old but great info:
siliconinvestor.advfn.com/readmsg.aspx?msgid=22229857 To: Jeffrey S. Mitchell who wrote (93923)
3/4/2006 8:26:41 PM
From: Lee Webb
Read Replies (3) of 102510
Jeffrey:
The 117-page defence sentencing memorandum was the subject of a Jan. 27 Stockwatch article.
Lee
TSX-V's Global client Elgindy asks for leniency (cont.)
2006-01-27 11:56 ET - Street Wire
Also Street Wire (C-*BCSC) BC Securities Commission
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
Amr (Anthony) Elgindy, a notorious short seller and self-proclaimed scam buster who conducted many of his trades through Art Smolensky's Vancouver-based Global Securities Corp., says his 11-count conviction for racketeering, securities fraud and extortion should only bring a four-year prison term at most.
Stockwatch reviewed some of the background and the Canadian connections to the case in an article published yesterday.
Mr. Elgindy was arrested in May of 2002 and convicted on 11 counts of a 32-count indictment last January following a lengthy jury trial that kicked off on Nov. 1, 2004. Mr. Elgindy's sentencing is scheduled for March 6.
Six other defendants, most of whom pled guilty, have also been convicted in the case.
Jeffrey Royer, a former FBI agent who passed confidential law enforcement information on to the short seller, was tried along with Mr. Elgindy and convicted on nine of 15 counts including racketeering conspiracy, securities fraud and obstruction of justice.
Derrick Cleveland, a former broker and ex-convict who served time for drug trafficking, copped an early plea to racketeering and testified against co-accused Mr. Elgindy and Mr. Royer.
Robert Hansen, who operated a website for Mr. Elgindy, and trader Donald Kent Terrell both pled guilty to conspiracy to commit securities fraud and co-operated with the government.
Hedge fund manager Jonathan Daws also pled guilty to conspiracy to commit securities fraud.
Mr. Royer's girlfriend and former FBI agent Lynn Wingate pled guilty to obstruction of justice.
Mr. Elgindy, the central figure in the case, will also be sentenced on a separate conviction relating to his April 17, 2004, attempt to board an airplane using fake identification while on pretrial release. The government claimed that he was attempting to flee before the trial.
A contentious presentence report (PSR), which is not available as part of the public record, suggests that Mr. Elgindy should receive a life sentence. The government also wants Mr. Elgindy to forfeit a whopping $11.8-million. (All amounts are in U.S. dollars.)
According to Mr. Elgindy's lawyer Brian H. Berke of Kramer Levin Naftalis & Frankel, the PSR recommendation of a life sentence is "unfathomably severe," an "outrage," "off the chart" and "based on a number of glaring and fundamental legal and factual errors."
Mr. Berke says that a full consideration of all the factors in the case counsels in favour of a much shorter prison term than the life sentence recommended by the PSR.
According to Mr. Berke, factors that should be considered include the true nature and circumstances of the proven offences, Mr. Elgindy's humanitarian works and good deeds, his struggles with manic-depressive disorder and, among other things, a long, if complicated, record of co-operation with law enforcement agencies.
In a 117-page sentencing memorandum filed on Dec. 23, 2005, Mr. Berke urges the court to sentence Mr. Elgindy to a total of no more than 43 months in prison.
Out of whack
According to Mr. Berke, the case against Mr. Elgindy is "significantly less dramatic" than suggested by the prosecution.
In the end, he says, the proven charges against his client boil down "to an insider trading case involving confidential law enforcement information and the use of the Internet, a financial extortion of approximately $130,000 and a few add-on charges of defrauding site members (none of whom complained or lost any money) .... all packaged together under the label of 'racketeering.'"
"Yet astoundingly, shockingly, the Presentence Report -- adopting whole-hog (and even going beyond) the government's sweeping and all-inclusive pre-verdict view of its case against Mr. Elgindy -- calculates Mr. Elgindy's advisory Guidelines at a total offense level of 45, which is literally 'off the chart' and calls for a sentence of life imprisonment," Mr. Berke claims.
According to Mr. Berke, a search for recent defendants sentenced to life "leads to such notorious crimes as the 1993 bombings of the World Trade Centers, the 1996 Olympic Park bombing, the Oklahoma City bombing, incitement of terrorism and violence against the United States, murder and organized crime, and espionage."
"Having been placed in the same league as convicted terrorists, traitors and murderers, Mr. Elgindy is justifiably frustrated and angry and cannot help but feel that he is being singled out for unusually, even unconscionably, harsh treatment," Mr. Berke remarks.
"We recognize that of course every defendant and every case is different," the lawyer continues. "Our point is that the prosecution of Mr. Elgindy has gotten, to put it colloquially, completely out of whack."
In his sentencing memorandum, Mr. Berke sets out to offer "a very different picture of the offense conduct than the one painted by the PSR" and attempts to place that conduct "in a fuller context, highlighting some of Mr. Elgindy's broader life accomplishments (and struggles) before his arrest on May 22, 2002."
The good son
Mr. Elgindy, now 38 years old, was born in Cairo, Egypt, in 1967 and moved to the U.S. with his parents and younger brother, Khaled Elgindy, in 1970. His parents became naturalized U.S. citizens in 1976, which conferred citizenship upon their two Egyptian-born children. Two other Elgindy children were subsequently born in the U.S.
After the family settled in Chicago, Ill., Mr. Elgindy's father worked as a draftsman while completing a PhD in engineering and his mother, who already had a medical degree from the University of Cairo, studied to become a licensed physician.
"Mr. Elgindy and his siblings grew up quickly because both parents were busy working and studying most hours of each day," Mr. Berke recounts. "As the oldest, he took the brunt of a strict disciplinarian upbringing."
Young Mr. Elgindy attended public schools, wrestled and played football in high school while taking honours and advanced placement classes and was awarded a certificate naming him an Illinois State Scholar.
According to his mother, Mr. Elgindy was "a very intelligent and creative child" and "was always motivated and very handy." She also described him as "very emotional and sensitive."
Mr. Elgindy graduated from high school in June of 1985, with no disciplinary history at school or any record of trouble outside of school.
"But all was not well with Mr. Elgindy's psyche," Mr. Berke says. "Anthony Elgindy has suffered from depression on and off since he was a teenager. As the PSR reflects, he had a physically abusive father.
"The summer after graduating from high school, in what Mr. Elgindy describes as a cry for help, he attempted to overdose on Valium, and flushed additional pills down the toilet to make it look like he had ingested more than he did.
"He was treated at Hinsdale Hospital for two weeks and after release, he and his parents attended counseling."
The good salesman
After his troubled summer of 1985, Mr. Elgindy entered the University of Southern California, majoring in bioengineering for three semesters before enrolling at San Diego State University and changing his major to microbiology in January of 1987.
While taking classes during the summer of 1987, Mr. Elgindy took a job as a car salesman to earn some extra cash.
"His love for cars made him a natural at selling cars," Mr. Berke says, adding that Mr. Elgindy became the top salesman at San Diego's largest Corvette dealership.
Mr. Elgindy soon turned his selling talent in another direction. Leaving his education and car sales behind, he became a stockbroker.
In June of 1988, Mr. Elgindy attended a seminar for potential stockbroker trainees hosted by Blinder Robinson. Mr. Elgindy scored well on the "aptitude" test and was offered a job a couple of weeks later.
Apparently unknown to Mr. Elgindy, Blinder Robinson was a notorious boiler room.
Ironically, when Mr. Elgindy was sent to Blinder Robinson's "national training center in Colorado," CBS crews were in the process of filming a segment about the firm for 60 Minutes.
"Everybody was told the story would be great for Blinder since Ed Bradley was doing the piece and he only does 'positive stuff,'" Mr. Berke remarks.
When the story aired later that year, Blinder Robinson told all its brokers and employees to watch the program.
"Each office manager bought pizza and beer for the brokers and clients that Sunday evening so they all could watch the show together," Mr. Berke says.
Alas, evidently even Mr. Bradley could not turn a story about Blinder Robinson into a puff piece.
"The 60 Minutes story was devastating; Blinder Robinson was exposed as a shameless penny stock pusher, and the phones rang incessantly as clients all over the country tried to sell and close their accounts that same night," says Mr. Elgindy's lawyer.
With the ink barely dry on his broker's registration, Mr. Elgindy "was able to keep all his clients and go to another firm" in the wake of the Blinder Robinson implosion. He spent less than three months at JW Grant & Associates before moving on to Thomas James Associates in the spring of 1989.
According to Mr. Berke, a few of the stocks Mr. Elgindy sold to his clients "went up and he thrived."
"He rose to be one of the top producers at Thomas James and was sent to various offices nationwide to teach others how to sell stocks and build a clientele," Mr. Berke writes.
In January of 1992, Mr. Elgindy made another move, joining what turned out to be another bucket shop run by Russell Armstrong, Armstrong McKinley & Associates, as a co-owner.
"By December of 1992, Mr. Elgindy and Russell Armstrong had a falling out over Armstrong's business practices in the San Diego office," Mr. Berke says. "Mr. Elgindy took over the business and tried to continue it but concerns about Armstrong McKinley's practices in San Diego overwhelmed him and he suffered an emotional breakdown.
"He decided to shut down all operations of Armstrong McKinley in June of 1993.
"He then checked himself into Charter Hospital in Grapevine, Texas. There he was first diagnosed with and began outpatient treatment for bipolar disorder and severe depression."
According to Mr. Berke, Mr. Elgindy was disabled by his condition from June of 1993 until January of 1995 and received disability insurance payments from Mass Mutual Insurance Company.
"While receiving disability payments, Mr. Elgindy worked at Bear Stearns for two months in 1994 and worked for Barron Chase for approximately five months in 1994-1995," Mr. Berke reports. "He received compensation from Bear Stearns and Barron Chase, but did not inform Mass Mutual."
He settled a civil claim by Mass Mutual for the disability payments he received while employed by the two brokerage firms, but in 1999 he was indicted for insurance fraud in Texas.
In 2000, Mr. Elgindy pled guilty to mail fraud involving approximately $55,000 in fraudulently received disability payments and was sentenced to four months in prison, four months home detention and three years of supervised release.
The good short
Long before his career was temporarily interrupted by his four-month prison term, Mr. Elgindy evolved "from a long to a short."
"In 1995, Mr. Elgindy started Key West Securities, an NASD firm that he created specifically to expose fraudulent and corrupt companies and short them along with other overvalued stocks," Mr. Berke says. "Before long, he began making $75,000 to $100,000 per month in trading profits, and Key West's presence became known on Wall Street."
According to Mr. Berke, Mr. Elgindy decided to become a private researcher and trader and closed down Key West to start Pacific Equity Investigations in 1998.
"Pacific Equity was formed to investigate 'scam' or fraudulent companies for the purpose of determining good short selling opportunities," the lawyer says.
At the same time, Mr. Elgindy started a thread titled "Dear Anthony" on a popular Internet stock chat site called Silicon Investor.
"The thread became extremely popular and Mr. Elgindy developed a strong following on the Internet based on his colorful humor, his ability to identify scam and otherwise overvalued companies, and his successful trading techniques," Mr. Berke writes.
Mr. Berke goes on to note that the U.S. Securities and Exchange Commission (SEC) also followed the Silicon Investor thread "because Mr. Elgindy often provided leads on companies that might be engaged in fraudulent activities."
In 1999, Mr. Elgindy opened his own subscription-based website geared to identifying overvalued stocks, AnthonyPacific.com. He later added a free public site, InsideTruth.com.
Approximately 300 subscribers anted up $400 per month to access AnthonyPacific.com.
While not mentioned by Mr. Berke in his sentencing memorandum, Mr. Elgindy's "successful trading techniques" and paying followers allowed the short seller to indulge his passion for cars, including owning a snappy red Ferrari bearing the California vanity plate "0 BID."
Interestingly, as part of his effort to emulate his short-selling idol Mr. Elgindy before flipping on him after the indictments, Mr. Cleveland bought his own Oklahoma vanity plate "ZERO BID" and operated brokerage accounts in the name of Brezido, an anagram for "zero bid."
At trial, the government characterized AnthonyPacific.com as a "virtual den of thieves" led by Mr. Elgindy, who used confidential law enforcement information obtained from a corrupt FBI agent, Mr. Royer, as part of his fraudulent short selling activities.
Mr. Berke takes strong issue with that characterization, arguing that, "at a minimum, 95.24 per cent of the stock tips given out on the site were based on information that the government has not even claimed was 'tainted' by any unlawful 'insider information.'"
"The evidence shows that the site was predominantly (indeed overwhelmingly) a legitimate site with legitimate members seeking and receiving legitimate, lawfully-obtained information about stocks in an entertaining environment," Mr. Berke says.
The good citizen
As Mr. Elgindy evolved from a long to a short and gained some media attention as the head of Key West Securities, he was also providing "significant co-operation" to the U.S. Attorney's Office in San Diego and the SEC.
For example, Mr. Elgindy helped the government with "its investigation of the payment of bribes to stockbrokers by Melvin Lloyd Richards and others at the Armstrong McKinley brokerage firm, where Mr. Elgindy had been co-owner."
Mr. Elgindy, who acknowledged that he "received compensation for pushing a stock called ALCO" to his clients, signed a co-operation agreement with the government and flipped on Mr. Richards.
"Although it did not come out at trial, Mr. Elgindy's co-operation against Mr. Richards and others at Armstrong McKinley allowed the government to bring major high-profile criminal cases against a number of notorious stock swindlers," Mr. Berke says.
At around the same time, Mr. Elgindy helped out with "the SEC's investigation of a man named Michael Zaman and a stock called Conectisys."
Mr. Elgindy "testified in federal district court as an 'extremely helpful' witness on behalf of the SEC and against Mr. Zaman and a former Assistant U.S. Attorney, resulting in findings that both had committed securities fraud."
He also provided assistance to the SEC in its investigation of Quigley Corp., which marketed Cold-Eez, and a trader named Jerry Rosen in 1997 and 1998.
"As established at trial, Mr. Elgindy's co-operation with respect to Quigley Corp. included reaching out to and providing information to the government and later flying to New York to provide testimony on behalf of the NASD in a proceeding against Mr. Rosen and a firm called J. Alexander Securities," Mr. Berke says.
According to Mr. Berke, in 1999, Mr. Elgindy also provided "useful information on E-Connect that led to SEC action."
Drawing on letters of support for Mr. Elgindy, Mr. Berke also suggests that his client performed something of a public service as a market watchdog, educating investors and steering them away from scams.
Bob Zumbrunnen, managing partner and majority shareholder of Silicon Investor, submitted some of his thoughts on Mr. Elgindy.
"Tony taught a lot of people the valuable trait of skepticism when investing," Mr. Zumbrunnen wrote. "I believe very strongly that were it not for his presence on Silicon Investor, far more people would have been fleeced by crooked companies.
"I just as strongly believe that there are countless thousands of people getting fleeced right now simply because Tony's voice isn't there to be heard shouting, 'This is not a good investment' in his often colorful way."
Janice Shell, an Internet sleuth with a reputation for sniffing out scams, offered a similar assessment.
"The Tony Elgindy I know helped expose a great many scams," Ms. Shell wrote. "While his activities in this line may have hurt some individual shareholders, in the long run they were of help to the financial markets and to the investing public in general."
Several members of AnthonyPacific.com also chimed in with support.
"Tony Elgindy from my perspective was a good man whose goal was to teach people how to avoid the dishonesty and corruption that is rampant on Wall Street," site member Sean Maddox wrote. "The irony is that those who stole millions from so many are still prospering and walking free."
Chuck Norris, another AnthonyPacific.com member described Mr. Elgindy as "a hardcore assist to us average Joes out here in America."
"In an investing world where the worst imaginable advice is shamelessly promoted and devotedly followed by far too many people, there are simply not enough people like Mr. Elgindy to show what is really going on in the stock market," site member Kevin Podsiadlik wrote.
Evidently Mr. Elgindy believed that he was doing a great deal of good, too.
"I honestly have done everything in my power to be a good person and to help not only the community but my country and the government on almost a daily basis," Mr. Elgindy wrote to his parole officer on April 14, 2002, just over a month before he was arrested.
The good Samaritan
Quite apart from Mr. Elgindy's assistance to the government in investigating and prosecuting stock swindlers and his role as an independent market watchdog, Mr. Berke urges the court to consider his client's other good works.
"Anthony Elgindy has made remarkable and unusual humanitarian efforts in traveling to the war-torn country of Kosovo in 1999, rescuing numerous Kosovo refugees, bringing them to the United States, and financially and emotionally supporting them," Mr. Berke says.
The lawyer notes that Mr. Elgindy's "successful efforts to save and support Kosovar refugees were chronicled in major newspapers and television news stories" and his "efforts were so significant that he and some of the refugees he brought home with him were invited to testify before Congress regarding the situation in Kosovo."
After returning to the U.S., Mr. Elgindy sponsored another 28 Kosovo refugees and their families, among them the family of Hasan Hoti.
"Mr. Elgindy had the Hoti family stay at his home while he went out and rented them an apartment in San Diego; he thereafter paid for their furniture, food and clothing, purchased them a car, and assisted them in learning English and finding work," Mr. Berke writes.
"These extraordinarily caring and generous acts of Mr. Elgindy were not limited to his work with Kosovar refugees," Mr. Berke says. "As the many letters from friends and family attest, Mr. Elgindy has always been ready to lend a helping hand to his friends and family and others in need.
"He has provided financial and emotional support and guidance to countless people, without asking for anything in return."
The 9/11 stigma
Deeper into his sentencing memorandum, Mr. Berke addresses some of Mr. Elgindy's struggles, including his battle with bipolar disorder, something that was exacerbated by the stress of being linked to the terrorist attacks of Sept. 11, 2001.
As previously reported by Stockwatch, at Mr. Elgindy's bail hearing following his arrest in May of 2002, prosecutor Ken Breen made the stunning allegation that he might have had foreknowledge of the terrorist attacks and attempted to profit from that information.
No charges were ever brought in connection with Mr. Breen's claims, but according to Mr. Berke, the stress of those accusations and the pending criminal case sent Mr. Elgindy into a deep depression.
"At this time, Mr. Elgindy was living every day with the tremendous stress he felt because of the government's efforts to bring September 11th into this trial," Mr. Berke says. "Being an Egyptian-born United States citizen in New York added to his fear of being linked to the worst mass murder in United States history.
"He was bombarded with accusations of terrorism and profiteering.
"He began drinking alcohol heavily, which in combination with his medications, only exaggerated the ups and downs of his disease."
According to Mr. Berke, Mr. Elgindy attempted to commit suicide during his pretrial incarceration.
The 9/11 stigma also seriously affected Mr. Elgindy's family, including his children, who were "teased and taunted at school," asked "if their dad was a terrorist" and "otherwise harassed and threatened."
Among other things, Mr. Elgindy's brother, Khaled Elgindy, says that his career in Washington politics working for a member of Congress came to an end because of those allegations, which "took on a life of their own."
"The fact that these allegations were never even charged, much less proven, did not in any way diminish our pain or mitigate the damage done to our family's reputation and careers," Khaled Elgindy wrote.
In addition to the 9/11 stigma, Mr. Berke says that the unusually long duration of the case has already been extremely punishing for Mr. Elgindy, physically, emotionally and psychologically.
According to Mr. Berke, the lengthy investigation and trial have also financially ruined Mr. Elgindy, completely wiping out the family's savings and forcing his wife and children to move out of their home, which is in foreclosure.
A day in the life
Turning to a discussion of the offences, Mr. Berke points the finger at the prosecution's key witness Mr. Cleveland as "the mastermind" behind the scheme to trade on confidential law enforcement information obtained from Mr. Royer.
According to Mr. Berke, Mr. Cleveland and Mr. Royer hatched the plot early in 2000. The lawyer says that Mr. Cleveland then began ingratiating himself with co-accused hedge fund manager Mr. Daws, "one of the heavy hitters" at AnthonyPacific.com, and began passing law enforcement information on to him.
When Mr. Elgindy was released from prison in October of 2000 after serving time for mail fraud, Mr. Cleveland attempted to recruit him into his scheme "by sending him meticulously fabricated law enforcement documents regarding the company Seaview (SEVU) with the forged signature of Agent Royer on them."
Mr. Berke says that even after Mr. Elgindy got out of prison, Mr. Royer "remained Cleveland's contact."
"It was Mr. Cleveland who ran the show, deciding what companies and individuals Agent Royer would search and what law enforcement information would be passed on and to whom," Mr. Berke claims.
"A 'day in the life of Derrick and Jeff,' as Mr. Cleveland put it, was Cleveland choosing a stock being researched and discussed on AnthonyPacific.com (usually a stock that had already been declared a scam), providing Agent Royer with the names of the company and the directors and officers for Agent Royer to search, receiving information about any investigations into the companies or individuals, and deciding whether to keep the information for himself or give it to others," says Mr. Berke.
"In short, Mr. Cleveland was the originator and organizer of the scheme and was manipulating everyone to achieve his goals," the lawyer says.
"Mr. Cleveland used Mr. Elgindy and others in an insider trading scheme that he devised in early 2000 and ran until his arrest in May, 2002," Mr. Berke claims.
Give and take
Mr. Berke begins his discussion of Mr. Elgindy's insider trading convictions by noting that his client gave information on fraudulent companies to law enforcement agencies for years before he met Mr. Royer.
"The trial was filled with the undisputed testimony of SEC attorneys and FBI agents who admitted -- albeit at times unwillingly -- that Mr. Elgindy's information had assisted them in starting and continuing investigations and, at times, taking action against a fraudulent company or individual," the lawyer says.
According to Mr. Berke, the vast majority of information AnthonyPacific.com members obtained and passed on to law enforcement agencies "derived from a lot of hard work" thoroughly researching companies and "only a tiny percentage of the information Mr. Elgindy had about a given stock was law enforcement information."
"Mr. Elgindy saw the information he received from Agent Royer as validation and as a reward for the help he provided to the SEC, FBI and other law enforcement," Mr. Berke says.
"The jury, of course, apparently found that information misappropriated by Agent Royer informed some of Mr. Elgindy's trades in relation to four stocks, OSIN (Optimum Source International Inc.), PLMD (PolyMedica Corp.), JUNM (Junum Inc.) and SEVU (SeaView Video Technology Inc.)," Mr. Berke acknowledges.
"Even with regard to these stocks, much of the information that the government tried to link to the Royer-Cleveland-Elgindy pipeline was shown at trial to already have been in the public domain and already discovered by Mr. Elgindy and his site members before Royer accessed it," the lawyer says.
Too much take
Moving on to Mr. Elgindy's extortion conviction in connection with Nuclear Solutions Inc. (NSOL), Mr. Berke first notes that his client was acquitted on a second extortion charge involving Floor Decor Inc. (FLOR) and its chief executive officer A. J. Nassar.
"Mr. Elgindy was disseminating truthful, negative information about FLOR and Nassar and shorting the stock and Nassar did not like it because he felt it was hurting his ability to raise capital," Mr. Berke states. "Nassar decided to buy out the shorts and contacted his friend David Slavney to help him."
The lawyer says that Mr. Slavney turned to stock promoter Troy Peters, also charged in the case, who worked out a deal to have Mr. Nassar provide shares to buy out the short position of Mr. Elgindy and other site members so that they would stop reporting about the company.
The deal was executed without Mr. Elgindy ever speaking to Mr. Nassar and the jury found that it did not constitute extortion.
According to Mr. Berke, the circumstances involving Nuclear Solutions were very similar to what happened with Floor Decor.
"Mr. Elgindy first determined that NSOL was a scam company and that its CEO Paul Brown was a fraudster who lied about his education and about the technological capabilities of himself and the company," Mr. Berke says.
Mr. Elgindy shorted the stock "and discussed the fraudulent nature of the company and its CEO on his private site and on Silicon Investor."
"This truthful exposure of NSOL's technological shortfalls and not-to-be-trusted CEO caused Paul Brown to become concerned that his company's stock would lose value and prompted him to search for a way to stop Mr. Elgindy," says Mr. Berke.
That search led Mr. Brown to Mr. Slavney and Mr. Peters and a suggestion of offering Mr. Elgindy a block of stock to cover his short position and discontinue his coverage of the company.
Mr. Berke says that Mr. Peters negotiated a deal in which Mr. Brown sold Mr. Elgindy 325,000 shares of Nuclear Solutions at $1 per share, a 40-cent discount to the market price.
"While the jury found that Mr. Elgindy's actions amounted to extortion with respect to NSOL, at most the dollar amount attributable to the offense is $130,000 (325,000 shares multiplied by the 40-cent discount to the market price)," Mr. Berke states.
Gotcha
Mr. Berke only briefly addresses "the three counts of convictions involving alleged so-called frontrunning and trading against advice," claiming they "should have no impact whatsoever on the Court's determination of an appropriate punishment."
"As Your Honor is aware, the jury largely rejected the government's theories in these respects, acquitting Mr. Elgindy on 13 of the 16 separate counts charging frontrunning and trading against advice," Mr. Berke states.
"More to the point, the three counts that survived on these theories amount to little more than 'gotcha'-type add-on charges, reflecting a selective presentation of a tiny fraction of Mr. Elgindy's thousands and thousands of calls and trades and arguments, in a selected few instances, Mr. Elgindy did something other than what he allegedly told site members he was doing," the lawyer says.
"In addition, the government presented no evidence that any site member suffered one penny of loss in connection with these allegations," Mr. Berke says. "To the contrary, all the evidence indicates (and the government has never disputed) that site members consistently would have made money by following the trading calls that the government charged and claimed at trial were part of criminal frauds."
The wrap
According to Mr. Berke, the "nature and circumstances of the proven offences comprising the securities fraud case turned out to be relatively straightforward."
"Mr. Elgindy investigated many overvalued and fraudulent companies and gave a lot of information about those companies to many law enforcement officials, including Agent Royer," Mr. Berke says. "Accepting the jury's verdict for purposes of sentencing, Mr. Elgindy has also been found to have received confidential law enforcement information from Agent Royer on the four stocks of conviction and to have disseminated that information on AnthonyPacific.com and/or traded on it.
"Mr. Elgindy's negative information was found to have been improperly used to threaten the reputation of NSOL and CEO Paul Brown, allowing Mr. Elgindy to obtain discounted shares of NSOL stock from Mr. Brown.
"Mr. Elgindy was also found to have traded ahead of his site members or against his own advice to his site members on two stocks and just three occasions out of the hundreds of stocks and thousands of trading calls that appeared on the site over time.
"Mr. Elgindy did not conspire to obstruct justice or obstruct justice.
"He did not extort AJ Nassar or FLOR.
"He did not lead or organize Cleveland's insider trading scheme and he did not control anyone's trading or any other activities."
The punishment
Mr. Berke devotes approximately 50 pages of his sentencing brief to an analysis of the sentencing guidelines, replete with legal citations and close arguments.
He argues that the PSR calculation that calls for a life sentence "is erroneous in virtually every respect and includes multiple specific offense characteristics and adjustments that have no application in this case."
Among other things, Mr. Berke says that the court must "avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct."
"The most glaring example of disparate treatment of similarly situated defendants in this case is the government's proposed sentence for co-defendant Jonathan Daws," Mr. Berke says.
According to Mr. Berke, "much like Mr. Elgindy, Mr. Daws was charged in this case with being a manager/supervisor in a RICO conspiracy, including insider trading, market manipulation and extortion."
Mr. Berke points out that the government has stipulated and recommended by its plea deal that Mr. Daws "be sentenced to a mere 18-24 months in prison," a far cry from the life sentence suggested for Mr. Elgindy.
The lawyer also takes issue with the fact that while the government alleged that hedge fund manager Mr. Daws profited to the tune of more than $6.25-million, no forfeiture demand was made against him.
In contrast, Mr. Berke says, according to the government, Mr. Elgindy's alleged gains, which are disputed by his counsel, amount to $826,272, yet he is facing a forfeiture demand of $11.8-million.
Not surprisingly, Mr. Berke argues that when it comes to Mr. Elgindy, the PSR's recommended punishment of a life sentence is not fair and equitable.
Mr. Berke urges the court to sentence his client to no more than "41 months on the securities fraud case" and "two months on the airport/false statements case," for a total of 43 months or less.
According to Mr. Berke, "that would be 'reasonable' and 'sufficient, but not greater than necessary' to satisfy the goals of sentencing ... and that would allow Mr. Elgindy's children to be reunited with and supported by their father for some substantial part of their remaining critical years of development."
Stockwatch will review the prosecution's sentencing memorandum, now due on Feb. 10, when it becomes available.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding the Elgindy case is available in Stockwatch articles published under the symbol *TSX on May 22, 23, 24, 28 and 29; June 3, 4, 6 and 17; July 18, 2002; March 25, 2003; Oct. 3, 2005; and Jan. 26, 2006.)
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