STOCK FRAUD AND ORGANIZED CRIME

(NEW YORK) Former FBI agent and an Internet penny stock adviser/promoter/trader were convicted Monday of mining government computers for confidential information they used to manipulate the stock market for profit gain. Former FBI agent Jeffrey Royer was convicted of racketeering, securities fraud, obstruction of justice and witness tampering for leaking details of FBI investigations and executives' criminal histories to San Diego stock player Anthony Elgindy, over a lengthy period of time. Elgindy was convicted of racketeering, securities fraud and extortion. He dropped his face into his hands and sobbed uncontrollably as the jury foreman read the verdict; U.S. marshals led him weeping (Elgingy is experienced at this) from the federal courtroom in Brooklyn. This was not the first time for Elging. He is already experienced at court room antics/appearances. This time appears that it will be long term.

The two men could face between 10 and 20 years in prison. Some are predicting 5-7 year sentences for each. Prosecutors said Elgindy bet against stocks and drove down their prices by publicizing damaging information he received from Royer and others (some true and some questionable). Elgindy also personally extorted companies by offering to withhold the information in exchange for cash payments, prosecutors alleged. "Under the guise of protecting investors from fraud, Royer and Elgindy used the FBI's crime-fighting tools and resources actually to defraud the public," U.S. Attorney Roslynn Mauskopf said. It is also believed that others were involved. Royer also was accused of tipping off Elgindy to an FBI probe into whether the Egyptian-born trader knew about the Sept. 11, 2001, terrorist attacks, before they occurred. Prosecutors initially believed Elgindy profited from his advance knowledge by selling off stocks that plunged very close to the attacks, prosecutors alledged.

That probe did not result in charges against Elgindy but jurors heard references to it throughout the trial. Elgindy's attorneys said they would examine the issue as they began to plan an appeal. "We expect the many complex and controversial issues presented by this case to be the subject of a vigorous appeal," attorney Barry Berke said. Defense attorneys contended that Royer fed FBI data to Elgindy and another trader as part of a freelance effort to sniff out corporate fraud with the traders' help. That was their “contention” but was not withheld as being actual. In fact it was determined that Elgingy , Royer and their associates profited from the information, rather than use it for legal means. Profits were allegded to be extensive. Royer was an FBI agent in the Gallup, N.M., office investigating mostly crimes on Indian tribal land. It was alleged that Royer thought Elgindy would help him to pay off tens of thousands of dollars in his personal debt and hire him as a private investigator upon leaving the FBI,said by the prosecutors . It is said/alleged that Royer did leave the FBI and go to work for Elgindy, just prior to being taken into custody; along with other members of the organization (including a female FBI agent). At least one of the subjects turned states evidence against Elgindy. Elgindy had previous run-ins with the justice department and experienced convictions, although this last situation seems to finalize his run-ins for the next several years. Elgindy will remain in federal custody until his sentencing date, (which has not yet been scheduled at the time of this writing.) Royer remained free pending appeal, although it is believed that part or all of his conviction will stand and he will ultimately join Elgindy, in their long paid for public vacation.

March 28, 2003

Many public companies are often times eager to quiet on line critics and to identify anonymous message board posters.  Filing lawsuits and issuing subpoenas to identify on line critics will often accomplish their initial goal, but those actions can very well have negative results.  This aggressive type action can often times be an ill-advised approach, especially in the State of California.

In California, there is a law called "Anti-SLAPP" which basically says that if you file a frivolous lawsuit against an entity to "shut them up," a hearing will be held within sixty days to determine if a "SLAPP" situation exists. If it does, The case is instantly DISMISSED, and the Plaintiff (whoever filed the lawsuit) is generally ordered to immediately pay the Defendant's attorney fees. "SLAPP" is an acronym for "Strategic Lawsuits Against Public Participation."

Under California law, the person bringing the anti-SLAPP motion [the person who is the Defendant in a SLAPP suit] must file a motion with the Court which, in addition to meeting all usual legal requirements for motions, shows that the lawsuit is one which comes within the scope of the anti-SLAPP law, that is, that he or she was sued for exercising the constitutional right of free speech or the right to petition government.

Once the moving party has shown that this is so, and thus that the anti-SLAPP law applies, then a very heavy burden is imposed upon the person who filed the SLAPP suit [the SLAPP Plaintiff].

In brief, the SLAPP Plaintiff must show that he or she has a "probability of prevailing" on the claims asserted. This can be done only by producing, in opposition to the anti-SLAPP motion, admissible evidence which, if believed by the jury, would be enough to support a judgment in favor of the Plaintiff.

The requirement that the evidence be admissible is a very important one. It is often very difficult for a Plaintiff to produce, so early in the case, evidence which is legally "admissible" under the rules of evidence. Also, it is often difficult for a Plaintiff to produce, so early in the case, evidence on every single point which would be necessary to support a judgment in favor of the Plaintiff.

This burden of proving the Plaintiff's case by "admissible" evidence is especially heavy because once an anti-SLAPP motion is filed, all "discovery" [such as depositions] is stopped, unless and until special permission is obtained from the Judge permitting discovery to continue.

In addition to producing evidence to support the claims made against you, the SLAPP Plaintiff must also overcome your constitutional and related affirmative defenses.

Thus, as a practical matter, the SLAPP Plaintiff will have difficulty making the necessary showing unless he or she had all of the necessary evidence before filing the lawsuit. Usually, Plaintiffs do not have all of the evidence they need before filing the lawsuit.

Anti-SLAPP laws -- designed to help defendants defeat "strategic lawsuits against public participation" -- are now being invoked in cases involving statements made in cyberspace. In one case, a California court applied an anti-SLAPP law in a dispute over allegedly defamatory comments posted in a web site.

In California, a defendant in a SLAPP lawsuit may bring a "Special Motion to Strike," and show that the actions complained of are in furtherance of his right of free speech. Specifically, this may be established by showing that the statement forming the basis of the defamation suit was made in "a place open to the public or a public forum in connection with an issue of public interest"(such as a public internet message board such as Yahoo).

The California anti-SLAPP law was passed to address what was perceived to be a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional right of freedom of speech. The anti-SLAPP law is a procedural device that is designed to secure the prompt dismissal of SLAPP lawsuits unless the complaining parties can meet the stringent criteria under the anti-SLAPP law. As this case shows, this can present a formidable hurdle to claims of libel and slander.

The plaintiffs in the California case, Barrett v. Clark, filed a lawsuit, which was determined by the court to be a SLAPP suit, against several individuals who were alleged to have defamed the plaintiffs. However, the protections afforded to the defendants by the anti-SLAPP law, and by the immunity provisions of the CDA, proved to be insurmountable obstacles to the defamation claims. Thus, the defendant's Internet-based speech was essentially shielded by the combination of the First Amendment and California's anti-SLAPP law.

As if the defeat for the plaintiffs were not complete enough, the court also noted that in any event the plaintiffs were to be treated as "public figures" in the context of the dispute, and that under federal constitutional principles, they could not recover in the absence of a showing of "actual malice" by the defendants -- that is, by a showing that the defendants knew the statements to be false. Honest belief, in short, was a complete defense to the defamation claims, even if the statements had been determined to be both false and defamatory.

The Barrett case succinctly illustrates many important principles in the developing law of Internet free speech. Other courts faced with similar issues will no doubt emulate Judge James Richman's clear and cogent reasoning and methodical approach.

Often times internet posters faced with a threat of legal action have formally and publicly indicated that they are exercising their rights of free speech and certain rights afforded by anti-SLAPP laws.  This in itself has been sufficient to stay any action anticipated by potential plaintiffs.

There are numerous non-profit organizations to be found on the Internet ( http://www.slapplaw.com/ ), which will assist SLAPP defendants in exercising their rights afforded under anti-SLAPP laws.

UPDATE MAY 21, 2003

The U.S. Supreme Court has refused to hear a case over Internet libel, letting stand an appeals court's ruling that two Connecticut newspapers could not be sued for libel in a Virginia court over allegedly defamatory articles posted on their Web sites. In the case, Young v. New Haven Advocate, a prison warden in Virginia sued over news articles that criticized a "supermax" prison in Big Stone Gap, VA

In Monday's denial certiorari, the high court passed on an opportunity to set a national standard for whether someone can be sued in another state for comments made online. Lower courts have veered in different directions.

THE PUMP AND DUMP SCHEME

AN EXCLUSIVE REPORT BY ASIAVEST INVESTIGATIVE SERVICES

This web site has provided a great deal of information on shorting and the short and distort scheme, but there is another side to the coin, that we have not covered and that is the pump and dump scheme.  In many respects, the pump and dump scheme can have an even more devastating effect on investors, than can the short and distort scheme.  From this writer’s perspective, investors can see the short attack coming, but the pump and dump tends to take investors by surprise.  For as many short attacks as there are, there are just as many pump and dumps. The vast majority of these fraudulent schemes seem to fly under the radar screens of the SEC and other governmental regulatory agencies.

Just what is a pump and dump?  The common pump and dump is to take a stock and thru a variety of fraudulent actions, manipulate the price of the stock to an inflated value.  Once the price has reached its maximum potential, it is then sold off in large blocks.  Once this happens the price of the stock immediately drops by double-digit percentages leaving innocent stockholders with dramatic losses.  Generally there are two types of pump and dump schemes, the immediate and the long term.  The immediate occurs when someone releases false information, generally thru a media release, with the specific intent of manipulating the price.  This could be the company itself, or an outsider.  The specific intent is to stimulate interest in the stock, attract buying, and cause the price to rise.  Scenario, the fraudster buys a stock at lets say $5.00 a share, he/she then releases some false information like the company has just signed a multi-million dollar contract, buyers start buying, the price climbs maybe 60% to 80% within hours, the fraudster sells, and the price drops to even lower than where it started.  This type of manipulation will almost immediately attract the attention of regulators but often times, after it is too late.  The company itself rarely orchestrates this type of pump and dump.

The long term pump and dump is generally a company-orchestrated manipulation, which will often result in a class action lawsuit and eventual regulator intervention.  The scenario is an intentional manipulation of the corporate stock over a period of time, which could be anywhere from three months to as long as two years.  The company releasing profit projections, which reveal an untrue projection of upcoming quarterly revenues, could initiate a short-term pump and dump.  Glowing revenue projections attract new buyers and the stock price goes up.  As the price of the stock increases, insiders sell, reaping inflated profits.  After two months, the company will issue adjusted revenue projections reflecting “canceled orders and a weaker than expected economy”.  We recently investigated a case that followed this exact same pattern.  The stock was trading at $5.15 per share and after the inflated revenue projections were released, the stock rose to $22.00 per share in a matter of a month.  Insiders sold off 150 million dollars of stock at between $18. and $21. before restating their earning projections and watching the stock fall over a period of days to $4.85.  During the unrealistic highs, every company Director sold off stock, and there was absolutely no attention given by regulators.  Fortunately for innocent investors, a class action lawsuit was initiated and eventually this will attract the attention of the SEC.

One company that we have watched closely was a company called Genisesintermedia (GENI), which we consider an absolute textbook classic act of stock manipulation.  GENI was not only a perfectly executed pump and dump scheme it was also the target of a professional organization of illegal short sellers.  GENI was such a well-coordinated scheme that even most company employees were unaware that their company stock was being manipulated.  The manipulation of GENI stock involved everything from paying off stock analysts to alleged bribes to well know media analysts who recommended the purchase of the stock numerous times on financial news programs.  They had everything going for them including television and the print media.  The stock price rose to $27 and was split three for one.  After the split, the stock rose again to over $20 and was preparing for another three for one split, when the scheme collapsed.  The manipulation of GENI involved corporate insiders, brokers, market makers, media personalities, bankers, off shore entities, and even an international arms dealer.  It took the SEC over one year to finally take action.  When they did take action, there was a trading halt.  When the stock began trading, it was trading in pennies within a matter of days.  The manipulation of GENI resulted in multi million dollar losses to brokers and investors.  It also caused the failure of a major brokerage house and tainted a European traditional bank with scandal. It also resulted in millions of dollars in profits for the manipulators and for the short sellers. At the time of this writing, GENI was trading in the pink sheets at .0001 per share.  Its corporate officers had turned their efforts to new corporate entities, the SEC was investigating and a major class action lawsuit had been filed. 

The question with GENI is, why was the scheme allowed to continue for as long as it did?  Why was the SEC reluctant to step in and protect investors, even though they had been alerted months in advance of the obvious scheme and criminal activity?  Were government officials corrupted? Members of the media certainly were.  Members of the Wall Street community certainly were.  Why were no criminal indictments handed down?  Why are the perpetrators of this criminal enterprise allowed to involve themselves with other publicly traded companies?  Why were the ill-gotten gains of this criminal enterprise not repatriated from off shore bank accounts in Bermuda and the Cayman Islands?  These are questions that every investor should be concerned about. The Enron scandal is considered kids play in comparison to the daily frauds committed in the world of public companies.  Enron, in our opinion was not even close to the daily occurring criminal manipulation of public companies.

The next time you see a company making claims that appear unrealistic or if you go to a public message board and see postings such as, “NEW CONTRACTS BEING SIGNED”, THIS STOCK IS GOING TO GO THROUGH THE ROOF” or you look at a .10 stock and see analysts saying $5.00 in three months, be very cautious and consider that type of information as nothing more than a red flag. Be wary of hipsters and touts.  There are no free lunches, and often times, what you see is not what it seems.  Investment decisions should be based on company fundamentals and independent in-depth due diligence.

Disclaimer: Asiavest investigators who specialize in securities fraud wrote this article.  The article is intended to give investors an insight into the possible pitfalls of investing.  It has been written so that a layman can understand it.  The information contained in the report is considered reliable although there are no explicit or implied warrantees as to the specific accuracy of the information.  Much of the information was garnered from media reports and investigative resources.  The information contained in this report is proprietary information and as such is protected by copyright laws.  This report cannot be reproduced or retransmitted in anyway without the written permission of Asiavest investigative Services-Securities Fraud Division.  Asiavest is one of a select group of companies specializing in securities fraud and plaintiff litigation support.    

If you are a public company that has been a victim of what you perceive to be manipulation by the media, feel free to send us your documentation so we can include it in our investigative data base.

Since writing our first report, we have been contacted by numerous publicly traded companies that have fallen victim to what they believe to be media manipulation.  In almost all cases there has been a common link to extensive short trading of their stock and the timed release of certain negative news articles by certain specific journalists.  Almost all of the articles, in many cases, were written by the same journalist.  This is not coincidence; it is  part of an ongoing pattern of what we believe to be, criminal activity.  The effects of this pattern of activity are not only directed at Bulletin Board stocks, but have also effected  stocks traded on AMEX and NASDAQ.

One need only to look at certain stocks and the pattern is obvious.  Many of the companies targeted by the short interest have been halted and in many cases, gone out of business.  Were those companies scams that deserved to be run out of business, or were they simply victims of organized criminal activity? There is differing opinion, based on who you ask.   We believe that in many cases, the companies had weak fundamentals and naive management which made them perfect targets for a certain criminal enterprise.  We also believe that had the ground rules been fair, many of the companies could have survived and thousands upon thousands of investors would not have fallen victim to substantial losses.  Had many of these companies been allowed to function without the hazards of naked short selling and hatchet job news articles, they may have overcome the short comings faced by many start up companies.  Had there have been more oversight by regulators and more restrictions on illegal trading and manipulation, many investors today would be free from the  losses that they have encountered.  There may have been a more level playing field if government officials had not been paid for confidential information by short sellers ( see reference articles listed below in this web site), and if certain members of the media had not been paid members of the criminal enterprise( listed later on in this site are certain allegations made against certain members of the media by corporate officials).

The media can have a direct influence on the manipulation of publicly traded securities, especially if the media source is a noted financial news source.  One negative article can have a devastating effect on the trading price of a public company.  Take a look at WADE, EDSN, ALU, ECNC, SEVU, CIO, ZERO, BIOP, ANTS, VLPI, and see how they were attacked by negative news articles published by certain financial news media sources. See what happened to their trading within 24 hours of the negative news articles being published about them.  Some of the companies survived and others have gone out of business, or have been targeted by class action lawsuits.  It is no coincidence that these companies were publicly targeted by short sellers and at the time they were targeted as a short call, certain news journalists wrote negative articles about the companies, driving down the price of the publicly traded security.  Waiting in the wings were a certain group of law firms preparing to file class action law suits. When "coincidences" such as that occur, we call it MANIPULATION, and part of an ongoing criminal enterprise.

Two years ago, this type of activity by noted short sellers and the media, was open and notorious.  Today the activities are more covert and not as obvious, but they still exist.  Finally after the filing of numerous complaints, the FBI and the SEC, have taken notice of this ongoing pattern of criminal activity.  Certain individuals have been indicted including noted short sellers and both current and former government agents (see articles listed below).  Certain media journalists have now come under scrutiny and are being closely monitored by both private and governmental agencies. 

We have taken it upon ourselves to write this series of articles expressing our views and opinions and as such have been victimized by intimidation and threats from certain participants in the criminal enterprise and their attornies.  Irregardless of these attempts of intimidation, we will continue to report on what we believe to be criminal activity directed at publicly traded companies and innocent investors. We will stand up for the true victims.

As a friend once stated, "the wheels of justice turn slowly, but they do turn".  It does not matter who you are, or even if your boss is the mayor of a major U.S. city!  We will not be intimidated!

Thursday August 8,2002 8:38 pm Eastern Time

Press Release

SOURCE: Wade Cook Financial Corporation

Wade Cook Issues Statement about Bloomberg Reporter David Evans

SEATTLE---Aug. 8, 2002--Wade Cook, President and CEO, Wade Cook Financial Corporation (OTCBB:WADE - News) is issuing a statement concerning the repeated half-truths, omissions, misrepresentations, and exclusively negative reporting perpetrated by Bloomberg Reporter David Evans, as particularly evidenced in his articles of August 7th and 8th, 2002.

In these articles, David Evans referred to a recent Form 8-K filed by the company wherein it was reported that members of its board had resigned. Cook's statements were clear, "Responsible reporting would have included the fact that in the same recent filing he referred to, the company '...denies the allegations made in the attached letter of resignation and disagrees with many of the views expressed in Ms. Leysath's letter....' Even in a cursory read of Ms. Leysath's letter, the name-calling, and lack of professionalism or constructive input, would cause any reader to seriously question the veracity of her allegations."

Cook continued indicating, "Mr. Evans cites that resignations of Board Members '...follow the resignation of Chief Financial Officer Cynthia Britten in March....' This is an incredible stretch to even suggest any connection; there were THREE MONTHS between these unrelated events. Ms. Britten resigned for personal reasons and even cited physical health as her reason, as previously reported by Mr. Evans himself on March 25, 2002. Mr. Evans also makes a gross miscalculation in attempting to connect Ms. Britten's resignation with a totally unrelated inquiry."

A company spokesperson stated, "Ms. Leysath's resignation letter made no reference to her not having a college degree, and contained no comment that she therefore '...had no business being on that board.' Even though these comments were not in her letter of resignation, executive management cannot agree with the notion that all Board Members of any publicly traded company must have college degrees. To so disallow any and all persons to become Board Members of publicly traded companies is incredibly short-sighted, and would result in a disastrous blow to the effective running of corporate America."

"Unfortunately for the truth-seeking public, Mr. Evans refuses to provide readers with current information about many a company's situation," says Robert Hondel, WCFC, COO. "As in this instance, he only makes a reference to 2001 information concerning the company's stock portfolio value. Had he sought out company officials, he would have learned the current and ACCURATE information that, even by using the FTC's standards, the company's stock portfolio value had INCREASED. As long as we're setting the record straight, we must correct the misstatement made by Mr. Evans that Ken Roberts was '...a former CFO of Wade Cook.' This is another flat out lie espoused by David Evans. Kenneth Roberts has never been the CFO, of WCFC or any of its subsidiaries. This is indicative of the kind of false information he is constantly disseminating about our company."

Cook concluded: "Our company has indeed suffered its share of challenges over the last year. The earthquake and resultant flooding of February 2001 caused major damage to the building and business operations; the public's perception of the current stock market has definitely reduced customers' willingness to invest in financial education; and the September 11, 2001 terrorist attack -- have all been outside the control of the company yet impacted business. Executive management has, nevertheless, demonstrated fiscal responsibility by initiating dramatic steps to streamline expenses, discontinue unprofitable subsidiaries, and continue its concerted emphasis on our core business. We are confident that we can continue to make a profit at this income level, and expect to do so as we grow into the future. We remain committed to enhance shareholder value."

For additional information about Wade Cook Financial Corporation visit Investor Relations at www.wadecook.com, or contact Carl Sanders at 206/901-3161.

This press release contains statements that may constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. For factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, please see the "Risk Factors" described in Exhibit 99.2 to the company's 10-Q Quarterly Report for March 2002, and in other filings on file with the SEC, which Risk Factors are incorporated herein as though fully set forth. The Company undertakes no obligation to update or revise forward-looking statements to reflect changes assumptions, the occurrence of unanticipated events or changes to future operating results.

AN EXCLUSIVE REPORT

Our general opinion of message board posting is that in many instances the postings tend to victimize the company or harm sincere investors. The negative aspects certainly appear to outweigh the positive. Because of recent criminal cases, there has been more attention directed to message board postings, by certain enforcement agencies. Also, new computer technology both in the governmental and private sectors has allowed for the shield of anonymity to fade away on many message board posters. The value in identifying message board posters is that when and if they cross the line between freedom of expression and criminal activity, they can appropriately be dealt with. Many posters fall in the category of being outright criminals. These are the ones that feel hurting a company or investors is nothing more than a financial game, until they cross the line and feel the long arm of the law and the rath of corporate entities that fight back. In our opinion, public message boards are one of the most flagrant facilitators for stock manipulation.

Update 1 EXCLUSIVE

Message boards such as Yahoo and Silicon Investor give investors the opportunity to share their views and comments as they may relate to a specific stocks or general investing. It also allows vindictive former employees, competitors, stock manipulators and others to publicly post their negative messages. Negative message posters are generally referred to as "bashers". In most cases these negative posters have "shorted" a certain stock and want to do all that they can to see the stock price move downward. You will find that most negative posters generally work in teams and will often exchange passwords with each other.

When a certain stock comes under fire by groups of negative posters, there is almost always a negative effect on the company that is under attack. The negative posters or bashers will usually have a specific plan of attack. Not only will they post negative messages, they will also send messages to the SEC and other governmental agencies with unfounded and baseless allegations. They will often times contact suppliers and customers of the targeted company and flood them with negative information about the targeted company. The plan of the basher is to create havoc and cause sincere investors to lose confidence in the targeted company. In most circumstances negative posters are loosely organized although they rarely work alone. The negative posters are easy to find and will generally attack companies with weak fundamentals. In many cases they will work hand in hand with journalists, who thrive on negative journalism and hatchet job articles.

Is posting negative information about a company on public message boards illegal? Absolutely not, but there are applicable rules and laws that apply to the posting of information on public message boards. Intentional misinformation is actionable by governmental authorities, especially if it has an effect on the trading price of a security. You will find that all message boards and chat rooms have detailed terms of service (TOS). These are the basic rules that posters must adhere to when posting on specific sites. When a poster violates the TOS, there is a procedure to follow for reporting the said violation to the service provider. Our investigators have used this procedure very effectively and have been directly responsible for having certain postings removed from message boards (ones that were in violation of the TOS) and in many cases we have been effective in removing posters from message boards, for violating the TOS. Almost all message boards will have an icon to report terms of service violations. What we have found to be effective is to report the TOS violations to the service provider and then we will generally follow up with a letter from our legal staff which documents the TOS violations and their effect. This entire process takes about ten days and has proven to be very effective. Message board bashing is not common to only U.S. listed companies. Stock bashing coupled with naked shorting has been a very common occurrence with companies listed on various exchanges in Taiwan, China, Singapore, and Hong Kong; and have had a much more devastating effect than in the U.S. Most of our work has revolved around working with public companies in Asia.

Some basic rules of thumb in dealing with negative posters is to never directly interact with them. They are not your friends. They are not your pen pals. They generally lie and mis-represent the truth. Generally they are posting with the specific intent of hurting the company, financially and ultimately hurting your investment. Never engage in e-mail communication with the bashers and never ever base an investment decision on information posted on public message boards. Do your own independent due dilligence before investing.

This exclusive report has been prepared by Asiavest investigators: Andy Chen (Taipei), Joyce Lu (Beijing) and Frank Taylor (Los Angeles).

"The way youse carried yourselves, that youse was looking to do the wrong thing to us," he said. "Sometimes, you know, cooler heads don't prevail, but unfortunately, you know, it's nothing personal between me and you."

Original BusinessWeek article

He was the head of a penny-stock brokerage that has had its share of regulatory problems. This, he has told friends, is what happened to him early in 1996:

Two men appeared at his midtown Manhattan office. They went for a walk. One man stuck a revolver in his ribs. ''From now on,'' he was told, ''you're retailing our stocks.''

According to sources, this man's brokerage did not retail the two mobsters' stocks. Nor did he contact regulators or the National Association of Securities Dealers. Instead, he got in touch with the only power that seemed to make sense: a protector in the Mob. Somehow, the problem was ''straightened out.'' Asked about the incident by BUSINESS WEEK, he responds: ''I don't want to get involved.''

If this penny-stock exec showed a less than civic-minded attitude toward law enforcement, it's understandable--particularly if the allegations of a 57-year-old former NASD official, Massood Gilani, prove valid. Gilani worked in the Special Investigations Unit of the NASD's New York office, checking complaints of improprieties and reporting them to his superiors for further action. He paints a picture of widespread indifference toward customer complaints that might have been a tip-off of Mob infiltration of Hanover Sterling & Co.

From 1992, when Gilani started working at the NASD in New York, until late 1995, when he left, there was disturbing talk in the hallways of the agency's New York office. ''The rumor was that some of these firms were run by the Mafia...the word was that some of them, including Hanover Sterling, were used to launder drug money,'' he says.

Gilani says he received an unusually large volume of complaints about Hanover from customers, most involving unauthorized trades--something Gilani suspected might have indicated stock ''parking.'' ''They were definitely pushing the stocks up, and it definitely looked like parking,'' says Gilani. From October, 1993, to June, 1994, he says in the suit, there were at least 31 customer complaints against Hanover, almost all alleging unauthorized trading. Among the complaints, he says, were several against Roy Ageloff, who Gilani says was widely known at the NASD to be the power behind the firm. Sources have told BUSINESS WEEK that Ageloff has ties to the Genovese crime family.

Gilani says he ''suggested that a wider investigation be conducted by enforcement and market surveillance.'' The response? ''I was told to mind my own business.'' At one point, he was told by a supervisor ''very bluntly that [the brokerages] pay your paycheck. You don't bite the hand that feeds you.''

NASD officials note that they took action against Hanover Sterling--but not until after Hanover went out of business. Gilani says that he urged the NASD to act long before the company folded--in time, perhaps, for regulators to act before its failure brought down the company's clearing firm, Adler, Coleman.

Gilani is hardly an impartial source: He was fired by NASD in 1995, and he's suing for racial discrimination. (NASD officials decline comment on the suit.) Still, his comments regarding the NASD's handling of Hanover Sterling are damning.

To be sure, Gilani hardly had much clout at the NASD, since he was in the doghouse much of the time. One lawyer pursuing his suit, Aegis J. Frumento of Singer Zamansky LLP in New York, notes that the Iranian-born Gilani ''agitated a great deal on discrimination and employment policies.'' Gilani feels he was ignored because of the ''corporate culture at the NASD.'' And if his tale of indifference proves correct, it would seem that the NASD is a far cry from being the Eliot Ness of Wall Street.

By Gary Weiss in New York

INVESTIGATIVE NOTES/OPINIONS

Noted short seller and internet stock guru Anthony Elgindy has again been arrested by the Federal Government.  As you will see, the charges are much more serious than his previous encounter with authorities.  Elgindy has allegedly terrorized a variety of publicly traded companies since his last run in with the law.  This time he has been charged with running a criminal enterprise (RICO).  A criminal enterprise that involved at least one current and one former FBI agent.  At the time of this writing, Elgindy had been released on bond and was awaiting trial. 

Many have speculated that the arrest of Elgindy is only the tip of the iceberg and as such, the investigation continues.  Elgindy and his "followers" have always claimed that they are doing nothing but exposing "scam" companies.  Even if this were true, the means do not justify the ends.  One cannot violate the law in order to expose violations of the law.  One cannot corrupt public officials, intimidate corporate executives, extort companies for free shares, unlawfully record telephone conversations, commit interstate wire fraud and manipulate publicly traded companies, and then claim they were only exposing scams and fraud; especially while they were heavily trading in the firms that they were "exposing".  Elgindy is an extremely talented trader, although he was his own worst enemy.  He challenged corporate executives, threatened lawsuits against anyone that had a difference of opinion, drew attention to himself in the media and on public message boards, and gave the perception that he was untouchable.  Many of his followers continue to follow in his footsteps. It is reported that private web sites are still being run by his former followers/associates, and many of his followers and co-conspirators continue to post on public message boards, attempting to threaten and intimidate posters that are not in agreement with their views.  Following are articles relevant to the circumstances and arrest of Anthony Elgindy, as reported by the media.   

            SAN DIEGO, May 25 (UPI) -- An Internet investment adviser charged with insider trading was being held without bail on a parole violation Saturday after federal prosecutors in San Diego raised questions about a stock-sales order he placed the day before the September terrorist attacks on the World Trade Center and Pentagon.
     Amir "Anthony" Elgindy, 34, of Encinitas, faces charges in New York of allegedly taking part in a stock manipulation and extortion scheme with four other people, including two current and former FBI agents. Prosecutors, however, raised questions during a detention hearing Friday about what he might have known about the deadly attacks.
     Assistant U.S. Attorney Ken Breen argued that Elgindy, a native of Egypt who now lives in a $2.2 million home in an upscale beach community north of San Diego, had ordered the sale of $300,000 worth of stock in his children's trust fund on Sept. 10, and at the same time had told a stockbroker that he was expecting an imminent drop of some 3,000 points on the stock market.
     "Perhaps Mr. Elgindy had pre-knowledge of the Sept. 11 attacks," Breen said. "Instead of trying to report it, he tried to profit from it."
     Authorities say Elgindy is a short-seller on the market, someone who profits by borrowing stock shares and selling them in anticipation of a price drop in the near future. Once the stock falls below the sale price, the short-sellers buy up shares to pay back the loan, keeping the difference.
     Elgindy was named in a federal indictment unsealed in Brooklyn May 22 that alleged racketeering, insider trading, market manipulation and extortion. The scheme allegedly involved two New Mexico-based FBI agents who fed Elgindy confidential and potentially damaging FBI information about companies that he and two other traders would in turn use to set up short-selling transactions, or to extort money or stock out of the companies involved in exchange for his not posting the damaging details on his Internet tip services, InsideTruth.com and AnthonyPacific.com.
     Elgindy has had scrapes with securities regulators in the past. The state of Ohio denied his request for a sales license on 1997 on the grounds he was "not of good business repute."
     Breen also told the court that there was evidence that Elgindy had recently wired about $700,000 to Lebanon, possibly indicating he was preparing to flee the country.
     U.S. Magistrate John A. Houston agreed to hold Elgindy pending further proceedings in San Diego June 6, however he said he would disregard the speculation about Elgindy's possible knowledge of the Sept. 11 attack. Houston said he was ordering Elgindy to remain locked up because ammunition found in his home was a violation of his parole on an earlier conviction.
     Elgindy's lawyer, Jeanne Knight, said the Sept. 10 sell order was placed after the market closed and was routine in nature. She called the prosecution's speculation about Sept. 11 a form of racial profiling aimed at smearing her client.
     "This is just like the case of Wen Ho Lee, who the government tried to charge with spying just because he was Chinese," she told the Los Angeles Times. "My client was being watched only because he is of Middle-Eastern descent."
     Elgindy, who has been an active supporter of causes aiding Muslim refugees in Kosovo, apparently attracted the attention of the FBI in the days after Sept. 11 when investigators began combing stock market transactions for signs that the terrorists or their supporters had sold off holdings or made deals such as selling short in order to make a quick profit as the stock market fell.
     "There is no solid link indicating a connection between Elgindy and Sept. 11," Jan Caldwell, the FBI's spokeswoman in San Diego, told the San Diego Union-Tribune. "Elgindy's name came up during the terror probe."

APPLIED DIGITAL SOLUTIONS CHAIRMAN AND CEO COMMENTS ON ARRESTS MADE IN ALLEGED STOCK MANIPULATION SCHEME

PALM BEACH, FL May 24, 2002 Richard J. Sullivan, Chairman and CEO of Applied Digital Solutions, Inc. (Nasdaq: ADSXE), an advanced technology development company, commented today on the recent arrest of five individuals, including two FBI agents, allegedly involved in a stock manipulation scheme that the company believes included ADSX shares. According to a May 22 Reuters article, the mastermind of the alleged short-selling stock scheme was Anthony Elgindy, owner and operator of www.InsideTruth.com.

Mr. Elgindy was charged with the short-selling of publicly traded stocks. According to the Reuters article, ADSX was a frequent target of Elgindy's InsideTruth.com commentary. An improper short-selling strategy involves an investor who puts out false rumors about a particular stock and then profits when the company's stock price falls.

Mr. Sullivan said: these arrests are welcome news but they are long overdue. If the allegations turn out to be true, and Applied Digital's shares were targeted, it is likely that the shareholders of Applied Digital have been hurt by this short-selling scheme. The fact that two FBI agents were apparently involved is especially distressing. We are delighted that the FBI has made these arrests and we hope that this will serve as a warning to others who might be tempted to engage in this kind of illegal stock manipulation.

 

 

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BREAKING NEWS    BREAKING NEWS     BREAKING NEWS 

 

WEB OPERATOR FACES POSSIBLE INDICTMENT

25 Mar 2003, 10:07 AM EST

 

The man who ran the Web site for a penny-stock adviser accused of using information from the F.B.I. to manipulate stock prices was himself arraigned yesterday on securities fraud charges in federal court in Brooklyn.

The Web operator, Robert Hansen, is accused of making more than $100,000 on trades using information illegally obtained by a certain stock adviser.

The stock advisor reportedly sold tips through two Web sites, AnthonyPacific.com and Insidetruth.com. His subscribers paid hundreds of dollars a month for exclusive information about pending criminal investigations into small cap companies.

 

Mr. Hansen, 41, of Melbourne, Fla., had extensive access to the stock advisors tips, the government said. As an indication of Mr. Hansen's degree of involvement in the conspiracy to use F.B.I. information, prosecutors said yesterday that he admitted to a federal grand jury last October that one of his duties was to purge the archives of AnthonyPacific.com of any mention that information there was obtained through the F.B.I.

 

In an affidavit and complaint in support of arrest warrant unsealed Monday in United States District Court for the Eastern District of New York in Brooklyn, authorities claim Mr. Hansen conspired with Mr. Elgindy, making up to a potential $15,000 a month handling the short's Web site, that he made personal shorting profits of at least $100,000 on illicit information and that he perjured himself to an FBI agent last October before telling the truth the next day to a grand jury. (All figures are in U.S. dollars.)

 

In the current affidavit, FBI Special Agent David Sutherland notes the evidence against Mr. Hansen came from two main sources: a co-operating witness who pled guilty, presumably Mr. Cleveland, and corroboration from relevant records of Internet chat logs, law enforcement data bases and securities trading records.

 

The FBI affidavit notes Mr. Hansen, the president of Electronic Information Management Systems, a Web hosting service operated from his home, was the service provider for AnthonyPacific.com and Insidetruth.com. EIMS also received and processed subscription fees for the subscriber site, which had about 200 to 300 subscribers at any given time.

 

Special Agent Sutherland also notes he interviewed Mr. Hansen on Oct. 3.

"Hansen confirmed that he was the administrator of Elgindy's websites, that he frequently monitored the electronic conversations occurring in the chat room and that he sometimes traded the stocks that were discussed by Elgindy on the site," states the FBI agent in the affidavit.

"However, Hansen specifically denied that he had ever erased chat logs containing references to the FBI or otherwise containing material non-public law enforcement information."

The next day, Oct. 4, Mr. Hansen decided to tell the truth when he testified in front of a grand jury in Brooklyn. "Hansen admitted to the grand jury that at Elgindy's direction he had erased logs to delete sensitive information with reference to the FBI.

 

It has been reported that Hansen was a frequent poster on internet message boards such as Raging Bull, where he reportedly posted under the alias “EIMS2000”.  A check of the alias “EIMS2000” noted over 1500 postings on various stock message boards including CIO, SEVU, BIOP, VLPI, RTNH, GENI, ECNT and MHUT. A review of some of those postings reflected numerous interactions with other posters. There were even references by EIMS2000 of him taking legal action against other posters that confronted him or disagreed with his point of view. Asiavest has obtained evidence showing that EIMS2000 posted personal information of other posters, in clear violation of the Raging Bull terms of service. In one case he posted a vehicle license plate reportedly belonging to another poster, whom many believed to be a witness in the Elgindy case. This particular posting put the "witness" in harms way. Was this an attempt to intimidate witnesses? Certainly all of this background information relevant to EIMS2000 will be carefully reviewed by investigating authorities, including the sources used by EIMS2000 to identify other posters. It may well be determined by a more indepth investigation, that law enforcement sources other than the FBI, were also accessed for non-public information. Was information illegally obtained through contacts in the LAPD? Were computers hacked? Were DMV records illegally accessed? Will the scope of the investigation be broadened to include members of the media? Only time will tell, as the saga continues!  

 

It should be noted that Elgindy, Hansen, and the other co-conspirators have not yet had their day in court(one co-conspirator is co-operating with authorities) and until that time they should be considered innocent until proven guilty.

 

This report has been prepared from public records, discussions with witnesses and media reports: by Alice Liu of the Taipei office of Asiavest Investigative Services, Securities Division.

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MARKET MANIPULATION/SHORT SALES

January 8, 2001 Nancy A. Condon NASD Regulation Bars John Fiero, Expels Fiero Brothers, Inc., and Imposes $1 Million Fine For Illegal Short Sales, Market Manipulation and Extortion Washington, D.C.

NASD Regulation, Inc., today announced that an NASD Regulation Hearing Panel barred John Fiero, expelled his firm, Fiero Brothers, Inc. and ordered a fine of $1 million for engaging in a fraudulent short selling, extortion and manipulation scheme. On Feb. 6, 1998, NASD Regulation filed a complaint against Fiero and other co-conspirators alleging that they colluded to drive down the price of 10 Nasdaq securities underwritten by now-defunct Hanover Sterling & Co. during January 1995, and February 1995, through illegal short selling of those securities. This "bear raid" scheme involved Fiero and others obtaining nearly 1 million shares, units and warrants from Hanover Sterling at below market prices through the use of threats and coercion to cover their illegally-created short positions.

Ultimately, the short selling scheme led to the failure of Hanover Sterling on Feb. 24, 1995, which was quickly followed by the collapse of its clearing firm, Adler, Coleman Clearing Corp., and the appointment of a Security Investors Protection Corporation trustee for Adler Coleman. In the decision, the Hearing Panel found that Fiero participated in an extortion scheme by purchasing $12.1 million of securities from Hanover, at prices $866,500 below the then-prevailing market price.

Fiero used these securities to cover his firm’s short positions, and resold the rest, primarily to other short sellers involved in the scheme. Hanover agreed to sell the discounted securities to Fiero in attempt to end the shorting of the stocks. The Hearing Panel also found that Fiero violated short selling rules from Jan. 20 through Feb 23, 1995 by failing to make the required affirmative determinations prior to engaging in short sales of the Hanover Sterling stocks. NASD rules restrict "naked" short sales, that is selling a stock short without ensuring that the stock can be borrowed or otherwise provided for by settlement date, also known as an affirmative determination. The Hearing Panel concluded that Fiero was not entitled to the market maker exemption from the affirmative determination rule during the time his firm was registered as a market maker because it was not engaged in bona fide market-making transactions. Fiero manipulated the market for the Hanover securities through his purchases and resale of the extorted stock and his illegal, naked short selling. Unless the matter is appealed to NASD Regulation National Adjudicatory Council (NAC), or called for review by the NAC, the Hearing Panel's decision becomes final after 45 days. The sanctions imposed by the Hearing Panel are not effective during this period. If the decision is appealed or called for review, the sanctions may be increased, decreased, modified, or reversed. The litigation of this case was conducted by the Enforcement Department with assistance from NASD Regulation Market Regulation Department. This matter was investigated by the Market Regulation Department with assistance from the Enforcement Department and NASD Regulation New York, Denver, Atlanta and Chicago Offices. Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation Web Site, www.nasdr.com . NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, The American Stock Exchange? NASD Dispute Resolution, Inc. and The Nasdaq Stock Market, Inc., are all subsidiaries of the National Association of Securities Dealers, Inc., the largest securities-industry self-regulatory organization in the United States.

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STOCK MANIPULATION-SHORTING

The Short & Distort Scheme

Stage I: Monitoring: In stage I of a Short & Distort scheme, Short groups Monitor spikes in volumes on stocks with no rumors.

Stage 2: Flagging: Shorts Flag stocks that run up then sits back and wait patiently for their time.

Stage 3: Preparation: The Shorters research the company and develop their Distortion of the rumors to be used later.

Stage 4: Actual Shorting: The shorts step in, selling on every possible up tick. This is the Reverse of front loading. Preparations are made to attack the guy who had earlier written positively about the company and take out, discredit, any new long-term champions or messengers.

Stage 5: Distortion Campaign: The shorts step in and increase selling on every possible up tick. Just as with the pump, newsletters, e-mail, PR firms against P & D, etc. are simulated. Expertise in the field is recruited for credibility. Any possible twist using POS (Purposely Omitted Syntax) and PAS (Purposely Added Syntax) is conveniently used on every possible angle. If the POS/PAS is discovered then attack the messenger.

Above all control the message boards. The group clutters the message boards so no positive information can be readily found. Justification is the Value of the Company in the market. Projections of $0.00 worth and loss projections of 100%.

Note: The market manipulator will do everything in his/her power to keep buyers OUT OF THE STOCK. Cut your losses is touted to stimulate fear. You bought higher but now they need you to sell lower.

Stage 6: Pressure: The shorts have taken it too far. The volume is increasing and the price is not effectively dropping. A stalemate occurs. Personal attacks increase. Threats of legal action, SEC involvement, and yes even death threats increase. Increased secret IDs are employed to increase the cluttering, personal attacks and the distortion. So begins a string of lies that run for as long as one's stomach can take it. Desperately playing on the "you have been had" scenario. Any new news will be hit hard by Shorters to kill any interest.

Note: Watch the volume not the share price. A market manipulator will have various brokers buying and selling the stock to give the APPEARANCE of increasing volume but the price goes down. Thus stimulating the story the company is selling or an off shore Reg S or other convenient scenario. Watch for large blocks that show up but have an MM special code, crossovers, etc.

Stage 7: The Cover: Without warning, the buying pressure is too much and the short begins to cover. Short covering combined with new investors buying into the stock causes the stock to go up. Often the whole thing starts again. Just a vicious cycle sometimes. Comment: While all questionable MM activities may not be able to be stopped, widespread knowledge of their modus operandi may discourage some of their more blatant behavior. They know the investing public is aware of what they are doing and looking over their shoulder, while they fight to reform a system corrupt enough to permit such widespread MMM in the first place.

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