Post by sandi66 on Aug 8, 2008 20:02:12 GMT -5
JAN
F.#2002R01303
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA
-against- 02 CR 589 (S-2) (RJD)
04 CR 652 (RJD)
AMR I. ELGINDY,
Defendant.
- - - - - - - - - - - - - - - - X
GOVERNMENT’S SENTENCING MEMORANDUM
ROSLYNN R. MAUSKOPF
UNITED STATES ATTORNEY
Eastern District of New York
One Pierrepont Plaza
Brooklyn, New York 11201
JOHN A. NATHANSON
Assistant United States Attorney
(Of Counsel)
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 1 of 88
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - X
UNITED STATES OF AMERICA
-against- 02 CR 589 (S-1) (RJD)
04 CR 652 (RJD)
AMR I. ELGINDY,
Defendant.
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PRELIMINARY STATEMENT
The defendant contends that he should be sentenced as
if this case were about nothing more than his personal trading in
four stocks. Over more than one hundred pages, the defendant
barely acknowledges that he was convicted of racketeering through
the eponymous Elgindy Enterprise. He barely acknowledges that he
was convicted of conspiring with others to commit a securities
fraud that went far, far beyond those four stocks. He denies
that he played any significant role in the Elgindy Enterprise,
despite the fact that he was its leader. He glosses over the
fact that, after being released on bail in this case, he
committed yet another crime by lying to federal officials in an
attempt to flee.
Perhaps most importantly, the defendant, in his desire
to divert this Court’s attention, eschews any mention of the
extraordinary scope of the corruption of governmental functions
that lies at the heart of this case. By seizing on the capacity
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of his co-defendant, Jeffrey Royer, to misappropriate law
enforcement information and by promising him lucrative
employment, the defendant induced Royer to steal information
about dozens of FBI and SEC investigations. Those investigations
involved undercover agents and cooperating witnesses, some of
them involved in organized crime and terrorism cases. When Royer
left the FBI, the defendant ensured that a successor, Lynn
Wingate, replaced him. Together, Royer and Wingate performed
hundreds and hundreds of illicit searches in the FBI’s
confidential databases. In essence, numerous sensitive
investigations were compromised for the sake of the defendant’s
and his co-conspirators’ greed. Even had this defendant failed
to earn a single dollar through his criminal enterprise, his role
in this extraordinary breach of the public trust would warrant a
lengthy sentence.
Below, without attempting to reprise all the facts
adduced over a twelve-week trial or to reargue years of legal
wrangling, the government (relatively) briefly sets out the
relevant factual and legal settings that we submit should guide
this Court’s sentencing determination. Applying what the
government believes to be the appropriate guidelines analysis,
the guidelines imprisonment range for this defendant is life.
The government respectfully submits that, in keeping with the
true nature of the defendant’s crime, this Court should sentence
him to a very substantial term of imprisonment.
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I. THE NATURE AND CIRCUMSTANCES OF THE OFFENSE
The defendant was convicted of racketeering conspiracy
through his leadership of the criminal Elgindy Enterprise, an
organization composed of the defendant, Derrick Cleveland,
Jeffrey Royer and various others, including members of the
defendant’s AnthonyPacific.com website (the “AP site”). The
Elgindy Enterprise operated through the AP site and another of
the defendant’s corrupt entities, Pacific Equity Investigations.
In connection with the defendant’s leadership of the
Elgindy Enterprise, he was convicted of the following
racketeering acts, as well as the corresponding substantive
crimes: conspiring to commit securities fraud; four securities
frauds associated with Seaview (“SEVU”), Optimum Source (“OSIN”),
Polymedica (“PLMD”) and Junum (“JUNM”); conspiring to commit
extortion; extortion of Paul Brown and his company, Nuclear
Solutions (“NSOL”); defrauding AP site members by frontrunning
the defendant’s trading call on Vital Living Products (“VLPI”);
and defrauding AP site members by trading against the advice the
defendant gave them on Innovative Software Technologies (“INIV”)
and VLPI. The defendant, however, would like this Court to
ignore the convictions for racketeering and conspiracy and
sentence the defendant as if the jury’s verdict were limited to
the substantive acts of securities fraud and extortion. But the
racketeering and securities conspiracies go far, far beyond those
individual acts. Rather, the defendant led an enterprise that
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1 Transcript references are to the electronic transcript,
which varies at certain points from the hard-copy transcript.
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obtained and traded on confidential law enforcement information
in dozens of stocks. The defendant, through the AP site and his
InsideTruth stock reports, manipulated the market in dozens of
stocks through deceptive trading, timed release of information,
exaggerated claims of influence over market prices and other
misrepresentations. The entire scope of the defendant’s criminal
conduct - not an isolated sliver - is the proper subject of
sentencing.
A. An Introduction to the Defendant’s Criminal Enterprise
Derrick Cleveland met Jeffrey Royer - an FBI agent then
working in Oklahoma City - in early 2000 when Royer appeared at
Cleveland’s office. (Tr. 172).1 Shortly after that initial
encounter, Royer appeared again and Cleveland showed him the AP
site, (Tr. 174), whose primary purpose was to recommend shorting
certain stocks. (Tr. 191).
Royer first provided confidential law enforcement
information to Cleveland in March 2000 regarding Broadband
Wireless (“BBAN”). (Tr. 214; GX-JL-1). Cleveland immediately
conveyed the information to the defendant, because he “knew that
the information was information you couldn’t get anywhere else.
It was the best information that a person could get a hold of in
my opinion . . . .” (Tr. 217). In fact, the defendant traded on
the information. (GX-2582). Cleveland told the defendant that
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2 While the defendant claims that certain information
provided by Royer was available elsewhere, the defendant ignores
witnesses’ testimony that similar information is more valuable
when the source is the FBI. (Tr. 3839).
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he learned the information from an FBI agent. (Tr. 219). The
defendant suggested a three-way call, in which the defendant did
not announce his presence, so that the defendant could assure
himself that Cleveland had described the information and its
source correctly. (Tr. 219). During his very first contact with
Royer, the defendant urged Cleveland to get more specific
confidential law enforcement information from Royer. (Tr. 221).
Shortly after Royer provided Cleveland and the
defendant confidential law enforcement information on BBAN, Royer
provided Cleveland additional misappropriated information about
other companies. (Tr. 226). Cleveland suggested to Royer that
they could make a lot of money trading in these and other
companies’ stocks based on Royer’s information, and that they
could give the information to the defendant so that, through the
defendant’s website, they could “crush” the stocks. (Tr. 228).
The defendant was incarcerated from June through
September 2000 following his conviction for insurance fraud.
Once the defendant was released from jail in early October 2000,
Cleveland started feeding the defendant confidential law
enforcement information,2 initially on Seaview Underwater
Research, Inc. (“SEVU”). (Tr. 266-67). If there was any doubt
as to the source of this information, Cleveland told the
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defendant when first passing information on SEVU that he received
it from “Jeff,” “my FBI friend.” (Tr. 270). Included in the
information Cleveland passed the defendant was a reference to an
“undercover” SEC operative at SEVU. (Tr. 278). The defendant
released some, but not all, of the SEVU confidential law
enforcement information on AP through chat and audio. (Tr. 287).
The defendant specifically instructed AP members that they should
use the information for trading purposes but should not release
the information. (Tr. 320). When the defendant asked Cleveland
why Royer was providing this information, Cleveland told him “as
far as money goes, I’m taking care” of Royer. (Tr. 322).
After the SEVU insider trading, the defendant continued
to obtain confidential law enforcement information from Royer
through Cleveland. Most of the time, the information was passed
to the defendant. In late 2000, the defendant asked to speak,
and did speak, with Royer directly. (Tr. 323). From that point
forward, while most information still flowed through Cleveland,
the defendant and Royer also communicated directly with one
another. (Tr. 324). On some occasions, the defendant initiated
discussions with Royer, or asked Cleveland to initiate
discussions with Royer, to obtain misappropriated information
with respect to particular stocks. (Tr. 482-83; 596). The
defendant insisted to Cleveland that he be the first to receive
confidential law enforcement information and that he be the
person who determined whether to disseminate it to AP site
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members, in part to avoid exposing the unlawful conduct. (Tr.
528, 610, 761-62).
The defendant had Royer, whom the defendant called “my
personal FBI agent,” appear on the AP site, under the name AP
Cork, so that Royer could verify to AP site members that the
information they received did indeed originate with the FBI.
(Tr. 441; 450). In addition to placing confidential law
enforcement information on the AP site and encouraging his
members to trade on the information, the defendant actively
worked with Royer to pry information from SEC personnel. (Tr.
329). He simultaneously ridiculed them - “I need a public
servant to wipe my boots.” (Tr. 421).
At the same time that the defendant was engaging in the
controlled dissemination of confidential law enforcement
information provided by his personal FBI agent, he routinely
sought to conceal his criminal conduct by purging chat logs that
contained such information. (Tr. 407; 452 (“Erase the log
Hansen”); 2488 “Be sure to purge the logs”; 2542 (ordering Hansen
to purge chat mistakenly placed on AP site concerning Nuclear
Solutions ("NSOL")).
B. The Devolution of the Defendant’s AP Site
The defendant’s racketeering enterprise revolved around
and depended on his AP site. Between December 1999 and April
2002, AP site members paid between $200 and $600 per month to
subscribe to the AP site. During that period, site fees totaled
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$2,705,213.33. (GX-3002). While Robert Hansen, the AP site
administrator, believed that the AP site started as a “bona fide
research site,” its nature and purpose changed in late 2001,
starting with the dissemination of SEVU confidential law
enforcement information. (Tr. 2498). Kent Terrell testified
that, after the defendant was released from jail in October 2000,
the AP site began to focus on “scam stocks.” (Tr. 3813). While
the defendant cites Jeffrey Rubenstein’s testimony concerning the
emphasis of the AP site, Rubenstein testified that “he didn’t pay
close attention” to the specifics of the stocks about which
confidential law enforcement information was provided to AP site
members because he generally did not trade them. (Tr. 5880).
Rubenstein also conceded that InsideTruth - an integral part of
the defendant’s manipulative scheme - focused on “scam stocks.”
(Tr. 5932). The defendant himself stated in chat that the FBI
information was “what the site is all about. Fidelity and
bravery and insider selling.” (Tr. 584).
Further, while the defendant falsely told site members
that all site fees went to the maintenance of the site, in fact
the defendant paid Hansen only a small percentage of the fees for
Hansen’s services and site maintenance. (Tr. 2469, 2635). That
percentage started at 15%, but was reduced to 9% in early 2001.
(Tr. 2469, 2635, 2645).
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C. The Defendant’s Personal FBI Agent
While the defendant would like this Court to focus its
attention on the relationship between Royer and Cleveland, the
evidence makes clear that the defendant, once involved in the
enterprise, made it his own. He did this, in part, by actively
cultivating his relationship with Royer. In February 2001, the
defendant invited Royer and Cleveland to the defendant’s house in
San Diego. (Tr. 552). While there, Royer told the defendant how
FBI investigations worked (Tr. 560); the defendant told Royer how
much money he had made from certain information provided by Royer
(Tr. 561); the defendant proposed to Royer that Royer work for
the defendant, and Royer accepted (Tr. 568-69); and Royer asked
whether the defendant could loan him money. (Tr. 569). On May
23, 2001, the defendant told the AP site that he was hiring a
“current FBI agent” to act as an investigator (which the
defendant conceded was a “conflict of interest” while Royer
remained with the FBI). (Tr. 621; GX-3311 “I’m hiring another
FBI Agent . . . he’ll have to leave the FBI at the time. . . . .
I’ve put a very lucrative deal in front of him”). On June 27,
2000, Royer, e-mailing the defendant about his prospective job,
wrote, “i want to make a million dollars a year . . . if you want
to make 20 million, then i will make 2.” (GX-2222).
In fact, it’s clear that Royer essentially worked for
the defendant well before he left the FBI at the end of December
2001. For example, on July 12, 2001, Royer e-mailed the
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defendant, “Laughed my ass off at GAHI today. What a shit
company. Take care of Derrick on this one. He got some good
info in my opinion. Solomon Grey could potentially keep us in
business for a long time. Meanwhile, we can drive them crazy by
driving their dick in the dirt on all their turd deals.” (GX-
2093).
In the Summer of 2001, the defendant organized a trip
to Las Vegas with various AP site members - not including
Cleveland (Tr. 617) - and Royer joined them and stayed with the
defendant in his hotel room. (Tr. 616). Among other things,
during the trip Royer provided the defendant with confidential
law enforcement information concerning JUNM and further discussed
with the defendant Royer’s employment. (Tr. 617, 620). As part
of the Las Vegas festivities, the defendant and several AP site
members were photographed with Royer’s business card plastered to
their foreheads. (Tr. 617). After promising to pay Royer for
his trip expenses, the defendant eventually partially reimbursed
him. (Tr. 616, 620). Also during the Summer of 2001, and later,
the defendant and Cleveland discussed Royer’s ability to continue
obtaining confidential law enforcement information after he left
the FBI through Royer's girlfriend Lynn Wingate and another law
enforcement officer. (Tr. 800, 803).
Royer was sufficiently in the defendant’s pocket that
Royer wrote a letter to the defendant’s probation officer,
recommending early probation-termination, in which Royer falsely
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claimed he was still an FBI agent. (Tr. 812). As is clear from
discussions about this letter, the defendant wanted to use
Royer’s position as an FBI agent in any way that satisfied the
defendant’s ends and Royer was willing to do anything to curry
the defendant’s favor. Thus, on August 14, 2001, the defendant
told Royer he would “need a letter saying how valuable I am to
the U.S. government . . . .” (GX-2104). Royer replied,
Can I start with something like Tony is so
cool he shits ice cubes or Tony is as
valuable to the U.S. Government as two-ply is
to toilet paper. Both of these statements
are true to the best of my knowledge. I know
I have to write a recommendation for you, but
when, where and how. It would be great if I
didn't have to due to some flunky finding out
about it later and holding it against us, but
whatever works, I know you don't want me to
leave the bureau before it is written, all I
want to know is if that will be in October,
April or next October.” (GX-2104).
Finally, in January 2002, both Royer and Cleveland
officially started working in the defendant’s office in San
Diego. (Tr. 837). The defendant even paid a portion of Royer
and Cleveland’s San Diego apartment rent. (Tr. 943).
D. The Scope of the Defendant’s Insider Trading Scheme
Royer provided Cleveland confidential law enforcement
information - not all of it associated with computer searches -
with respect to more than fifty companies. (Tr. 489). With
respect to the computer searches alone, between March 30, 2000
(BBAN) and March 4, 2002 (IMCL), Royer and Lynn Wingate
misappropriated and passed confidential law enforcement
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3 Royer and Cleveland passed confidential law enforcement
information to the defendant, who then passed the information to
AP members, concerning the following stocks: Seaview (“SEVU);
Freedom Surf (“FRSH”) (Tr. 495); SoftQuad (“SXML”) (Tr. 508);
BioPulse (“BIOP”) (Tr. 529); GenesisIntermedia (“GENI”) (Tr. 538,
3874); Optimum Source (“OSIN”) (Tr. 579); Polymedica (“PLMD”)
(Tr. 595); Hercules (“HDBG”); Junum (“JUNM”) (Tr. 629, 3859);
Global Asset Holdings (“GAHI”) (Tr. 637); Flor Decor (“FLOR”)
(Tr. 735); Trident (“TDNT”) (Tr. 762); TTR Technologies (“TTRE”)
(Tr. 3870); Real Time Cars (“RTCI”) (Tr. 783, 3863); Hypermedia
(“NMNW”) (Tr. 788); Vital Living (“VLPI”) (Tr. 814); Eagle
Building (“EGBT”) (Tr. 3873); Nuclear Solutions (“NSOL”); BGI
Industries (“BGII”) (Tr. 906, 2542); Medi-Hut (“MHUT”); and
(“IVSO”) (Tr. 917). Royer and Cleveland passed confidential law
enforcement information to the defendant and Terrell concerning
the following stocks: (“BYTE”) (Tr. 516) and Jaguar (“JGUR”) (Tr.
646). Terrell put the BYTE and JGUR information on the AP site.
(Tr. 524, 646). Royer and Cleveland passed confidential law
enforcement information to the defendant regarding Sulphco
(“SLPH”), after which the defendant made an AP site trading call
on that stock. (Tr. 656-58, 672). As noted, the defendant also
received confidential law enforcement information regarding
Broadband Wireless (“BBAN”). By reviewing FBI records, Special
Agent Jack Liao was able to determine that Royer misappropriated
confidential law enforcement information for at least 37 stocks,
including all of the stocks mentioned in this footnote. (GX-JL-
1).
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information on dozens of companies and individuals.3 On numerous
occasions, the defendant published some or all of this
information on the AP site. With respect to additional stocks,
the defendant’s co-conspirator, Kent Terrell, published
confidential law enforcement information on the AP site. On
other occasions, the defendant received confidential law
enforcement information but did not place it on the site.
After receiving confidential law enforcement
information from the FBI, the defendant himself traded in at
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4 See Gov’t Sentencing Mem., Attachment 1. This
attachment shows trading by the defendant and his co-conspirators
in 32 of the at least 37 stocks for which confidential law
enforcement information was accessed by Royer and/or Wingate (the
government did not perform a trading analysis with respect to the
remaining 5 stocks).
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least 23 stocks.4 The defendant actively encouraged AP site
members to do the same, in part to put downward price pressure on
the stocks and thereby increase the value of the defendant’s
short positions. As Cleveland described, AP was a short-selling
site where people were trading in the same way, causing downward
momentum in a stock. (Tr. 201). As the defendant expected of
them, members did, in fact, frequently follow the defendant’s
trading calls. (Tr. 2496, 2576, 3817 (members were “expected to
take – you know, the same positions that were the same as” the
defendant’s)). The defendant even told his co-conspirator
Terrell where to set up a trading account so that Terrell could
short sell stocks discussed on the AP site. (Tr. 3808).
Even the defendant’s trial witness, Peter Michaelson,
admitted that he knew that he has received and traded on material
confidential law enforcement information from FBI and SEC sources
on the AP site. (Tr. 5391, 5450, 5564). Michaelson further
stated that he believed others on the AP site traded on this
information as well. (Tr. 5878). Michaelson also testified that
he thought the defendant “lied all the time. Exaggerated,
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5 In fact, Michaelson’s testimony was riddled with
inconsistencies. When asked on cross-examination about his
direct testimony, Michaelson stated “I don't affirm or I don't
know what I said yesterday, I was really tired.” (Tr. 5478).
Q. So, are you saying that we should just disregard
your testimony from yesterday altogether?
A. I wish you would. (Tr. 5478).
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enhanced. Made himself look good.” (Tr. 5476).5 Rubenstein
himself traded PLMD while in possession of confidential law
enforcement information. (Tr. 5868).
E. The Defendant’s Manipulation Scheme
In conjunction with his insider trading scheme, the
defendant actively engaged in manipulating share price in certain
stocks in order to enhance his profits. For example, the
defendant instructed AP site members to stop “hitting” SEVU stock
because he wanted to maintain the price at around $7/share and
threatened to cut off inside information if they did not obey.
(Tr. 340; 419-20; 424). With respect to SLPH, the defendant told
AP site members, “I want SULPH in the fives,” i.e., in the five
dollar range, so that he could get a cheap block of stock to
cover short positions. (Tr. 690, 694). In connection with with
his extortion of A. J. Nassar and FLOR, the defendant instructed
his site members on how and when to trade in order to
artificially set FLOR’s price. (GX-DC-163). Indeed, one of the
defendant’s goals was to use the SEC to halt trading in a stock,
a boon to short sellers. (Tr. 421).
The defendant sought to impose control on the flow of
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6 The defendant espoused this same view of the investing
public in an article entitled The Dumbass, The Daytrader, and the
New Democracy. (Def.’s Sentencing Mem., Exh. 5 (“‘The public is
there for one reason and one reason only,’ Anthony told me when I
got him on the phone. ‘To absorb the risk.’”)).
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[continue] to be a thorn in everyone’s side I will pluck you
out”).
The defendant used his InsideTruth reports to further
his manipulative scheme. Rather than being a genuine research
tool, InsideTruth’s true purpose was to put out negative reports
on stocks that the defendant, his co-conspirators and site
members were shorting in order to cause those stocks to fall.
(Tr. 344, 726, 851 (purpose was “to do as much damage as we
possibly could”); 2578 (InsideTruth became “a trading vehicle”);
2588; 3819 (purpose of InsideTruth was “to put pressure on the
stock”)). The defendant also sent the reports to market makers
so that they would “back away” from the reported stocks. (Tr.
358). The defendant intended that InsideTruth garner a
reputation for “exposing a stock and causing the stock to
plummet.” (Tr. 2581).
InsideTruth sometimes included false publication dates
in order to persuade the public of InsideTruth’s importance, thus
exaggerating the potential impact of the defendant’s future
trading calls and reports. (Tr. 2591 (false dates as to BIOP,
GENI and EGBT reports); GX-3012, GX-3016, GX-3017, GX-3022, GX-
3022, GX-3024). In an InsideTruth report on GENI, the defendant
disseminated false information via InsideTruth regarding a
supposed relationship between Osama Bin-Laden and Adnan Kashoggi.
(Tr. 801; GX-3012 (InsideTruth initiated coverage on GENI “with
an immediate sell and a terrorist warning”)). In connection with
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GENI, prior to the publication of the InsideTruth report,
defendant told AP site members that “[w]e just raped the sheep.”
(Tr. 802). The defendant also disseminated false information
about Paul Brown’s criminal history, claiming that Brown - the
CEO of Nuclear Solutions (“NSOL”) - had three felony convictions
whereas he had only one conviction which had been expunged.
From the commencement of the prosecution of this case,
the defendant has argued that the mere dissemination of accurate,
negative information is insufficient to prove manipulation. He
has also argued that group trading, standing alone, is
insufficient to prove manipulation. This Court’s jury
instructions were consistent with those arguments. (Jury Charge,
Tr. 8845).
As summarized above, however, the government proved
much more than that. The defendant disseminated misappropriated
information to his site members, then instructed them on how to
use that information in their trading. He reprimanded members
when they disobeyed him. As the SEVU and SLPH examples noted
above illustrate, the defendant did this for the purpose of
achieving a particular stock price. The defendant engaged in
similar conduct with respect to FLOR. (GX-DC-163 (“GET the hell
off the bid on FLOR at 2.50 & leave the 2.45 bid. . . . you are
screwing up everything for everyone.”)). The defendant also
intentionally exaggerated the significance of his research
reports, in part through backdating them. The defendant lied to
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7 See Santa Fe Indus. v. Green, 430 U.S. 462 (1977)
(“Congress meant to prohibit the full range of ingenious devices
that might be used to manipulate securities prices.”); Gurary v.
Winehouse, 190 F.3d 37, 45 (2d Cir. 1999) (“gravamen of
manipulation is deception of investors into believing that prices
at which they purchase and sell securities are determined by the
natural interplay of supply and demand.”); United States v.
Mulheren, 938 F.2d 364, 368 (2d Cir. 1991) (expressing discomfort
with finding manipulation based on one trader’s intention to
benefit another, but noting that evidence of an agreement between
the parties would have made the case “much less troubling”);
Nanopierce Technologies v. Southridge Capital Management LLC,
2002 WL 31819207 (S.D.N.Y. Oct. 10, 2002) (combination of
manipulative intent and other indicia of manipulation, such as
trading timing and market domination, sufficient to state market
manipulation claim). Cf. GFL Advantage Fund, Ltd. v. Colkitt,
272 F.3d 189, 204 (3d Cir. 2001) (while short selling itself is
insufficient to show manipulation, intentional injection of
“inaccurate information” into market or creation of “false
impression” that prices are set by natural interplay of supply
and demand is sufficient).
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his site members about the use of the site fees, again to give
the impression that he was a selfless “crusader,” thus further
exaggerating his influence. As Michaelson testified, the
defendant “lied all the time. Exaggerated, enhanced. Made
himself look good.” (Tr. 5476). As noted, he outright lied with
respect to GENI and Paul Brown. All of these deceptions served
to intentionally enhance the defendant’s ability to influence
trading and prices.
Taken together, the defendant’s actions artificially
impacted the market prices of the shares of companies he
targeted, putting the defendant’s actions squarely within the
definition of manipulative conduct.7
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explained that I’d have to cover Elgindy’s . . . shorts.”; GX-
3925 (the defendant to Brown, “I already made my deal. We’re
gonna exit . . . and I’m going to leave you alone because you’re
friends with Troy.”)).
Peters described to Brown that he and the defendant had
made the same sort of deal with A. J. Nassar at Flor Decor. (GX-
3915 (“Tony was shorting Floor Decor. And I, and I went through
the same gymnastics as as as we’re going through now. . . . So I
had Floor Decor sign an investment banking agreement with my
brokerage firm.”)). The defendant, through his co-conspirators,
told Brown to call Nassar to give Brown comfort that paying off
the defendant would make him go away. (GX-3911 (Nassar told
Brown, “Actually, [Elgindy] had been beating up a couple things I
was involved in and putting, you know crap out and uh, Troy
actually made it go away. . . . [Elgindy] is gonna lie, cheat,
steal and do whatever he can to drive your stock down)).
For that purpose, the defendant solicited from site
members an accounting of their NSOL short positions. (Tr. 889,
891, 2542 (“I am being offered a block of [NSOL] stock at $1.50.
Working on a better price. We either do it all together or we
don’t do it at all. . . . Oh shit. Hansen, erase this log”)).
The defendant then caused Brown to sign an agreement with Peters
in which Peters’s company, Valhalla Capital, would allegedly
provide investment banking services to NSOL in exchange for
unrestricted stock. (Tr. 3510). In fact, no such services were
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22
contemplated or provided. (Tr. 3530). Because Brown did not
provide the block of stock rapidly enough for the defendant’s
liking, he recommenced his short-selling campaign. (Tr. 3900
(“Dr. Brown will be my pregnant dog.”); GX-3923 (Peters told Brown, “I
just want you to know at this particular juncture . . . if [this
deal] doesn’t go down these guys are gonna declare war.”))
Finally, after NSOL provided the discounted block of stock to the
defendant, the defendant terminated coverage of NSOL. (Tr. 3901-
02 (“we are pulling out of NSOL”)). On April 8, 2002, having
learned that Brown had died in a car accident, the defendant
wrote, “yeah i must have killed him . . . thats how badlky i need
to make a buck . . . NSOL<—no longer banned.” (GX-DC-331). On
May 15, 2002, the defendant reminded his site members that NSOL
was back in play: “NSOLE<–short 15% @1.15. Don’t forget he CEO
Is no worm food . . . .” (GX-DC-341).
As the defendant agrees, the FLOR extortion scheme -
which occurred prior to the NSOL extortion - was very similar.
The defendant put extremely negative, confidential law
enforcement information about Nassar on the AP site. (Tr. 735,
739; GX-3463 (“najjar [sic] is under investigation for terrorism
links and rico”)). Based on that information, the defendant and
AP site members, at his direction, heavily shorted FLOR stock,
causing significant downward movement. Nassar believed that the
information posted by the defendant on the AP site caused FLOR’s
stock to drop and created a severe, potentially bankrupting
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 22 of 88
23
problem for the company. (Tr. 3690). Nassar, therefore,
contacted David Slavney, who put Nassar in touch with Peters.
(Tr. 3692). Nassar asked Peters how to get rid of the defendant,
and Peters told Nassar he should offer the defendant a belowmarket
block of stock. (Tr. 3694). Nassar then signed an
investment banking agreement with Valhalla Capital that served no
purpose other than to transfer FLOR stock to the defendant to get
rid of him. (Tr. 3695-98; GX-1890). Later, the defendant
solicited from site members an accounting of their FLOR short
positions so that he could extort an appropriately-sized block of
stock from Nassar. (Tr. 739-41, 2537). The defendant exhorted
site members not to offer to purchase FLOR stock for a higher
price than the one he wanted for the block. (Tr. 743). After
negotiating that price, the defendant told site members to cover
their short positions at the arranged price, despite the fact
that some members thought the price would drop further. (Tr.
745, 755). The defendant agreed to “go away” if Nassar gave him
the block. (Tr. 756). When Nassar gave him the block, the
defendant terminated coverage. (Tr. 759).
G. The Defendant Functioned as an Investment Adviser
While the defendant denies that he acted as an
“investment adviser,” the defendant, as detailed above,
essentially told AP members what stocks to trade and when to
trade them. (Tr. 939). As Hansen testified, the AP “site
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 23 of 88
24
basically offered stock advice. It offered trading advice.”
(Tr. 2472).
The Supreme Court's decision in Lowe v. Securities and
Exchange Comm'n, 472 U.S. 181 (1985) supports finding that the
defendant was an investment advisor. There, Lowe published three
newsletters that the Court held were "bona fide" publications
specifically excluded from the Investment Advisers Act because,
though they discussed buying and selling securities, they were
"completely disinterested, and [ ] were offered to the general
public on a regular schedule . . . ." Lowe, 472 U.S. at 206.
The Court explicitly differentiated the newsletters published by
Lowe from those that "were designed to tout any security in which
petitioners had an interest" or that were "timed to specific
market activity" because these type of publications were prone to
the "dangers of fraud, deception and overreaching that motivated
the enactment of the statute . . . ." Id. at 209-10.
Here, the defendant's trading calls on the AP site were
not offered to the public on a regular basis, were timed to
specific market activity - including the defendant's acquisition
of misappropriated information - and were anything but
disinterested. Moreover, unlike Lowe, the defendant responded
directly to the AP site members comments about particular
securities, hardly the "entirely impersonal" type of
communication the Court found excluded from the Act. Id. at 210.
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 24 of 88
8 This figure was calculated as follows. The average
price for all sales occurring on the same day, but only after,
the defendant “front ran” or “traded against advice” was
calculated. The difference between that price and the price the
defendant obtained for his sales was then determined. That
difference was multiplied by the total number of shares sold by
the defendant to derive the profit realized by the defendant
25
H. The Defendant Front Ran and Traded Against Advice
AP members were told that the defendant did not trade
in front of trading calls and that the defendant always traded
consistently with his advice. (Tr. 194, 197, 2623). In fact,
Hansen came to believe that the defendant was doing both. (Tr.
2596). A comparison of the defendant’s trading calls and his
trading records demonstrates, as Hansen stated, that the
defendant regularly traded ahead of AP site broadcasts on
particular stocks. (Attachment 2; Tr. 4546; GX-DB-2; GX-2582;
GX-3001).
While the defendant demeans the jury’s guilty verdicts
with respect to the certain frontrunning and trading against
advice charges in connection with VLPI and INIV - he calls them
“‘gotcha’-type add-on charges” (Def.’s Sentencing Mem., p. 59) -
it remains that the jury did find the defendant committed those
crimes on at least some occasions.
The defendant also states that there were no profits
from these crimes. In fact, as shown in Attachment 3, on just
those instances where the jury convicted him of frontrunning and
trading against advice, the defendant made $31,877.80.8
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 25 of 88
through frontrunning or trading against advice.
This figure, of course, greatly understates the
defendant’s profits from frontrunning and trading against advice
as it only accounts for the counts of conviction. Because these
profits are included in the defendant’s insider trading profits
and therefore do not increase the defendant’s gains for
sentencing purposes, however, the government has not calculated
the gain to the defendant for frontrunning and trading against
advice with respect to the other stocks in the indictment.
26
I. The Defendant’s Obstruction of Justice
The defendant wrote in chat, with respect to one of his
insider trading stocks, “[o]bstruction of justice very serious
stuff. Wouldn’t want to jeopardize safety of agent or anything.”
(Tr. 2504). Nonetheless, the defendant did not hesitate to
obstruct justice with respect to the FBI’s investigation of him.
Because the defendant understood that he was routinely
committing crimes and because Royer could and did provide
information to the defendant about criminal investigations of
others, the defendant had an obvious interest in keeping tabs on
whether he himself was under investigation. On several occasions
prior to September 2001, the defendant asked Cleveland to
determine from Royer whether the defendant was under
investigation (which Royer informed the defendant he was not).
(Tr. 483-84, 775). On various other occasions, the defendant
made this request directly of Royer. (Tr. 487).
In September 2001, Royer told Cleveland that the
defendant was under investigation for a serious matter
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 26 of 88
27
independent of securities fraud. (Tr. 805). Royer and Cleveland
spoke about the matter many times, both before and after Royer
left the FBI in December 2001. (Tr. 806, 946). Royer told
Cleveland that the defendant had been reported to the FBI by two
individuals, Matthew Tyson and John Liviakis. (Tr. 807). Royer
also mentioned that FBI reports indicated that the defendant had
contributed to a Middle Eastern charity called “Mercy
International.” (Tr. 809). Royer similarly told Michael
Mitchell that the defendant was being investigated in connection
with money given to a Middle Eastern charity. (Tr. 3129).
At least some of this information was passed on to the
defendant. After Royer and Cleveland had moved to San Diego to
work with the defendant, Royer told Cleveland that he had given
some information to the defendant about the investigation, though
Royer had not provided specifics to the defendant. (Tr. 947).
That the defendant did possess knowledge about the investigation
was demonstrated when he spontaneously told Special Agent David
Sutherland in a post-arrest interview that he did not contribute
to Middle Eastern charities. (Tr. 4456).
Moreover, the defendant acted like someone who
understood he was being investigated by the FBI in connection
with a serious matter. While in San Diego working at the
defendant’s office in 2002, Cleveland saw the defendant handling
large sums of cash and witnessed him wiring money to Lebanon.
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 27 of 88
9 The defendant argues that, because he told AP site
members that he was going to Lebanon, he was clearly not planning
to flee. (Def.’s Sentencing Mem., p. 100). The defendant,
however, frequently broadcast his criminal activities to site
members, then attempted to control further dissemination.
Additionally, he never told site members about the details of his
activities in Lebanon. Most significantly, as detailed, he kept
the matter secret from his probation officer. The defendant,
while he did eventually tell the probation officer that he had
been in Lebanon, did not do so until she had discovered the fact
from an FBI agent and directly asked the defendant where he had
been. (Tr. 3489).
28
(Tr. 957). Cleveland also witnessed a conversation between Royer
and the defendant in which the defendant asked Royer what would
happen if the defendant - without his supervising probation
officer’s permission - “fled” to Lebanon. (Tr. 959). The
defendant told Cleveland that Lebanon had “the best bank secrecy
laws in the world.” (Tr. 961). During Spring 2002, the
defendant asked Hansen to start wiring site fees to a bank in
Lebanon. (Tr. 2604; GX-3449).
In fact, the defendant, without permission from his
supervising probation officer, traveled to Lebanon in November
2001.9 (Tr. 3429-30; GX-3700, p. 20). During this period, the
defendant arranged for the purchase of an apartment in Beirut,
(GX-4617), which he did not communicate to the probation officer.
(Tr. 3501). Nor did the defendant disclose to her that he had
transferred $124,995 to a Lebanese bank account on one occasion,
(GX-1058; Tr. 3501), or $225,000 on a second occasion. (GX-371;
GX-3743; Tr. 3502-03). In addition, in October 2001, the
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 28 of 88
10 That the defendant knew of the investigation and took
steps to alter his behavior is supported by an e-mail Royer wrote
the defendant on February 7, 2002, in which Royer stated “[w]e
definitely need some breathing room . . . I need to get a feel
for what the bureau is doing in regard to this whole ordeal. We
are so close, no need to screw things up.” (GX-2499). In that
same e-mail, Royer told the defendant, “Get some good facetime
with Derrick as he has lots on his mind.” (GX-2499). As
Cleveland testified, what was primarily on his mind in February
2002 was the FBI’s investigation into the defendant.
29
defendant opened a trading account in which he described himself
as a resident of Lebanon, and, in April 2002, arranged for the
transfer of significant assets to that account. (GX-1054; GX-
1055; GX-1058; GX-4011). Meanwhile, in February 2002, the
defendant requested that his supervising probation officer grant
him permission to travel to Lebanon for a second time, shortly
after which he told her he was quitting the “whistleblowing”
business. (Tr. 3498; GX-3700).
In order to further free himself from the scrutiny of
his probation officer, the defendant had Royer write a letter to
the District Court Judge in the Northern District of Texas
recommending the defendant for early supervised release
termination. (Tr. 3487; GX-3738). In the undated letter,
submitted to the court on January 11, 2002, Royer claimed to
write in his “capacity as a Special Agent with the Federal Bureau
of Investigation,” despite the fact that he had left the FBI the
prior December and was employed by the defendant, a fact he
conveniently omitted.10
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 29 of 88
11 The defendant specifically (and falsely) informed his
pre-trial services supervising officer that he would travel to
San Diego on April 19, 2004, just two days later. (Tr. 4222-23).
30
August 2003 (GX-3815); a Sam’s Club card in the name of “Herbert
Velasco” of “Velasco Export” issued August 2003 (GX-3814); air
flight coupons issued in a number of different names; and
cellular phones subscribed in the name of Joseph Torelli and
Hisham Sadek (Tr. 3454).
Upon arrest, the defendant falsely maintained that his
name was Manny Velasco and that he was a jewelry dealer. (GX-
3800; GX-3801). When asked the identity of Amr Elgindy, whose
name appeared on various documents and prescriptions in the
defendant’s possession, the defendant claimed Elgindy was his
lawyer. (GX-3801). It was not until officials discovered a
California driver’s license bearing the defendant’s photograph
that he belatedly admitted his true identity.
II. THE HISTORY AND CHARACTERISTICS OF THE DEFENDANT
A. The Defendant’s Employment History and Cooperation with
Authorities
The defendant boasted to Royer and others that he had
been employed by boiler rooms and chop shops - including the
notorious Blinder, Robinson & Co. (“Blinder”) - promoting
overvalued penny stocks.12 (Tr. 2629, 5554, 7796). The
defendant met Troy Peters, who assisted the defendant in his
extortions of Paul Brown and A.J. Nassar, while working at
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 31 of 88
32
Blinder. The defendant later worked at Thomas James &
Associates, again with Peters and David Slavney, another
participant in the extortion schemes. In 1991, Thomas James
terminated the defendant, later stating that he had violated
“investment-related statutes” and “rules of industry standards
and conduct.” (GX-3455, p. 74). In 1997, the defendant was
censured and suspended by the NASD, and ordered to pay a $30,000
fine, in connection with his entry of “non-bona-fide” trading
orders in 1995 while at AMR Securities. (GX-3455, p. 31). The
NASD revoked the defendant’s NASD registration when the defendant
refused to comply with its orders in connection with that matter.
(GX-3455, p. 35). Also in 1997, the State of Ohio refused to
license the defendant as a broker, concluding that he was of “not
of good business repute.” (GX-3455, p. 40). Additionally,
before his broker license was revoked, the defendant had a
history of customer complaints while at various brokerage firms,
including one brought by the defendant’s mother that he settled
for $30,000. (GX-3455, pp. 23-79).
On at least two additional occasions - with respect to
Alco International Group Inc. (“Alco”) and Conectisys Corp.
(“Conectisys”) - the defendant was an active participant in
securities fraud conspiracies. Moreover, while the defendant
touted at trial, and continues to tout, his role as a “crusader
for propriety in the marketplace,” (Def.’s Sentencing Mem., p.
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13 While the defendant also touts his relationship with
Brent Baker, (Def.’s Sentencing Mem. at 51-52), particularly as
regards the investigation of Sulphco, Baker’s testimony was in no
way consistent with the defendant’s characterization. When asked
on direct examination whether the Reno, Nevada FBI office was
investigating Sulphco based on information provided by the
defendant, Baker testified “I remember specifically to the
contrary.” (Tr. 5930).
While the defendant now attempts to gain credit for his
involvement in the NECO investigation, (Def.’s Sentencing Mem.,
p. 53, n. 18), SEC attorney Patrick Hunnius testified that the
defendant’s information did not assist the SEC in bringing a
securities fraud case with respect to NECO. (Tr. 6358). While
the defendant also attempted to gain credit for halting trading
in EGBT and NECO, he was not the reason trading was halted in
either of those stocks. (Tr. 6085, 6368).
With respect to OSIN, while the defendant claims credit
for providing information to SEC attorney Robert Tercero, Tercero
stated that he had already been looking at the company and that
the defendant’s information was not the reason Tercero opened a
formal Matter Under Investigation. (Tr. 6418). In any case, the
OSIN matter went nowhere. (Tr. 6418).
33
54), the details of his involvement with Alco and Connectisys
make abundantly clear that he was, in fact, forced to help
authorities to avoid prosecution himself.13
In May 1995, the defendant signed a cooperation
agreement in which he agreed to provide testimony against
individuals in connection with a fraudulent 1993 scheme to
promote Alco stock. (GX-4006; Tr. 7808; GXC-4001, p. 431 (FBI
report referencing the defendant’s cooperation in exchange for
immunity from prosecution)). In January 1997, the Assistant
United States Attorney handling the Alco case wrote to her
counterpart in Texas - where the defendant was being investigated
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14 In an ABC 20/20 piece broadcast on May 2, 1997, the
defendant, though he was not asked about taking cash bribes
himself, proudly stated that many of the brokers working at
Armstrong McKinley were receiving cash bribes from Richards to
pump up Alco. (Def.’s Sentencing Mem., Exh. 4). The defendant
went so far as to acknowledge that he saw the cash delivered to
the brokers for whom he - as an owner of the firm - was
responsible.
15 In a July 29, 1996 article in Forbes, appropriately
titled One Day Soon the Music’s Going to Stop, the author
recounted another incident in which yet another of the
defendant’s brokerages, Key West Securities, manipulated the
share price of WellCare Management Group. (Def.’s Sentencing
Mem., Exh. 3).
34
for insurance fraud - that the defendant, as co-owner of
Armstrong, McKinley & Co., “accepted bribes from Melvin Lloyd
Richards and Allen Stout to sell securities, that Richards and
Stout were promoting, to the firm’s customers.”14 (GX-4007).
On the second occasion, with respect to Conectisys, the
defendant was a member of a “daisy chain” manipulation in which a
number of traders sold short positions, one to another, creating
artificial downward pressure on the stock. (Tr. 6267). More
particularly, in 1996 an individual named Mike Zaman dictated bid
and offer prices to the defendant, who acted as a market maker,
and the defendant set the bid and offer at the dictated prices
despite the fact that they did not result from market forces.
(Tr. 6557-59). In fact, the SEC viewed the defendant as an
“accomplice” who “knowingly participat[ed] in transactions and
[took] actions that were in furtherance of a manipulation.” (Tr.
6277, 6559, 6561, 6567, 7269).15 The defendant himself, in
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 34 of 88
35
testimony he gave during the SEC’s case against Zaman,
acknowledged that Zaman had told the defendant that Zaman’s firm
was pushing the stock to the firm’s retail customers. (DX-12169,
p. 370). The defendant admitted that Zaman told the defendant
what bid and offer prices to set, and further told the defendant
to move the prices up without regard for demand for the stock.
(DX-12169, p. 372).
In fact, when authorities did use the defendant to
assist them, they did so with justifiable caution. For instance,
FBI Special Agent Michael Gaeta used the defendant as a
confidential informant in December 1996 for only five days before
he shut him down due to his “questionable reliability.” (Tr.
4821, 6507). With respect to more recent “cooperation,” the
defendant, of course, never revealed to authorities with whom he
claims he was “working” that certain of the information he passed
them was illicitly obtained from his personal rogue FBI agent.
(Tr. 6083).
B. The Defendant’s Criminal History
As detailed in the Pre-Sentence Investigation Report
(“PSR”), the defendant committed insurance fraud in 1994 by
accepting disability payments when, in fact, he was actively
employed. (PSR, ¶ 154; GX-3702). Through his conduct, the
defendant defrauded the insurer of $55,366. (GX-3702). The
defendant pled guilty to mail fraud and was sentenced on May 15,
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 35 of 88
16 The defendant was arrested on at least four additional
occasions and charged with crimes including “Grand Theft Auto,”
“Assault with a Deadly Weapon,” “Driving While Intoxicated” and
“False Report to a Peace Officer” between 1985 and 1997. On each
of these occasions, the defendant was not prosecuted. (PSR, ¶¶
162-169).
17 The PSR also noted that, while the defendant was
diagnosed with Major Depression in 1994, at least one
psychologist concluded “that the defendant was very likely
exaggerating or fabricating his depressed mental condition
. . . .” (PSR, ¶ 185).
36
2000. He was sentenced to four months’ incarceration and three
years’ supervised release. (PSR, ¶ 154).16
C. The Defendant’s History of Bipolar Disorder
The defendant relies heavily on his diagnosis of
bipolar disorder as a mitigating sentencing factor. (Def.’s
Sentencing Mem., pp. 6, 27-29, 112 (listing the defendant’s
disorder as one of the “most relevant factors” supporting a
sentence of five years or less)). The defendant, however, has
done little to mitigate the alleged effects of his disorder on
himself and his family members.
The defendant was initially diagnosed with bipolar
disorder in June 1993.17 (PSR, ¶ 184). According to his
sentencing submission, at that time the defendant “finally began
therapy and started to learn how to deal with the severity of
[his] mood swings.” (Def.’s Sentencing Mem., p. 28). Despite
his stated concern for his family, surely addressed by his
treatment, the defendant stopped seeing a therapist in 1995.
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 36 of 88
18 In his sentencing memorandum, the defendant also writes
at length about his good works on behalf of Kosovar refugees.
(Def.’s Sentencing Mem., pp. 21-27). These same good works -
together with his son’s condition - formed the basis for the
downward departure motion made by the defendant at his 2000
sentencing. After hearing from several witnesses, some of whom
vigorously disputed the defendant’s narrative concerning his
beneficence, the sentencing judge rejected the downward departure
motion and pronounced the evidence regarding the defendant’s
37
(Def.’s Sentencing Mem., p. 28). He did not recommence therapy
until after he was arrested in the instant case, seven years
after he had ceased treatment, even though his disorder was
addressed in connection with his sentencing on the insurance
fraud conviction in 2000. (Def.’s Sentencing Mem., p. 28).
Meanwhile, the defendant - rather than seeking help for
his acknowledged problems - was apparently engaged in destructive
behavior. (Def.’s Sentencing Mem., Exh. 16 (“By his own
admission - online and in interviews - he drank too much, partied
too much, and cheated on his wife.” “In 1996, Mrs. Elgindy filed
for divorce.”) Moreover, the defendant states that one of his
sons, who suffers from Tourette’s Syndrome and Attention Deficit
Hyperactivity Disorder, has been particularly (and
understandably) impacted by the defendant’s incarceration and the
possibility of a lengthy jail term. (Def.’s Sentencing Mem., p.
30-31). The defendant, however, emphasized his son’s disorders
in asking for a downward departure in connection with the 2000
insurance fraud sentencing, attaching some of the same reports he
now offers for this Court’s consideration.18 (Def.’s Sentencing
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 37 of 88
humanitarian efforts “murky.” (See Attachment 4 (May 15, 2000
Minutes of Sentencing Proceeding), p. 117-18). The judge also
stated, “[t]here is a reason why you have these people willing to
come here and testify against you as they have. I don’t see that
very often, especially in sentencing.” (Attachment 4, p. 124).
38
Mem., Exh’s 7, 14). Despite his stated concern for his son and
his other family members, immediately upon his release from jail
in October 2000, the defendant - rather than mending his ways for
their sake - became the leader of a criminal enterprise.
D. The Defendant’s Lack of Remorse
Despite being convicted for racketeering, conspiracy to
commit securities fraud, extortion and other crimes, the
defendant accepts no responsibility for his conduct. Instead, he
has smeared prosecutors and proclaimed his innocence on one of
the very websites, Silicon Investor, where he found fame as an
allegedly former - but obviously unreconstructed - criminal.
For at least the period between November 2, 2005
through January 14, 2006, the defendant has caused e-mails he has
written to be posted on the “Dear Anthony” thread he started on
the Silicon Investor website. Those e-mails are attached hereto
as Attachment 5. Following is a handful of excerpts:
• “The trial had nothing to do with the truth . . .
Witnesses were intimidated from day one. The search
for justice took a back seat to a prosecutor’s
ambition, rabid zeal and refusal to concede the truth.”
(Attachment 5A, 11/2/05, p. 37).
• “The prosecution was more interested in destroying my
character than presenting evidence.” (Attachment 5C,
12/2/05).
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 38 of 88
19 The government refers this Court to sealed records
submitted during pre-trial litigation.
39
• “I lost to hatred, prejudice and a ‘convict at all
cost’ methodology . . . .” (Attachment 5C, 12/2/05).
• “I have publicly made allegations of serious misconduct
by former AUSA Ken Breen and Seth Levine.” (Attachment
5D, 12/11/05).
• “[M]y Insidetruth report, ‘The trial crimes of
Cleveland and Breen’ will be released first to the US
Attorney General’s Office, the US Attorney’s Office in
Brooklyn, and to the Honorable Raymond Dearie.”
(Attachment 5D, 12/11/05).
• Referring to Cleveland and suggesting that prosecutors
suborned perjury, “It is my firm belief that not only
myself, but you, Breen and Levine all know what you did
. . . .” (Attachment 5D, 12/11/05).
• Referring to former Assistant United States Attorney,
Kenneth Breen: “The real terrorist is out there,
walking free, having used my life as a spring-board
into the private sector, doing exactly what he found so
distasteful by Royer.” (Attachment 5E, 12/23/05).
• “Isn’t this all being done so they can finally lynch
the nasty Arab guy?” (Attachment 5F, 1/14/06).
As this Court knows, the government was extremely restrained in
its presentation of evidence touching on certain aspects of this
defendant’s conduct.19 For this defendant, who finds it
impossible to mind his own store, to lash out by impugning the
government’s integrity is unjust and irresponsible. It is,
however, sadly consistent with the defendant’s need to wrongly
castigate others while minimizing his own misdeeds, a theme that
runs through his sentencing submission.
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 39 of 88
40
F.#2002R01303
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - X
UNITED STATES OF AMERICA
-against- 02 CR 589 (S-2) (RJD)
04 CR 652 (RJD)
AMR I. ELGINDY,
Defendant.
- - - - - - - - - - - - - - - - X
GOVERNMENT’S SENTENCING MEMORANDUM
ROSLYNN R. MAUSKOPF
UNITED STATES ATTORNEY
Eastern District of New York
One Pierrepont Plaza
Brooklyn, New York 11201
JOHN A. NATHANSON
Assistant United States Attorney
(Of Counsel)
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 1 of 88
2
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - X
UNITED STATES OF AMERICA
-against- 02 CR 589 (S-1) (RJD)
04 CR 652 (RJD)
AMR I. ELGINDY,
Defendant.
- - - - - - - - - - - - - - - - X
PRELIMINARY STATEMENT
The defendant contends that he should be sentenced as
if this case were about nothing more than his personal trading in
four stocks. Over more than one hundred pages, the defendant
barely acknowledges that he was convicted of racketeering through
the eponymous Elgindy Enterprise. He barely acknowledges that he
was convicted of conspiring with others to commit a securities
fraud that went far, far beyond those four stocks. He denies
that he played any significant role in the Elgindy Enterprise,
despite the fact that he was its leader. He glosses over the
fact that, after being released on bail in this case, he
committed yet another crime by lying to federal officials in an
attempt to flee.
Perhaps most importantly, the defendant, in his desire
to divert this Court’s attention, eschews any mention of the
extraordinary scope of the corruption of governmental functions
that lies at the heart of this case. By seizing on the capacity
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 2 of 88
3
of his co-defendant, Jeffrey Royer, to misappropriate law
enforcement information and by promising him lucrative
employment, the defendant induced Royer to steal information
about dozens of FBI and SEC investigations. Those investigations
involved undercover agents and cooperating witnesses, some of
them involved in organized crime and terrorism cases. When Royer
left the FBI, the defendant ensured that a successor, Lynn
Wingate, replaced him. Together, Royer and Wingate performed
hundreds and hundreds of illicit searches in the FBI’s
confidential databases. In essence, numerous sensitive
investigations were compromised for the sake of the defendant’s
and his co-conspirators’ greed. Even had this defendant failed
to earn a single dollar through his criminal enterprise, his role
in this extraordinary breach of the public trust would warrant a
lengthy sentence.
Below, without attempting to reprise all the facts
adduced over a twelve-week trial or to reargue years of legal
wrangling, the government (relatively) briefly sets out the
relevant factual and legal settings that we submit should guide
this Court’s sentencing determination. Applying what the
government believes to be the appropriate guidelines analysis,
the guidelines imprisonment range for this defendant is life.
The government respectfully submits that, in keeping with the
true nature of the defendant’s crime, this Court should sentence
him to a very substantial term of imprisonment.
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4
I. THE NATURE AND CIRCUMSTANCES OF THE OFFENSE
The defendant was convicted of racketeering conspiracy
through his leadership of the criminal Elgindy Enterprise, an
organization composed of the defendant, Derrick Cleveland,
Jeffrey Royer and various others, including members of the
defendant’s AnthonyPacific.com website (the “AP site”). The
Elgindy Enterprise operated through the AP site and another of
the defendant’s corrupt entities, Pacific Equity Investigations.
In connection with the defendant’s leadership of the
Elgindy Enterprise, he was convicted of the following
racketeering acts, as well as the corresponding substantive
crimes: conspiring to commit securities fraud; four securities
frauds associated with Seaview (“SEVU”), Optimum Source (“OSIN”),
Polymedica (“PLMD”) and Junum (“JUNM”); conspiring to commit
extortion; extortion of Paul Brown and his company, Nuclear
Solutions (“NSOL”); defrauding AP site members by frontrunning
the defendant’s trading call on Vital Living Products (“VLPI”);
and defrauding AP site members by trading against the advice the
defendant gave them on Innovative Software Technologies (“INIV”)
and VLPI. The defendant, however, would like this Court to
ignore the convictions for racketeering and conspiracy and
sentence the defendant as if the jury’s verdict were limited to
the substantive acts of securities fraud and extortion. But the
racketeering and securities conspiracies go far, far beyond those
individual acts. Rather, the defendant led an enterprise that
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1 Transcript references are to the electronic transcript,
which varies at certain points from the hard-copy transcript.
5
obtained and traded on confidential law enforcement information
in dozens of stocks. The defendant, through the AP site and his
InsideTruth stock reports, manipulated the market in dozens of
stocks through deceptive trading, timed release of information,
exaggerated claims of influence over market prices and other
misrepresentations. The entire scope of the defendant’s criminal
conduct - not an isolated sliver - is the proper subject of
sentencing.
A. An Introduction to the Defendant’s Criminal Enterprise
Derrick Cleveland met Jeffrey Royer - an FBI agent then
working in Oklahoma City - in early 2000 when Royer appeared at
Cleveland’s office. (Tr. 172).1 Shortly after that initial
encounter, Royer appeared again and Cleveland showed him the AP
site, (Tr. 174), whose primary purpose was to recommend shorting
certain stocks. (Tr. 191).
Royer first provided confidential law enforcement
information to Cleveland in March 2000 regarding Broadband
Wireless (“BBAN”). (Tr. 214; GX-JL-1). Cleveland immediately
conveyed the information to the defendant, because he “knew that
the information was information you couldn’t get anywhere else.
It was the best information that a person could get a hold of in
my opinion . . . .” (Tr. 217). In fact, the defendant traded on
the information. (GX-2582). Cleveland told the defendant that
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 5 of 88
2 While the defendant claims that certain information
provided by Royer was available elsewhere, the defendant ignores
witnesses’ testimony that similar information is more valuable
when the source is the FBI. (Tr. 3839).
6
he learned the information from an FBI agent. (Tr. 219). The
defendant suggested a three-way call, in which the defendant did
not announce his presence, so that the defendant could assure
himself that Cleveland had described the information and its
source correctly. (Tr. 219). During his very first contact with
Royer, the defendant urged Cleveland to get more specific
confidential law enforcement information from Royer. (Tr. 221).
Shortly after Royer provided Cleveland and the
defendant confidential law enforcement information on BBAN, Royer
provided Cleveland additional misappropriated information about
other companies. (Tr. 226). Cleveland suggested to Royer that
they could make a lot of money trading in these and other
companies’ stocks based on Royer’s information, and that they
could give the information to the defendant so that, through the
defendant’s website, they could “crush” the stocks. (Tr. 228).
The defendant was incarcerated from June through
September 2000 following his conviction for insurance fraud.
Once the defendant was released from jail in early October 2000,
Cleveland started feeding the defendant confidential law
enforcement information,2 initially on Seaview Underwater
Research, Inc. (“SEVU”). (Tr. 266-67). If there was any doubt
as to the source of this information, Cleveland told the
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 6 of 88
7
defendant when first passing information on SEVU that he received
it from “Jeff,” “my FBI friend.” (Tr. 270). Included in the
information Cleveland passed the defendant was a reference to an
“undercover” SEC operative at SEVU. (Tr. 278). The defendant
released some, but not all, of the SEVU confidential law
enforcement information on AP through chat and audio. (Tr. 287).
The defendant specifically instructed AP members that they should
use the information for trading purposes but should not release
the information. (Tr. 320). When the defendant asked Cleveland
why Royer was providing this information, Cleveland told him “as
far as money goes, I’m taking care” of Royer. (Tr. 322).
After the SEVU insider trading, the defendant continued
to obtain confidential law enforcement information from Royer
through Cleveland. Most of the time, the information was passed
to the defendant. In late 2000, the defendant asked to speak,
and did speak, with Royer directly. (Tr. 323). From that point
forward, while most information still flowed through Cleveland,
the defendant and Royer also communicated directly with one
another. (Tr. 324). On some occasions, the defendant initiated
discussions with Royer, or asked Cleveland to initiate
discussions with Royer, to obtain misappropriated information
with respect to particular stocks. (Tr. 482-83; 596). The
defendant insisted to Cleveland that he be the first to receive
confidential law enforcement information and that he be the
person who determined whether to disseminate it to AP site
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8
members, in part to avoid exposing the unlawful conduct. (Tr.
528, 610, 761-62).
The defendant had Royer, whom the defendant called “my
personal FBI agent,” appear on the AP site, under the name AP
Cork, so that Royer could verify to AP site members that the
information they received did indeed originate with the FBI.
(Tr. 441; 450). In addition to placing confidential law
enforcement information on the AP site and encouraging his
members to trade on the information, the defendant actively
worked with Royer to pry information from SEC personnel. (Tr.
329). He simultaneously ridiculed them - “I need a public
servant to wipe my boots.” (Tr. 421).
At the same time that the defendant was engaging in the
controlled dissemination of confidential law enforcement
information provided by his personal FBI agent, he routinely
sought to conceal his criminal conduct by purging chat logs that
contained such information. (Tr. 407; 452 (“Erase the log
Hansen”); 2488 “Be sure to purge the logs”; 2542 (ordering Hansen
to purge chat mistakenly placed on AP site concerning Nuclear
Solutions ("NSOL")).
B. The Devolution of the Defendant’s AP Site
The defendant’s racketeering enterprise revolved around
and depended on his AP site. Between December 1999 and April
2002, AP site members paid between $200 and $600 per month to
subscribe to the AP site. During that period, site fees totaled
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9
$2,705,213.33. (GX-3002). While Robert Hansen, the AP site
administrator, believed that the AP site started as a “bona fide
research site,” its nature and purpose changed in late 2001,
starting with the dissemination of SEVU confidential law
enforcement information. (Tr. 2498). Kent Terrell testified
that, after the defendant was released from jail in October 2000,
the AP site began to focus on “scam stocks.” (Tr. 3813). While
the defendant cites Jeffrey Rubenstein’s testimony concerning the
emphasis of the AP site, Rubenstein testified that “he didn’t pay
close attention” to the specifics of the stocks about which
confidential law enforcement information was provided to AP site
members because he generally did not trade them. (Tr. 5880).
Rubenstein also conceded that InsideTruth - an integral part of
the defendant’s manipulative scheme - focused on “scam stocks.”
(Tr. 5932). The defendant himself stated in chat that the FBI
information was “what the site is all about. Fidelity and
bravery and insider selling.” (Tr. 584).
Further, while the defendant falsely told site members
that all site fees went to the maintenance of the site, in fact
the defendant paid Hansen only a small percentage of the fees for
Hansen’s services and site maintenance. (Tr. 2469, 2635). That
percentage started at 15%, but was reduced to 9% in early 2001.
(Tr. 2469, 2635, 2645).
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10
C. The Defendant’s Personal FBI Agent
While the defendant would like this Court to focus its
attention on the relationship between Royer and Cleveland, the
evidence makes clear that the defendant, once involved in the
enterprise, made it his own. He did this, in part, by actively
cultivating his relationship with Royer. In February 2001, the
defendant invited Royer and Cleveland to the defendant’s house in
San Diego. (Tr. 552). While there, Royer told the defendant how
FBI investigations worked (Tr. 560); the defendant told Royer how
much money he had made from certain information provided by Royer
(Tr. 561); the defendant proposed to Royer that Royer work for
the defendant, and Royer accepted (Tr. 568-69); and Royer asked
whether the defendant could loan him money. (Tr. 569). On May
23, 2001, the defendant told the AP site that he was hiring a
“current FBI agent” to act as an investigator (which the
defendant conceded was a “conflict of interest” while Royer
remained with the FBI). (Tr. 621; GX-3311 “I’m hiring another
FBI Agent . . . he’ll have to leave the FBI at the time. . . . .
I’ve put a very lucrative deal in front of him”). On June 27,
2000, Royer, e-mailing the defendant about his prospective job,
wrote, “i want to make a million dollars a year . . . if you want
to make 20 million, then i will make 2.” (GX-2222).
In fact, it’s clear that Royer essentially worked for
the defendant well before he left the FBI at the end of December
2001. For example, on July 12, 2001, Royer e-mailed the
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11
defendant, “Laughed my ass off at GAHI today. What a shit
company. Take care of Derrick on this one. He got some good
info in my opinion. Solomon Grey could potentially keep us in
business for a long time. Meanwhile, we can drive them crazy by
driving their dick in the dirt on all their turd deals.” (GX-
2093).
In the Summer of 2001, the defendant organized a trip
to Las Vegas with various AP site members - not including
Cleveland (Tr. 617) - and Royer joined them and stayed with the
defendant in his hotel room. (Tr. 616). Among other things,
during the trip Royer provided the defendant with confidential
law enforcement information concerning JUNM and further discussed
with the defendant Royer’s employment. (Tr. 617, 620). As part
of the Las Vegas festivities, the defendant and several AP site
members were photographed with Royer’s business card plastered to
their foreheads. (Tr. 617). After promising to pay Royer for
his trip expenses, the defendant eventually partially reimbursed
him. (Tr. 616, 620). Also during the Summer of 2001, and later,
the defendant and Cleveland discussed Royer’s ability to continue
obtaining confidential law enforcement information after he left
the FBI through Royer's girlfriend Lynn Wingate and another law
enforcement officer. (Tr. 800, 803).
Royer was sufficiently in the defendant’s pocket that
Royer wrote a letter to the defendant’s probation officer,
recommending early probation-termination, in which Royer falsely
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12
claimed he was still an FBI agent. (Tr. 812). As is clear from
discussions about this letter, the defendant wanted to use
Royer’s position as an FBI agent in any way that satisfied the
defendant’s ends and Royer was willing to do anything to curry
the defendant’s favor. Thus, on August 14, 2001, the defendant
told Royer he would “need a letter saying how valuable I am to
the U.S. government . . . .” (GX-2104). Royer replied,
Can I start with something like Tony is so
cool he shits ice cubes or Tony is as
valuable to the U.S. Government as two-ply is
to toilet paper. Both of these statements
are true to the best of my knowledge. I know
I have to write a recommendation for you, but
when, where and how. It would be great if I
didn't have to due to some flunky finding out
about it later and holding it against us, but
whatever works, I know you don't want me to
leave the bureau before it is written, all I
want to know is if that will be in October,
April or next October.” (GX-2104).
Finally, in January 2002, both Royer and Cleveland
officially started working in the defendant’s office in San
Diego. (Tr. 837). The defendant even paid a portion of Royer
and Cleveland’s San Diego apartment rent. (Tr. 943).
D. The Scope of the Defendant’s Insider Trading Scheme
Royer provided Cleveland confidential law enforcement
information - not all of it associated with computer searches -
with respect to more than fifty companies. (Tr. 489). With
respect to the computer searches alone, between March 30, 2000
(BBAN) and March 4, 2002 (IMCL), Royer and Lynn Wingate
misappropriated and passed confidential law enforcement
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 12 of 88
3 Royer and Cleveland passed confidential law enforcement
information to the defendant, who then passed the information to
AP members, concerning the following stocks: Seaview (“SEVU);
Freedom Surf (“FRSH”) (Tr. 495); SoftQuad (“SXML”) (Tr. 508);
BioPulse (“BIOP”) (Tr. 529); GenesisIntermedia (“GENI”) (Tr. 538,
3874); Optimum Source (“OSIN”) (Tr. 579); Polymedica (“PLMD”)
(Tr. 595); Hercules (“HDBG”); Junum (“JUNM”) (Tr. 629, 3859);
Global Asset Holdings (“GAHI”) (Tr. 637); Flor Decor (“FLOR”)
(Tr. 735); Trident (“TDNT”) (Tr. 762); TTR Technologies (“TTRE”)
(Tr. 3870); Real Time Cars (“RTCI”) (Tr. 783, 3863); Hypermedia
(“NMNW”) (Tr. 788); Vital Living (“VLPI”) (Tr. 814); Eagle
Building (“EGBT”) (Tr. 3873); Nuclear Solutions (“NSOL”); BGI
Industries (“BGII”) (Tr. 906, 2542); Medi-Hut (“MHUT”); and
(“IVSO”) (Tr. 917). Royer and Cleveland passed confidential law
enforcement information to the defendant and Terrell concerning
the following stocks: (“BYTE”) (Tr. 516) and Jaguar (“JGUR”) (Tr.
646). Terrell put the BYTE and JGUR information on the AP site.
(Tr. 524, 646). Royer and Cleveland passed confidential law
enforcement information to the defendant regarding Sulphco
(“SLPH”), after which the defendant made an AP site trading call
on that stock. (Tr. 656-58, 672). As noted, the defendant also
received confidential law enforcement information regarding
Broadband Wireless (“BBAN”). By reviewing FBI records, Special
Agent Jack Liao was able to determine that Royer misappropriated
confidential law enforcement information for at least 37 stocks,
including all of the stocks mentioned in this footnote. (GX-JL-
1).
13
information on dozens of companies and individuals.3 On numerous
occasions, the defendant published some or all of this
information on the AP site. With respect to additional stocks,
the defendant’s co-conspirator, Kent Terrell, published
confidential law enforcement information on the AP site. On
other occasions, the defendant received confidential law
enforcement information but did not place it on the site.
After receiving confidential law enforcement
information from the FBI, the defendant himself traded in at
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4 See Gov’t Sentencing Mem., Attachment 1. This
attachment shows trading by the defendant and his co-conspirators
in 32 of the at least 37 stocks for which confidential law
enforcement information was accessed by Royer and/or Wingate (the
government did not perform a trading analysis with respect to the
remaining 5 stocks).
14
least 23 stocks.4 The defendant actively encouraged AP site
members to do the same, in part to put downward price pressure on
the stocks and thereby increase the value of the defendant’s
short positions. As Cleveland described, AP was a short-selling
site where people were trading in the same way, causing downward
momentum in a stock. (Tr. 201). As the defendant expected of
them, members did, in fact, frequently follow the defendant’s
trading calls. (Tr. 2496, 2576, 3817 (members were “expected to
take – you know, the same positions that were the same as” the
defendant’s)). The defendant even told his co-conspirator
Terrell where to set up a trading account so that Terrell could
short sell stocks discussed on the AP site. (Tr. 3808).
Even the defendant’s trial witness, Peter Michaelson,
admitted that he knew that he has received and traded on material
confidential law enforcement information from FBI and SEC sources
on the AP site. (Tr. 5391, 5450, 5564). Michaelson further
stated that he believed others on the AP site traded on this
information as well. (Tr. 5878). Michaelson also testified that
he thought the defendant “lied all the time. Exaggerated,
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5 In fact, Michaelson’s testimony was riddled with
inconsistencies. When asked on cross-examination about his
direct testimony, Michaelson stated “I don't affirm or I don't
know what I said yesterday, I was really tired.” (Tr. 5478).
Q. So, are you saying that we should just disregard
your testimony from yesterday altogether?
A. I wish you would. (Tr. 5478).
15
enhanced. Made himself look good.” (Tr. 5476).5 Rubenstein
himself traded PLMD while in possession of confidential law
enforcement information. (Tr. 5868).
E. The Defendant’s Manipulation Scheme
In conjunction with his insider trading scheme, the
defendant actively engaged in manipulating share price in certain
stocks in order to enhance his profits. For example, the
defendant instructed AP site members to stop “hitting” SEVU stock
because he wanted to maintain the price at around $7/share and
threatened to cut off inside information if they did not obey.
(Tr. 340; 419-20; 424). With respect to SLPH, the defendant told
AP site members, “I want SULPH in the fives,” i.e., in the five
dollar range, so that he could get a cheap block of stock to
cover short positions. (Tr. 690, 694). In connection with with
his extortion of A. J. Nassar and FLOR, the defendant instructed
his site members on how and when to trade in order to
artificially set FLOR’s price. (GX-DC-163). Indeed, one of the
defendant’s goals was to use the SEC to halt trading in a stock,
a boon to short sellers. (Tr. 421).
The defendant sought to impose control on the flow of
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6 The defendant espoused this same view of the investing
public in an article entitled The Dumbass, The Daytrader, and the
New Democracy. (Def.’s Sentencing Mem., Exh. 5 (“‘The public is
there for one reason and one reason only,’ Anthony told me when I
got him on the phone. ‘To absorb the risk.’”)).
16
[continue] to be a thorn in everyone’s side I will pluck you
out”).
The defendant used his InsideTruth reports to further
his manipulative scheme. Rather than being a genuine research
tool, InsideTruth’s true purpose was to put out negative reports
on stocks that the defendant, his co-conspirators and site
members were shorting in order to cause those stocks to fall.
(Tr. 344, 726, 851 (purpose was “to do as much damage as we
possibly could”); 2578 (InsideTruth became “a trading vehicle”);
2588; 3819 (purpose of InsideTruth was “to put pressure on the
stock”)). The defendant also sent the reports to market makers
so that they would “back away” from the reported stocks. (Tr.
358). The defendant intended that InsideTruth garner a
reputation for “exposing a stock and causing the stock to
plummet.” (Tr. 2581).
InsideTruth sometimes included false publication dates
in order to persuade the public of InsideTruth’s importance, thus
exaggerating the potential impact of the defendant’s future
trading calls and reports. (Tr. 2591 (false dates as to BIOP,
GENI and EGBT reports); GX-3012, GX-3016, GX-3017, GX-3022, GX-
3022, GX-3024). In an InsideTruth report on GENI, the defendant
disseminated false information via InsideTruth regarding a
supposed relationship between Osama Bin-Laden and Adnan Kashoggi.
(Tr. 801; GX-3012 (InsideTruth initiated coverage on GENI “with
an immediate sell and a terrorist warning”)). In connection with
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18
GENI, prior to the publication of the InsideTruth report,
defendant told AP site members that “[w]e just raped the sheep.”
(Tr. 802). The defendant also disseminated false information
about Paul Brown’s criminal history, claiming that Brown - the
CEO of Nuclear Solutions (“NSOL”) - had three felony convictions
whereas he had only one conviction which had been expunged.
From the commencement of the prosecution of this case,
the defendant has argued that the mere dissemination of accurate,
negative information is insufficient to prove manipulation. He
has also argued that group trading, standing alone, is
insufficient to prove manipulation. This Court’s jury
instructions were consistent with those arguments. (Jury Charge,
Tr. 8845).
As summarized above, however, the government proved
much more than that. The defendant disseminated misappropriated
information to his site members, then instructed them on how to
use that information in their trading. He reprimanded members
when they disobeyed him. As the SEVU and SLPH examples noted
above illustrate, the defendant did this for the purpose of
achieving a particular stock price. The defendant engaged in
similar conduct with respect to FLOR. (GX-DC-163 (“GET the hell
off the bid on FLOR at 2.50 & leave the 2.45 bid. . . . you are
screwing up everything for everyone.”)). The defendant also
intentionally exaggerated the significance of his research
reports, in part through backdating them. The defendant lied to
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 18 of 88
7 See Santa Fe Indus. v. Green, 430 U.S. 462 (1977)
(“Congress meant to prohibit the full range of ingenious devices
that might be used to manipulate securities prices.”); Gurary v.
Winehouse, 190 F.3d 37, 45 (2d Cir. 1999) (“gravamen of
manipulation is deception of investors into believing that prices
at which they purchase and sell securities are determined by the
natural interplay of supply and demand.”); United States v.
Mulheren, 938 F.2d 364, 368 (2d Cir. 1991) (expressing discomfort
with finding manipulation based on one trader’s intention to
benefit another, but noting that evidence of an agreement between
the parties would have made the case “much less troubling”);
Nanopierce Technologies v. Southridge Capital Management LLC,
2002 WL 31819207 (S.D.N.Y. Oct. 10, 2002) (combination of
manipulative intent and other indicia of manipulation, such as
trading timing and market domination, sufficient to state market
manipulation claim). Cf. GFL Advantage Fund, Ltd. v. Colkitt,
272 F.3d 189, 204 (3d Cir. 2001) (while short selling itself is
insufficient to show manipulation, intentional injection of
“inaccurate information” into market or creation of “false
impression” that prices are set by natural interplay of supply
and demand is sufficient).
19
his site members about the use of the site fees, again to give
the impression that he was a selfless “crusader,” thus further
exaggerating his influence. As Michaelson testified, the
defendant “lied all the time. Exaggerated, enhanced. Made
himself look good.” (Tr. 5476). As noted, he outright lied with
respect to GENI and Paul Brown. All of these deceptions served
to intentionally enhance the defendant’s ability to influence
trading and prices.
Taken together, the defendant’s actions artificially
impacted the market prices of the shares of companies he
targeted, putting the defendant’s actions squarely within the
definition of manipulative conduct.7
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20
explained that I’d have to cover Elgindy’s . . . shorts.”; GX-
3925 (the defendant to Brown, “I already made my deal. We’re
gonna exit . . . and I’m going to leave you alone because you’re
friends with Troy.”)).
Peters described to Brown that he and the defendant had
made the same sort of deal with A. J. Nassar at Flor Decor. (GX-
3915 (“Tony was shorting Floor Decor. And I, and I went through
the same gymnastics as as as we’re going through now. . . . So I
had Floor Decor sign an investment banking agreement with my
brokerage firm.”)). The defendant, through his co-conspirators,
told Brown to call Nassar to give Brown comfort that paying off
the defendant would make him go away. (GX-3911 (Nassar told
Brown, “Actually, [Elgindy] had been beating up a couple things I
was involved in and putting, you know crap out and uh, Troy
actually made it go away. . . . [Elgindy] is gonna lie, cheat,
steal and do whatever he can to drive your stock down)).
For that purpose, the defendant solicited from site
members an accounting of their NSOL short positions. (Tr. 889,
891, 2542 (“I am being offered a block of [NSOL] stock at $1.50.
Working on a better price. We either do it all together or we
don’t do it at all. . . . Oh shit. Hansen, erase this log”)).
The defendant then caused Brown to sign an agreement with Peters
in which Peters’s company, Valhalla Capital, would allegedly
provide investment banking services to NSOL in exchange for
unrestricted stock. (Tr. 3510). In fact, no such services were
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22
contemplated or provided. (Tr. 3530). Because Brown did not
provide the block of stock rapidly enough for the defendant’s
liking, he recommenced his short-selling campaign. (Tr. 3900
(“Dr. Brown will be my pregnant dog.”); GX-3923 (Peters told Brown, “I
just want you to know at this particular juncture . . . if [this
deal] doesn’t go down these guys are gonna declare war.”))
Finally, after NSOL provided the discounted block of stock to the
defendant, the defendant terminated coverage of NSOL. (Tr. 3901-
02 (“we are pulling out of NSOL”)). On April 8, 2002, having
learned that Brown had died in a car accident, the defendant
wrote, “yeah i must have killed him . . . thats how badlky i need
to make a buck . . . NSOL<—no longer banned.” (GX-DC-331). On
May 15, 2002, the defendant reminded his site members that NSOL
was back in play: “NSOLE<–short 15% @1.15. Don’t forget he CEO
Is no worm food . . . .” (GX-DC-341).
As the defendant agrees, the FLOR extortion scheme -
which occurred prior to the NSOL extortion - was very similar.
The defendant put extremely negative, confidential law
enforcement information about Nassar on the AP site. (Tr. 735,
739; GX-3463 (“najjar [sic] is under investigation for terrorism
links and rico”)). Based on that information, the defendant and
AP site members, at his direction, heavily shorted FLOR stock,
causing significant downward movement. Nassar believed that the
information posted by the defendant on the AP site caused FLOR’s
stock to drop and created a severe, potentially bankrupting
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23
problem for the company. (Tr. 3690). Nassar, therefore,
contacted David Slavney, who put Nassar in touch with Peters.
(Tr. 3692). Nassar asked Peters how to get rid of the defendant,
and Peters told Nassar he should offer the defendant a belowmarket
block of stock. (Tr. 3694). Nassar then signed an
investment banking agreement with Valhalla Capital that served no
purpose other than to transfer FLOR stock to the defendant to get
rid of him. (Tr. 3695-98; GX-1890). Later, the defendant
solicited from site members an accounting of their FLOR short
positions so that he could extort an appropriately-sized block of
stock from Nassar. (Tr. 739-41, 2537). The defendant exhorted
site members not to offer to purchase FLOR stock for a higher
price than the one he wanted for the block. (Tr. 743). After
negotiating that price, the defendant told site members to cover
their short positions at the arranged price, despite the fact
that some members thought the price would drop further. (Tr.
745, 755). The defendant agreed to “go away” if Nassar gave him
the block. (Tr. 756). When Nassar gave him the block, the
defendant terminated coverage. (Tr. 759).
G. The Defendant Functioned as an Investment Adviser
While the defendant denies that he acted as an
“investment adviser,” the defendant, as detailed above,
essentially told AP members what stocks to trade and when to
trade them. (Tr. 939). As Hansen testified, the AP “site
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24
basically offered stock advice. It offered trading advice.”
(Tr. 2472).
The Supreme Court's decision in Lowe v. Securities and
Exchange Comm'n, 472 U.S. 181 (1985) supports finding that the
defendant was an investment advisor. There, Lowe published three
newsletters that the Court held were "bona fide" publications
specifically excluded from the Investment Advisers Act because,
though they discussed buying and selling securities, they were
"completely disinterested, and [ ] were offered to the general
public on a regular schedule . . . ." Lowe, 472 U.S. at 206.
The Court explicitly differentiated the newsletters published by
Lowe from those that "were designed to tout any security in which
petitioners had an interest" or that were "timed to specific
market activity" because these type of publications were prone to
the "dangers of fraud, deception and overreaching that motivated
the enactment of the statute . . . ." Id. at 209-10.
Here, the defendant's trading calls on the AP site were
not offered to the public on a regular basis, were timed to
specific market activity - including the defendant's acquisition
of misappropriated information - and were anything but
disinterested. Moreover, unlike Lowe, the defendant responded
directly to the AP site members comments about particular
securities, hardly the "entirely impersonal" type of
communication the Court found excluded from the Act. Id. at 210.
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 24 of 88
8 This figure was calculated as follows. The average
price for all sales occurring on the same day, but only after,
the defendant “front ran” or “traded against advice” was
calculated. The difference between that price and the price the
defendant obtained for his sales was then determined. That
difference was multiplied by the total number of shares sold by
the defendant to derive the profit realized by the defendant
25
H. The Defendant Front Ran and Traded Against Advice
AP members were told that the defendant did not trade
in front of trading calls and that the defendant always traded
consistently with his advice. (Tr. 194, 197, 2623). In fact,
Hansen came to believe that the defendant was doing both. (Tr.
2596). A comparison of the defendant’s trading calls and his
trading records demonstrates, as Hansen stated, that the
defendant regularly traded ahead of AP site broadcasts on
particular stocks. (Attachment 2; Tr. 4546; GX-DB-2; GX-2582;
GX-3001).
While the defendant demeans the jury’s guilty verdicts
with respect to the certain frontrunning and trading against
advice charges in connection with VLPI and INIV - he calls them
“‘gotcha’-type add-on charges” (Def.’s Sentencing Mem., p. 59) -
it remains that the jury did find the defendant committed those
crimes on at least some occasions.
The defendant also states that there were no profits
from these crimes. In fact, as shown in Attachment 3, on just
those instances where the jury convicted him of frontrunning and
trading against advice, the defendant made $31,877.80.8
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 25 of 88
through frontrunning or trading against advice.
This figure, of course, greatly understates the
defendant’s profits from frontrunning and trading against advice
as it only accounts for the counts of conviction. Because these
profits are included in the defendant’s insider trading profits
and therefore do not increase the defendant’s gains for
sentencing purposes, however, the government has not calculated
the gain to the defendant for frontrunning and trading against
advice with respect to the other stocks in the indictment.
26
I. The Defendant’s Obstruction of Justice
The defendant wrote in chat, with respect to one of his
insider trading stocks, “[o]bstruction of justice very serious
stuff. Wouldn’t want to jeopardize safety of agent or anything.”
(Tr. 2504). Nonetheless, the defendant did not hesitate to
obstruct justice with respect to the FBI’s investigation of him.
Because the defendant understood that he was routinely
committing crimes and because Royer could and did provide
information to the defendant about criminal investigations of
others, the defendant had an obvious interest in keeping tabs on
whether he himself was under investigation. On several occasions
prior to September 2001, the defendant asked Cleveland to
determine from Royer whether the defendant was under
investigation (which Royer informed the defendant he was not).
(Tr. 483-84, 775). On various other occasions, the defendant
made this request directly of Royer. (Tr. 487).
In September 2001, Royer told Cleveland that the
defendant was under investigation for a serious matter
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27
independent of securities fraud. (Tr. 805). Royer and Cleveland
spoke about the matter many times, both before and after Royer
left the FBI in December 2001. (Tr. 806, 946). Royer told
Cleveland that the defendant had been reported to the FBI by two
individuals, Matthew Tyson and John Liviakis. (Tr. 807). Royer
also mentioned that FBI reports indicated that the defendant had
contributed to a Middle Eastern charity called “Mercy
International.” (Tr. 809). Royer similarly told Michael
Mitchell that the defendant was being investigated in connection
with money given to a Middle Eastern charity. (Tr. 3129).
At least some of this information was passed on to the
defendant. After Royer and Cleveland had moved to San Diego to
work with the defendant, Royer told Cleveland that he had given
some information to the defendant about the investigation, though
Royer had not provided specifics to the defendant. (Tr. 947).
That the defendant did possess knowledge about the investigation
was demonstrated when he spontaneously told Special Agent David
Sutherland in a post-arrest interview that he did not contribute
to Middle Eastern charities. (Tr. 4456).
Moreover, the defendant acted like someone who
understood he was being investigated by the FBI in connection
with a serious matter. While in San Diego working at the
defendant’s office in 2002, Cleveland saw the defendant handling
large sums of cash and witnessed him wiring money to Lebanon.
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9 The defendant argues that, because he told AP site
members that he was going to Lebanon, he was clearly not planning
to flee. (Def.’s Sentencing Mem., p. 100). The defendant,
however, frequently broadcast his criminal activities to site
members, then attempted to control further dissemination.
Additionally, he never told site members about the details of his
activities in Lebanon. Most significantly, as detailed, he kept
the matter secret from his probation officer. The defendant,
while he did eventually tell the probation officer that he had
been in Lebanon, did not do so until she had discovered the fact
from an FBI agent and directly asked the defendant where he had
been. (Tr. 3489).
28
(Tr. 957). Cleveland also witnessed a conversation between Royer
and the defendant in which the defendant asked Royer what would
happen if the defendant - without his supervising probation
officer’s permission - “fled” to Lebanon. (Tr. 959). The
defendant told Cleveland that Lebanon had “the best bank secrecy
laws in the world.” (Tr. 961). During Spring 2002, the
defendant asked Hansen to start wiring site fees to a bank in
Lebanon. (Tr. 2604; GX-3449).
In fact, the defendant, without permission from his
supervising probation officer, traveled to Lebanon in November
2001.9 (Tr. 3429-30; GX-3700, p. 20). During this period, the
defendant arranged for the purchase of an apartment in Beirut,
(GX-4617), which he did not communicate to the probation officer.
(Tr. 3501). Nor did the defendant disclose to her that he had
transferred $124,995 to a Lebanese bank account on one occasion,
(GX-1058; Tr. 3501), or $225,000 on a second occasion. (GX-371;
GX-3743; Tr. 3502-03). In addition, in October 2001, the
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10 That the defendant knew of the investigation and took
steps to alter his behavior is supported by an e-mail Royer wrote
the defendant on February 7, 2002, in which Royer stated “[w]e
definitely need some breathing room . . . I need to get a feel
for what the bureau is doing in regard to this whole ordeal. We
are so close, no need to screw things up.” (GX-2499). In that
same e-mail, Royer told the defendant, “Get some good facetime
with Derrick as he has lots on his mind.” (GX-2499). As
Cleveland testified, what was primarily on his mind in February
2002 was the FBI’s investigation into the defendant.
29
defendant opened a trading account in which he described himself
as a resident of Lebanon, and, in April 2002, arranged for the
transfer of significant assets to that account. (GX-1054; GX-
1055; GX-1058; GX-4011). Meanwhile, in February 2002, the
defendant requested that his supervising probation officer grant
him permission to travel to Lebanon for a second time, shortly
after which he told her he was quitting the “whistleblowing”
business. (Tr. 3498; GX-3700).
In order to further free himself from the scrutiny of
his probation officer, the defendant had Royer write a letter to
the District Court Judge in the Northern District of Texas
recommending the defendant for early supervised release
termination. (Tr. 3487; GX-3738). In the undated letter,
submitted to the court on January 11, 2002, Royer claimed to
write in his “capacity as a Special Agent with the Federal Bureau
of Investigation,” despite the fact that he had left the FBI the
prior December and was employed by the defendant, a fact he
conveniently omitted.10
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11 The defendant specifically (and falsely) informed his
pre-trial services supervising officer that he would travel to
San Diego on April 19, 2004, just two days later. (Tr. 4222-23).
30
August 2003 (GX-3815); a Sam’s Club card in the name of “Herbert
Velasco” of “Velasco Export” issued August 2003 (GX-3814); air
flight coupons issued in a number of different names; and
cellular phones subscribed in the name of Joseph Torelli and
Hisham Sadek (Tr. 3454).
Upon arrest, the defendant falsely maintained that his
name was Manny Velasco and that he was a jewelry dealer. (GX-
3800; GX-3801). When asked the identity of Amr Elgindy, whose
name appeared on various documents and prescriptions in the
defendant’s possession, the defendant claimed Elgindy was his
lawyer. (GX-3801). It was not until officials discovered a
California driver’s license bearing the defendant’s photograph
that he belatedly admitted his true identity.
II. THE HISTORY AND CHARACTERISTICS OF THE DEFENDANT
A. The Defendant’s Employment History and Cooperation with
Authorities
The defendant boasted to Royer and others that he had
been employed by boiler rooms and chop shops - including the
notorious Blinder, Robinson & Co. (“Blinder”) - promoting
overvalued penny stocks.12 (Tr. 2629, 5554, 7796). The
defendant met Troy Peters, who assisted the defendant in his
extortions of Paul Brown and A.J. Nassar, while working at
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32
Blinder. The defendant later worked at Thomas James &
Associates, again with Peters and David Slavney, another
participant in the extortion schemes. In 1991, Thomas James
terminated the defendant, later stating that he had violated
“investment-related statutes” and “rules of industry standards
and conduct.” (GX-3455, p. 74). In 1997, the defendant was
censured and suspended by the NASD, and ordered to pay a $30,000
fine, in connection with his entry of “non-bona-fide” trading
orders in 1995 while at AMR Securities. (GX-3455, p. 31). The
NASD revoked the defendant’s NASD registration when the defendant
refused to comply with its orders in connection with that matter.
(GX-3455, p. 35). Also in 1997, the State of Ohio refused to
license the defendant as a broker, concluding that he was of “not
of good business repute.” (GX-3455, p. 40). Additionally,
before his broker license was revoked, the defendant had a
history of customer complaints while at various brokerage firms,
including one brought by the defendant’s mother that he settled
for $30,000. (GX-3455, pp. 23-79).
On at least two additional occasions - with respect to
Alco International Group Inc. (“Alco”) and Conectisys Corp.
(“Conectisys”) - the defendant was an active participant in
securities fraud conspiracies. Moreover, while the defendant
touted at trial, and continues to tout, his role as a “crusader
for propriety in the marketplace,” (Def.’s Sentencing Mem., p.
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13 While the defendant also touts his relationship with
Brent Baker, (Def.’s Sentencing Mem. at 51-52), particularly as
regards the investigation of Sulphco, Baker’s testimony was in no
way consistent with the defendant’s characterization. When asked
on direct examination whether the Reno, Nevada FBI office was
investigating Sulphco based on information provided by the
defendant, Baker testified “I remember specifically to the
contrary.” (Tr. 5930).
While the defendant now attempts to gain credit for his
involvement in the NECO investigation, (Def.’s Sentencing Mem.,
p. 53, n. 18), SEC attorney Patrick Hunnius testified that the
defendant’s information did not assist the SEC in bringing a
securities fraud case with respect to NECO. (Tr. 6358). While
the defendant also attempted to gain credit for halting trading
in EGBT and NECO, he was not the reason trading was halted in
either of those stocks. (Tr. 6085, 6368).
With respect to OSIN, while the defendant claims credit
for providing information to SEC attorney Robert Tercero, Tercero
stated that he had already been looking at the company and that
the defendant’s information was not the reason Tercero opened a
formal Matter Under Investigation. (Tr. 6418). In any case, the
OSIN matter went nowhere. (Tr. 6418).
33
54), the details of his involvement with Alco and Connectisys
make abundantly clear that he was, in fact, forced to help
authorities to avoid prosecution himself.13
In May 1995, the defendant signed a cooperation
agreement in which he agreed to provide testimony against
individuals in connection with a fraudulent 1993 scheme to
promote Alco stock. (GX-4006; Tr. 7808; GXC-4001, p. 431 (FBI
report referencing the defendant’s cooperation in exchange for
immunity from prosecution)). In January 1997, the Assistant
United States Attorney handling the Alco case wrote to her
counterpart in Texas - where the defendant was being investigated
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14 In an ABC 20/20 piece broadcast on May 2, 1997, the
defendant, though he was not asked about taking cash bribes
himself, proudly stated that many of the brokers working at
Armstrong McKinley were receiving cash bribes from Richards to
pump up Alco. (Def.’s Sentencing Mem., Exh. 4). The defendant
went so far as to acknowledge that he saw the cash delivered to
the brokers for whom he - as an owner of the firm - was
responsible.
15 In a July 29, 1996 article in Forbes, appropriately
titled One Day Soon the Music’s Going to Stop, the author
recounted another incident in which yet another of the
defendant’s brokerages, Key West Securities, manipulated the
share price of WellCare Management Group. (Def.’s Sentencing
Mem., Exh. 3).
34
for insurance fraud - that the defendant, as co-owner of
Armstrong, McKinley & Co., “accepted bribes from Melvin Lloyd
Richards and Allen Stout to sell securities, that Richards and
Stout were promoting, to the firm’s customers.”14 (GX-4007).
On the second occasion, with respect to Conectisys, the
defendant was a member of a “daisy chain” manipulation in which a
number of traders sold short positions, one to another, creating
artificial downward pressure on the stock. (Tr. 6267). More
particularly, in 1996 an individual named Mike Zaman dictated bid
and offer prices to the defendant, who acted as a market maker,
and the defendant set the bid and offer at the dictated prices
despite the fact that they did not result from market forces.
(Tr. 6557-59). In fact, the SEC viewed the defendant as an
“accomplice” who “knowingly participat[ed] in transactions and
[took] actions that were in furtherance of a manipulation.” (Tr.
6277, 6559, 6561, 6567, 7269).15 The defendant himself, in
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35
testimony he gave during the SEC’s case against Zaman,
acknowledged that Zaman had told the defendant that Zaman’s firm
was pushing the stock to the firm’s retail customers. (DX-12169,
p. 370). The defendant admitted that Zaman told the defendant
what bid and offer prices to set, and further told the defendant
to move the prices up without regard for demand for the stock.
(DX-12169, p. 372).
In fact, when authorities did use the defendant to
assist them, they did so with justifiable caution. For instance,
FBI Special Agent Michael Gaeta used the defendant as a
confidential informant in December 1996 for only five days before
he shut him down due to his “questionable reliability.” (Tr.
4821, 6507). With respect to more recent “cooperation,” the
defendant, of course, never revealed to authorities with whom he
claims he was “working” that certain of the information he passed
them was illicitly obtained from his personal rogue FBI agent.
(Tr. 6083).
B. The Defendant’s Criminal History
As detailed in the Pre-Sentence Investigation Report
(“PSR”), the defendant committed insurance fraud in 1994 by
accepting disability payments when, in fact, he was actively
employed. (PSR, ¶ 154; GX-3702). Through his conduct, the
defendant defrauded the insurer of $55,366. (GX-3702). The
defendant pled guilty to mail fraud and was sentenced on May 15,
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16 The defendant was arrested on at least four additional
occasions and charged with crimes including “Grand Theft Auto,”
“Assault with a Deadly Weapon,” “Driving While Intoxicated” and
“False Report to a Peace Officer” between 1985 and 1997. On each
of these occasions, the defendant was not prosecuted. (PSR, ¶¶
162-169).
17 The PSR also noted that, while the defendant was
diagnosed with Major Depression in 1994, at least one
psychologist concluded “that the defendant was very likely
exaggerating or fabricating his depressed mental condition
. . . .” (PSR, ¶ 185).
36
2000. He was sentenced to four months’ incarceration and three
years’ supervised release. (PSR, ¶ 154).16
C. The Defendant’s History of Bipolar Disorder
The defendant relies heavily on his diagnosis of
bipolar disorder as a mitigating sentencing factor. (Def.’s
Sentencing Mem., pp. 6, 27-29, 112 (listing the defendant’s
disorder as one of the “most relevant factors” supporting a
sentence of five years or less)). The defendant, however, has
done little to mitigate the alleged effects of his disorder on
himself and his family members.
The defendant was initially diagnosed with bipolar
disorder in June 1993.17 (PSR, ¶ 184). According to his
sentencing submission, at that time the defendant “finally began
therapy and started to learn how to deal with the severity of
[his] mood swings.” (Def.’s Sentencing Mem., p. 28). Despite
his stated concern for his family, surely addressed by his
treatment, the defendant stopped seeing a therapist in 1995.
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18 In his sentencing memorandum, the defendant also writes
at length about his good works on behalf of Kosovar refugees.
(Def.’s Sentencing Mem., pp. 21-27). These same good works -
together with his son’s condition - formed the basis for the
downward departure motion made by the defendant at his 2000
sentencing. After hearing from several witnesses, some of whom
vigorously disputed the defendant’s narrative concerning his
beneficence, the sentencing judge rejected the downward departure
motion and pronounced the evidence regarding the defendant’s
37
(Def.’s Sentencing Mem., p. 28). He did not recommence therapy
until after he was arrested in the instant case, seven years
after he had ceased treatment, even though his disorder was
addressed in connection with his sentencing on the insurance
fraud conviction in 2000. (Def.’s Sentencing Mem., p. 28).
Meanwhile, the defendant - rather than seeking help for
his acknowledged problems - was apparently engaged in destructive
behavior. (Def.’s Sentencing Mem., Exh. 16 (“By his own
admission - online and in interviews - he drank too much, partied
too much, and cheated on his wife.” “In 1996, Mrs. Elgindy filed
for divorce.”) Moreover, the defendant states that one of his
sons, who suffers from Tourette’s Syndrome and Attention Deficit
Hyperactivity Disorder, has been particularly (and
understandably) impacted by the defendant’s incarceration and the
possibility of a lengthy jail term. (Def.’s Sentencing Mem., p.
30-31). The defendant, however, emphasized his son’s disorders
in asking for a downward departure in connection with the 2000
insurance fraud sentencing, attaching some of the same reports he
now offers for this Court’s consideration.18 (Def.’s Sentencing
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humanitarian efforts “murky.” (See Attachment 4 (May 15, 2000
Minutes of Sentencing Proceeding), p. 117-18). The judge also
stated, “[t]here is a reason why you have these people willing to
come here and testify against you as they have. I don’t see that
very often, especially in sentencing.” (Attachment 4, p. 124).
38
Mem., Exh’s 7, 14). Despite his stated concern for his son and
his other family members, immediately upon his release from jail
in October 2000, the defendant - rather than mending his ways for
their sake - became the leader of a criminal enterprise.
D. The Defendant’s Lack of Remorse
Despite being convicted for racketeering, conspiracy to
commit securities fraud, extortion and other crimes, the
defendant accepts no responsibility for his conduct. Instead, he
has smeared prosecutors and proclaimed his innocence on one of
the very websites, Silicon Investor, where he found fame as an
allegedly former - but obviously unreconstructed - criminal.
For at least the period between November 2, 2005
through January 14, 2006, the defendant has caused e-mails he has
written to be posted on the “Dear Anthony” thread he started on
the Silicon Investor website. Those e-mails are attached hereto
as Attachment 5. Following is a handful of excerpts:
• “The trial had nothing to do with the truth . . .
Witnesses were intimidated from day one. The search
for justice took a back seat to a prosecutor’s
ambition, rabid zeal and refusal to concede the truth.”
(Attachment 5A, 11/2/05, p. 37).
• “The prosecution was more interested in destroying my
character than presenting evidence.” (Attachment 5C,
12/2/05).
Case 1:02-cr-00589-RJD Document 506-2 Filed 02/10/2006 Page 38 of 88
19 The government refers this Court to sealed records
submitted during pre-trial litigation.
39
• “I lost to hatred, prejudice and a ‘convict at all
cost’ methodology . . . .” (Attachment 5C, 12/2/05).
• “I have publicly made allegations of serious misconduct
by former AUSA Ken Breen and Seth Levine.” (Attachment
5D, 12/11/05).
• “[M]y Insidetruth report, ‘The trial crimes of
Cleveland and Breen’ will be released first to the US
Attorney General’s Office, the US Attorney’s Office in
Brooklyn, and to the Honorable Raymond Dearie.”
(Attachment 5D, 12/11/05).
• Referring to Cleveland and suggesting that prosecutors
suborned perjury, “It is my firm belief that not only
myself, but you, Breen and Levine all know what you did
. . . .” (Attachment 5D, 12/11/05).
• Referring to former Assistant United States Attorney,
Kenneth Breen: “The real terrorist is out there,
walking free, having used my life as a spring-board
into the private sector, doing exactly what he found so
distasteful by Royer.” (Attachment 5E, 12/23/05).
• “Isn’t this all being done so they can finally lynch
the nasty Arab guy?” (Attachment 5F, 1/14/06).
As this Court knows, the government was extremely restrained in
its presentation of evidence touching on certain aspects of this
defendant’s conduct.19 For this defendant, who finds it
impossible to mind his own store, to lash out by impugning the
government’s integrity is unjust and irresponsible. It is,
however, sadly consistent with the defendant’s need to wrongly
castigate others while minimizing his own misdeeds, a theme that
runs through his sentencing submission.
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40