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Fbiagent Charged with Using Secret Recordsfor Stock Scheme

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Fbiagent Charged with Using Secret Recordsfor Stock Scheme FBIAgent Charged With Using Secret Recordsfor Stock Scheme By Aaron Elstein, operation, and Lynn Wingate, who joined Laurie P. Cohen the bureau in 1999 and was relieved of And Gary Fields duty Tuesday night. Both are accused of providing confi The government charged an FBI dential information from FBI databases agent and a former one with giving stock to help Mr. Elgindy decide which compa traders confidential information about nies to target. "The allegations in the criminal probes of public companies, in a indictment reveal a shocking partnership short-selling scheme that spread unfavor between an experienced stock manipula able information to profit from driving tor and law-enforcement agents, under stock prices down. taken for their illicit personal financial The scheme was allegedly headed by gain," said U.S. Attorney Alan Vinegrad Anthony Elgindy, a colorful and contro in a prepared statement. versial investing • White-collar crime experts voiced figure who also is shock at the allegations, especially the known on the Inter- FBI agents' alleged involvement. "I've net as Anthony@Pa- never come across a case like this one," said Robert Mintz, a former federal pros an indictment an- ecutor who heads the government investi nounced by the gations practice at the Newark law firm of McCarter & English. "It seems incredi bly bold to use the government's own resources to orchestrate a stock-manipu lation scheme." v alleged that Mr. Elg- He said the confidential information Indy received infor- allegedly used in the scheme-from the mation from the FBI's Automated Case Support and Na FBI insiders about Anthony Elgindy tional Crime Information Center data criminal problems bases-would be a "gold mine" of informa or investigations related to public compa tion. The databases contain information nies, and then used the information to about companies and individuals under sell the companies' shares short and to criminal Investigation and their criminal extort stock from companies that feared histories, as well as information about manipulation of their shares. civil investigations undertaken by the Se A short-seller sells borrowed shares curities and Exchange Commission. and profits when a stock declines, so ex Two additional Elgindy traders. Der clusive access to negative information rick Cleveland and Troy Peters, were would be valuable. The six-count indict charged along with the other three with ment alleged that the scheme that racketeering and securities fraud conspir thrived on confidential information sup acy Messrs. Elgindy, Royer and Peters plied by two rogue agents-Jeffrey A. were also charged with extortion conspir Royer, who left the FBI's employ last acy. Ms. Wingate and Messrs. Elgindy December to join Mr. Elgindy's trading Please Turn to Page AlO, Column 1 AlO THURSDAY, MAY 23, 2002 THE WALL STREET JOURNAL. Two FBIAgents Chargedin Short-Selling Scheme Continued Prom First Page . number of different things in her tune." $2.2 million home. tions and cease disseminating "negative and Royer face additional charges of ob He said Ms. Wingate "intends to plead not The indictment says that starting in information" about the company being structing justice. The most serious guilty." Mr. McCue said that her financial 2000. Messrs. Elgindy and Cleveland "cor targeted. charge against each defendant carries a resources are "limited" and that counsel ruptly induced" Mr. Royer to provide them Mr. Elgindy, a 34-year-old native of prison term of up to 20 years. will be appointed for her in New York. with confidential law-enforcementinforma Cairo, Egypt, became something of a ce A person who answered Mr. Elgindy's David Kitchen, who was Special tion about companies whose stock they lebrity among Internet investors during cellphone said he wasn't available for com Agent in Charge of the Albuquerque FBI had sold short. After leaving the FBI to the headiest days of the technology-stock ment Calls to Mr. Elglndy's firm, Pacific office at the time of Ms. Wingate's ar join Mr. Elgindy's operation, it says, Mr. bubble. His messages on such stock-chat Equity Investigations, of San Diego, rival. says she came to work for him Royer allegedly persuaded Ms. Wingate to sites as Silicon Investor, usually recom weren'treturned. Messrs. Royer, Wirigate, fresh out of the FBI's training academy provide similar information fix)m FBI data mending investors sell shares he deemed Qeveland and Peters couldn't be reached. in Quantico. Va.. in the fall of 1999. Mr. bases. overpriced, were widely followed. Silicon The government said all five defendants Kitchen says Ms. Wingate was assigned In one alleged instance, Mr. Royer Investor members demanded Mr. Elgindy were arrested on Tuesday-Messrs. Elg- to the bureau's bank robbery squad for found criminal-history information in the be reinstated after he was suspended indy and Peters in California. Ms. Wingate about six months and was then "moved FBI database about Paul Brown, chief from the site in 1999 when his remarks and Royer in New Mexico, where they up" to the white-collar (irime squad, possi executive of Nuclear Solutions Inc., a got a little too caustic. He later started were most recently assigned with the FBI. bly putting her in touch with publicly small company based in Meridian, his own Web sites, AnthonyPacific.com and Mr. Cleveland in Oklahoma. traded companies under scrutiny. At the Idaho, and passed it to Mr. Elgindy, who and InsideTnith.com, charging people up Ms. Wingate was released on her own time Mr. Kitchen left the FBI. in May shorted the stock and distributed a report to $600 a month to see his picks first and recognizance. Mr. Royer was released 2000, Ms. Wingate was just getting to his subscribers last December calling read his often colorful comments. but must wear an electronic bracelet. started in her new assignment. Mr. Brown "a convicted felon." Nuclear Mr. Elgindy has a history of run-ins Both have been ordered to appear on "I am really surprised to hear she Solutions' stock fell sharply in the after with criminal authorities and securities- noon next Tuesday before U.S. District could be involved in something like that," math of Mr. Elgindy's report. Nuclear industry regulators. In May 2000,he was Judge Raymond Dearie in Brooklyn. Mr. Kitchen said. Solutions officials couldn't be reached for sentenced to four months in federal Doug Couleur. the court-appointed coun The indictment didn't say how much comment. prison and three years of probation for sel for Mr. Royer. said he will have a money the defendants netted from the The indictment says Messrs. Elgindy fraudulently collecting disability pay different court appointed counsel in New scheme, though Mr. Royer was alleged to and Peters would use the confidential in ments between May 1994 and February York next week, where Mr. Royer plans have been paid $30,425while he was still formation they collected from the FBI to 1995 while he continued to work as a to plead "not guilty." an FBI agent. In a separate action author make "extortionate demands" on compa stockbroker at Bear Steams. In 1997, he Stephen T. McCue. a court-appointed ities filed a civil suit seeking to seize nies that they knew were being investi was fined $30,000 by the National Associa federal defender who represented Ms. funds from numerous accounts held by gated by federal authorities. Once these tion of Securities Dealers for stock-trad- Wingate at Tuesday's hearing, said she is Messrs. Elgindy and Royer. as well as demands were satisfied, the indictment ing violations in 1993 that included im now assigned to the drug squad. He said Mr. Elglndy's Rolls Royce, Bentley. Jag says, Mr. Elgindy would tell subscribers properly using a trading system for retail she is "a solid line agent who has done a uar and Hummer automobiles and his to his Web site to exit their short posi customers. The NASD revoked Mr. Elg-.
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