-5), and directly and
indirectly to (a) employ devices, schemes and artifices to
defraud; (b) make untrue statements of material facts and omit to
state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made,
not misleading; and (c) engage in acts, practices and a course of
business which would and did operate as a fraud and deceit upon
members of the investing public, in connection with purchases and
sales of securities, in violation of Title 15, United States
Code, Sections 78j(b) and 78ff, all in violation of Title 18,
United States Code, Section 371.
38. It was a part of the conspiracy that between
November 2000 to May 2002, both dates being approximate and
inclusive, the defendants AMR I. ELGINDY and DERRICK W.
CLEVELAND, solicited, obtained and received from the defendant
JEFFREY A. ROYER, and, later, ELGINDY, CLEVELAND and ROYER,
solicited, obtained and received from the defendant LYNN WINGATE,
material, non-public information concerning Targeted Companies,
to wit: confidential law enforcement information from the FBI’s
National Crime Information Center database (“NCIC”), which
contained confidential criminal history information, and the
FBI’s Automated Case Support database (“ACS”), which contained
confidential criminal investigation information, which
information had been unlawfully misappropriated from the Federal
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Bureau of Investigation by ROYER and WINGATE in violation of
their fiduciary and other duties of trust and confidence, and
which information was obtained and received before the
information was publicly disclosed to the investing public.
39. It was a further part of the conspiracy that, in
or about and between November 2000 and May 2002, both dates being
approximate and inclusive, after obtaining and receiving this
material, non-public information about the Targeted Companies,
but prior to the information being publicly disclosed to the
investing public, the defendants AMR I. ELGINDY, DERRICK W.
CLEVELAND and JEFFREY A. ROYER, together with others, short sold
stock of the Targeted Companies through brokerage accounts at
Global Securities in Vancouver, British Columbia, Canada
(“Global”) and elsewhere.
40. It was further part of the conspiracy that, after
short selling the stocks of such Targeted Companies, the
defendants AMR I. ELGINDY and DERRICK W. CLEVELAND, and others,
then began to spread the confidential law enforcement information
to other short sellers, via the Internet, as described above, in
order to encourage them to short sell the stock as well.
ELGINDY’s paid subscribers received the information and
recommendations first, so that they could position themselves to
profit if the market reacted to the public release of the
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information. The subscribers passed a portion of their profits
back to ELGINDY in the form of subscription fees.
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