|Re: USA v Elgindy Guide to Government's Statement of Facts|
The government enumerates what they purport to be the facts of the case. We went through their entire brief and pulled everything that was in the record to address each of their allegations, illustrations, examples and arguments. As a result, I am about to traverse their statement of facts, and identify on each of the points they make, if its something I have an answer for or if I dealt with it in one of the following main points. For example in Point 10, you will find Daws Disparity, Forfeiture and the Fake ID sentence, as well as Cleveland's testimony in BGII, which they claim we "ignored."
In POINT 6 you will see I address many issues all in the same "POINT". In fact if you used only POINTs 1,2, 4 & 6 , you would be covering over 90% of the case.
((((FROM THE GOVTS BRIEF))))
Page 4 & 5:
1.) Purpose of Anthonypacific.com is covered in POINT 4
2.) Insidetruth purpose is covered in POINT 4
1.) Cleveland premise that it is the best information that you "couldn't get anywhere else", is covered in POINT 4.
1.) Cleveland's allegations that the site was about "crushing stocks" is in POINT 4.
1.) Cleveland's testimony that he was taking care of the money side, is implausible but I didn't address it. The fact that an FBI agent is going to go and steal information, tarnish his badge, sell his soul, for almost 2 solid years, without getting a penny, is tough to swallow. Cleveland's claim that he was supposed to split everything 50/50 is a fabrication, I could understand if Royer gave him info a few times and didn't get paid, but the testimony that he NEVER paid him a dime over two years and that Royer kept on giving information, is a bit much. If you think its useable, its your call." In fact, however, Cleveland never gave Royer money under this arrangement."(TR 988)
1.) Fidelity Bravery & Insider selling was dealt with at trial...I am not sure how wasting space on this helps us much...We could say that Mr. Elgindy meant exactly what he said he meant.that the site was about being brave, faithful and watching
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out for Insiders when they are selling their stock...The end...simple ?? I have the cite for it if you want it??
1.) I ignored the "erase the log stuff", it seemed like a huge waste of space with little to show for it (?). Your call.
2.) I also ignored the "personal FBI agent" stuff.
3.) The $75,000 loan that Royer asked me for is true, but I sent him to a guy who made personal loans, he never got any money from me. (it's in the record... I didn't see it as a big deal)
1.) to the extent that it means anything...we are clearly saying that watching the deals that Salomon Grey is involved in, could keep us [shortsellers] in business a long time....why the government puts this in...is beyond me...the info came from Derrick who got it from Saloman Grey (a boiler room operation)...there is nothing nefarious about any of this
Page 12 & 13:
1.) Royer had his own room, we put in the receipt. he never stayed in my room..and I dont appreciate the homosexual innuendo. Levine is the one who had man-boobs, that Breen kept cupping during the breaks.
2.) VERY SIGNIFICANT: The government's claim that Royer's letter was on FBI letterhead is false the letter is on plain white typing paper. No letterhead whatsoever.....
3.) No one has ever disputed the content of his letter, it states to the Court in Texas that I was responsible for starting 8 investigations while I was on supervised release, I think it should be in...The government has never denied that it was all true. Imagine that, I am in prison for starting investigations into scam companies....wow..isnt America great !
Page 17 & 18:
1.) Public is my "enemy" is in POINT 4
2.) Members follow "blindly" is in POINT 4
3.) InsideTruth is in POINT 4
4.) Footnote No. 11 (about Hansen's alleged testimony that this is how we "traded", is wrong. TR 2619 is NOT testimony from Hansen, its about a letter from Hansen's lawyer stating that Hansen doesn't believe he did anything wrong or illegal, and the judge wont let us bring it in.You need to read (TR 2618-19) you wont believe what they did.
NSOL and GENI false statement is dealt with in our opening brief, I didn't re-visit it.
All about FLOR is covered in great detail in POINT 4, I think we need to put it all in, because it truly captures the essence of their prosecution, and continued twisting of everything trying to prove what isn't there. By hitting SEVU, BGII, SLPH, VLPI and
FLOR, it eviscerates their entire case, on the acquitted counts, the relevant counts and believe it or not on the convicted ounts.
Front Running / Trading against advice is covered in POINT 5
Page 26 & 27:
Lebanon is covered in POINT 1
The "whistle-blowing" issue is covered in POINT 4
Royer's issues are ignored by me. He is the worlds stupidest FBI agent aside from the idiot who hired him in the 1st place.
Deals with the Airport fiasco, that I leave to you, I don't want to waste space on it
Verdicts are dealt with in POINTS 3, 4, 5 but mostly in POINT 6. Question, if we show that 3 of the 4 predicate acts have insufficient evidence does that negate the RICO conviction, since you need 2 predicate acts??
. Point 1 PREJUDICE AND OBSTRUCTION
The centerpiece of prejudice of this case was created when the government chose to press a completely unsupportable obstruction count against Mr. Elgindy. This opened a doorway through which they were able to push an unending stream of innuendo and insinuation-laden but patently unfactual material in front of the jury, introduced not for the truth, but solely for the purpose of tarring Mr. Elgindy repeatedly and irreparably with a "9/11" and "terrorist related" brush.
Even though Mr. Elgindy was not being tried on any counts even remotely related to these inflammatory topics, his defense was unable to stop the flow of this material and its sinister insinuations. Making matters worse, defense was admonished
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repeatedly, not to rebut the insinuations, the consequence being that even more such material would come in. The record is replete with instances of the judge becoming increasingly disturbed by these contaminations of the jury, without recognizing the court's complicity in creating such an untenable situation with regard to a fair environment in which to try Mr. Elgindy on stock-related charges.
The government claims that the best proof that there was no prejudice was the jury's acquittal of the obstruction counts against Mr. Elgindy. The evidence and the record prove the opposite: that the government used the unprovable obstruction count to bring in prejudicial 9/11-related topics, which hopelessly contaminated the fair consideration of the numerous other charges against him.
Government Theory: Elgindy Knew About 9/11 Investigation, but not Stock Investigation
The theory of the government's obstruction count required that Mr. Elgindy know he was under investigation for 9/11-related matters, while at the same time, he did NOT know anything about the "inside trading", "manipulation", "extortion", "racketeering" or stock-related aspect of the investigation. In the government's opening argument to the jury they stated; "The evidence will show that even after Royer knew Elgindy was the target of the investigation, their stock scheme continued, it was business as usual. Royer continued to steal information, they continued to trade stocks based on the information and they manipulated stock prices and started another extortion scheme only now with knowledge of the investigation that had been opened." (TR 53-54)
In addition both Royer and Cleveland testified without contradiction that neither one of them had any idea that they too were targets, until the moment they were arrested, confirmed here by the government; "When Royer left the FBI in Dec 2001, the information he had obtained and disseminated about the government's investigation into Mr. Elgindy related almost solely to it's 9/11 related aspects, as the investigation focused on securities related matters only later.(GBr 38, FN 20) Indeed, Royer testified that he knew nothing about the securities fraud aspect of the investigation until he "got the handcuffs put on him."(TR 6829-6830)
If the government's description between November 2001 and Mr. Elgindy's arrest in May 2002 was "business as usual", without interruption, regarding the stealing of information, insider trading, extortion and the manipulation of stocks, why would Elgindy be preparing to flee? The answer of course is that Elgindy would only be preparing to flee if he did have some connection to terrorism or 9/11 and he had something to fear with regard to those matters.
It is this message that the government wanted to send. They were able to convey it to the jury when the District Court allowed some of this prejudicial material in. By repeatedly characterizing Mr. Elgindy's pre-arrest conduct as "preparation for flight" the government, assisted by the Court, made it implicit that Mr. Elgindy had a possible, "unofficial", unknown connection or undocumented link to either 9/11 or terrorism in general.
As a defendant not charged with anything related to 9/11 or terrorism, Mr Elgindy was instantaneously prejudiced as if he had been. As an Arab-American being tried
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in a post-9/11 NY Courtroom, before an un-vetted jury, there is quite simply a presumed prejudice.
"Preparations of Flight" imputed to Elgindy's actions allowed government to introduce unrelated 9/11-insinuation-laced material
The obstruction count allowed the government to put in evidence of "preparations of flight" imputed from certain actions of Elgindy prior to his arrest. This allowed the government to lend credence to the various 9/11 allegations, even though the jury was officially informed that there were no "formal" charges. The jury was thus exposed to numerous insinuations which Mr. Elgindy's defense was barred from refuting. These included various misleading but unrefuted insinuations, including "liquidating $6 million dollars in stock on Sept 10th"(TR 808), and donating money to a suspect charity (TR 809), which could well create suspicion of his simply being a sympathizer.
As a result the jury could certainly conclude that Mr. Elgindy obviously had some connection to terrorism that concerned him enough to consider fleeing the country. At the same time, since he did NOT know he was under investigation for these matters, it would not be inconsistent for the jury to conclude that he took no action to interfere with such an investigation. Lack of knowledge of the investigation does not equate with complicity with terrorism. The government was thus able to exploit this wholly unprovable charge to create an inflammatory suspicion entirely beyond the bounds of the case being tried.
Presumed prejudice is only "rarely" found, and is limited to "unusual" and "extraordinary" cases. Busby v. Dretke, 359 F.3d 708, 725(5th Cir. 2004); Mayola v. Alabama, 623 F .2d 992, 997 (5th Cir. 1980); US v. Mcveigh, 918 F. Supp. 1467, 1469 (W.D. Okla 1996). This was an extraordinary case, and "f there were no constitutional right to a change of venue" on these facts, "one can concieve of virtually no case in which a change of venue would be a constitutional necessity." Coleman v. Kemp, 778 F.2d 1487, 1538 (11th Cir. 1985). Courts have repeatedly reversed convictions or granted habeas corpus relief where the defendant or his alleged crime evoked strong emotional responses in the community, including many cases with far less egregious facts than this one.
In Johnson v. Beto, 337 F.Supp. 1371 (S.D. Tex. 1972), the defendant was widely viewed as a "black militant" in Houston, and was publicly associated with racial unrest. A jury convicted him for "the gift of one marijuana cigarette, " and he was sentenced to 30 years in prison. On habeas review, the court held that community prejudice deprived him of a fair trial.
Long after Mr. Elgindy had gone to Lebanon and invested in an ocean-front apartment and then returned to America, and well after Royer had left the FBI, Mr. Cleveland testified about how he felt being in Mr. Elgindy's office and knowing that he was a terrorist suspect while he [Elgindy] didn't.
Q: After Mr. Royer left the FBI, did you and he continue to discuss this new investigation of Mr. Elgindy?
Q: How often
A: probably once a week
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Q: Did you ever hear Mr. Royer tell Mr. Elgindy about this investigation ?
Q: Did there come a time when you discussed with Mr. Royer the fact that you were working in Mr. Elgindy's office while knowing that he was being investigated for this new thing?
Q: What did you say to Mr. Royer
A: I told Mr. Royer that it was weird being in the office, that I actually felt a little guilty because you know, I'm sitting five feet away from Mr. Elgindy, we are having a good time in the office at this time and knowing that he is being investigated for this and he has absolutely no idea as far as I knew so I felt really weird about it
Q: Did Mr. Royer respond to what you were saying?
Q: What did he say?
A: He agreed with me that it was a weird situation (TR 946-47)
Clearly it shouldn't have felt "weird" for either of them had Elgindy truly been told even a "little bit". The evidence demonstrating that Mr. Elgindy had "absolutely no idea" of the investigation against him was simply overwhelming. Not even Mr. Cleveland's transparently last-minute" recollection could change that fact. The jury obviously had no trouble believing that Cleveland and Royer, who were "best friends" knew about the 9/11 investigation and felt "guilty" that Mr. Elgindy did not. (TR 946-47)
Elgindy's actions overwhelmingly show no knowledge of investigation The government could not prove, even by a preponderance, that Royer or anyone else ever gave Mr. Elgindy any info about the EDNY grand jury investigation that Mr. Elgindy is alleged to have obstructed. Mr. Elgindy's subsequent conduct made that clear. Big party to celebrate new home, big tax payment made
On May 18th, just 3 days before Mr. Elgindy was arrested, Mr. Elgindy and his family celebrated the completion of construction, in San Diego, of their 8,000 sq ft. multi-million dollar home. They threw a large housewarming party for hundreds of friends, neighbors and site members, who flew in from all over the country to attend. Additionally, just three weeks prior, on April 15th, Mr. Elgindy made a quarterly tax payment to the IRS in the sum of $305,000 and opened a pension account.
Elgindy discussed Lebanon trip extensively on the internet: before, during and after The first big blow to the obstruction counts came at trial, when the government was forced to admit that they first learned that Mr. Elgindy had gone to Lebanon directly from Mr. Elgindy's own public writings, when he posted that he was in Lebanon on the "Dear Anthony thread" on the public, free and very popular website SiliconInvestor.com, while he was still there. (TR 5061)(DX 10564-66)
Mr. Elgindy had first obtained permission from his probation officer to travel in July
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2001 and discussed it on the site. On July 26th, 2001 he states: "I haven't had a vacation in 5 years..I have made no plans yet....I'll let you know when I have dates".
Then on Sept 24th he asks; "Does anyone want to go to Egypt with me on Egypt Airlines with a stop in NY>...Its not a free ticket but the plane is gonna be empty I hear." Three days later, on the 27th, he says: "Dont forget I leave on October 27th." When asked where he is going, he replies; "Egypt and all of Europe...a one month trip." Early the next morning he says; "I'm in Egypt the 27th and I'll be back before Thanksgiving, 1st vacation in 6 years."
On October 3rd, Elgindy announces that he is leaving in the next few weeks. On October 8th at 12:47 Elgindy advises site members that he will be logging on each day, "inbetween dives in the Red Sea."(See Alan Schwartz Chat submissions used at 2002 Bail Evidentiary hearing/Lefcourt)
Finally on October 23rd, Mr. Elgindy announces that he is leaving and speaks to site members by way of an audio broadcast that each member can tune in and listen to as they chat.
[16:10] anthonypacific>> ok go audio, this will be my last audio till I get home
[16:16] anthonypacific>> I leave saturday
[16:36] DMG>> Have a great trip, Tony
[16:36] Kris>> ok Tony take care
[16:36] bond1>> good luck my friend
[16:36] tjrideout>> Bon Voyage Tony. You've earned your time off.
[16:40] anthonypacific>> seeya all
Two weeks later, on November 9, 2001, beginning at 15:49 Mr. Elgindy discloses his interest in returning to Lebanon and possibly investing in Lebanese real estate in his chatroom.
[15:49] anthonypacific>> its 80 here
[15:50] anthonypacific>> anyone up for some diving??
[15:50] anthonypacific>> meet me at the red sea
[15:53] anthonypacific>> I will most likely spend a couple months a year here..and work from here
[15:53] anthonypacific>> in the summer....
[15:53] anthonypacific>> when the kids are off school
[16:05] anthonypacific>> Im tellin ya smart money is buying lebanon realestate
[16:05] anthonypacific>> arabs cannot go to the USA, Canada, England, France , germany....anymore without intense scrutiny
[16:07] anthonypacific>> so they will come here cause its as close to Europe and America that theyt can ever get
[16:07] anthonypacific>> im tellin ya..this is smart... move
[16:08] anthonypacific>> I will keep the top floor of the building for us to vacation in
A week later, on Nov 14th, Mr. Elgindy responds to site members who are joking around that he may not be allowed to reenter the United States, in part because of the extreme bias against short-sellers that prevails on Wall Street, and his own ethnicity and obviously where he is returning from.
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[14:54] anthonypacific>> Archer..im bringing back lebanese coffee creamer
[14:54] anthonypacific>> its awesome
[14:55] anthonypacific>> Hi..Im American, traveled to Egypt, Lebanon,, Siniaia and Germany..can I come in ??
[14:57] anthonypacific>> I short American companmies..please let me in
[14:57] anthonypacific>> I short American companies..please let me in
[14:57] anthonypacific>> what can they do?
[14:57] anthonypacific>> deport me?
[14:57] anthonypacific>> to where??
[14:58] anthonypacific>> who would take me?
Later in chat, Mrs. Elgindy, who had flown out to join her husband, described her time in Lebanon, to site members, like this; "Its so beautiful here. I've been here 3 days...We are going snorkeling tomorrow, the water temp is around 80.....You have mountains next to ocean.. Incredible!.!"
Finally on Nov 20, 2001, Mr. Elgindy is back in California. " I am home, I hope everyone is well...Its good to be home....took less than 2 minutes to come into the US...stopped in Cairo on the way back...This time the plane was loaded with Americans." (All above excerpts from Schwartz Chat excerpts Bail Evidentiary hearing in 2002/Lefcourt..)
Trip was fully and satisfactorily disclosed to Elgindy's Probation Officer Contrary to the government's claims that Mr. Elgindy deceived his probation officer, Mark Riedling testified that Mr. Elgindy had been a "model probationer" and did everything that was asked of him. [FN: It should be noted that both of Mr. Elgindy's probation officers have steadfastly refused to violate Mr. Elgindy throughout this entire case, from the day he was arrested until the time his supervision ended in October of 2003, despite the fact that all these alleged crimes purportedly began and ended while he was still on supervised release.)]
Mr. Riedling testified that Mr. Elgindy was required to let him know where he actually had gone on his trip AFTER he came back.
Q: And didn't you tell him when you come back, let us know where you have been ??
Q: Now up until that point, is it fair to say that Mr Elgindy was a model supervisee?
Q: He did whatever you wanted ?
When asked about Mr. Elgindy's reporting requirements regarding his financial affairs and investments he made it clear that he didn't require much from Mr. Elgindy.
Q: In other words, he wasn't really required to tell you about what he was expending more than $500 for, he just gave the bank statements and wrote whatever he wanted on them; right ?
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A: that was how he was to report to us, yes
Q: And so would it be fair to say this was not a rigid process that you had with Tony with respect to expenditures of more than $500, he never was questioned about it; correct ?
Q: If he wanted to make an investment in a security, $50,000, would he have to tell you about it ?
Q: if he wanted to invest in a real estate trust, a company that owns various pieces of real estate, would he have to tell you about it?
A: If it was out of the business, No(TR Bail Hearing/Lefcourt 2002)
Elgindy's investments with complainant Broker inconsistent with knowledge of investigation
In addition to the above, Mr. Elgindy's ongoing investment activities with family Stockbroker David Ross, refutes the heart of the government's argument -- that Mr. Elgindy was being fed (ie.."monitoring") details about the FBI's investigation of him. It was David Ross who reported to the FBI Mr. Elgindy's attempt to liquidate his children's trust accounts on Sept 10th. (These attempts were no secret; Elgindy announced them to all his site members in chat and email that same afternoon - Sept 10th (GX 3001, B/C 9/10/01 14:48)).
At trial Mr. Elgindy introduced two documents - DX 17131 and DX 17130 - showing that six months after 9/11, and just weeks prior to his arrest, in April of 2002 Mr. Elgindy opened and funded, with $65,000, a new pension account for himself, with the same broker, Mr. Ross.
It simply defies logic to claim that if Mr. Elgindy had been "monitoring" the FBI's investigation, and thus learned that Mr. Ross had reported him to the FBI as a person having prior knowledge of the "9/11" attacks, six months later, Mr. Elgindy would have opened another account with this same broker. It also is also entirely inconsistent with a "preparation for flight" theory that Mr. Elgindy would open a brand new US based pension account at Smith Barney while preparing to flee the country.
Cleveland's "recollection" of informing Elgindy is entirely not credible The evidence on which the government specifically relies begins with Derrick Cleveland's thoroughly discredited eleventh-hour alleged recollection that Royer told Cleveland that he had told Mr. Elgindy a "little bit" about the FBI's investigation. (TR 947(direct), TR 2103(cross)) Cleveland first "remembered" this alleged fact on September 15, 2004, two years after he began cooperating and after having met with the government some 10-15 times for 20 to 30 hours. (TR 2104-05). The circumstances thus strongly suggested Cleveland's testimony on this point was a fabrication.
(**It should be noted that prior to Sept 15th 2004, the government had absolutely no evidence whatsoever that Mr. Elgindy had ever known about the 9/11 investigation and the government's hopes of being able to bring 9/11 into the trial were fading fast, it was only after Cleveland had this sudden recollection, on the eve of trial, did the Court seriously entertain any of it coming in.)
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Elgindy's comment about "middle-Eastern charities" had prior context Next, the government cites Mr. Elgindy's alleged post-arrest interview spontaneous utterance that he did not give money to Middle Eastern charities. At trial it was established that well before Mr. Elgindy's arrest, and following the events of 9/11, there had been controversy and discussion on the AP site about the very subject that Mr. Elgindy mentioned: his alleged donation to Middle Eastern charities. That chat broadcast - GX 3001 (B/C 9/25/01 17:26) -- showed that Mr. Elgindy had been concerned about his donations to an organization --Mercy International -- that was being reported as having ties to O---a B-- L-d-n. The broadcast showed that there were two charities with the name "Mercy" and that the one Mr. Elgindy had donated to was a US approved organization and not the one with ties to te--orists.
Moreover, on cross examination of former FBI agent David Sutherland, just before making the alleged Middle Eastern charities "utterance", Mr. Sutherland testified about his challenging Mr. Elgindy about a bank account he had opened in Lebanon. Mr. Elgindy had already explained, in fact volunteered -- during this interview that he had opened an account in Lebanon in connection with his plans to make a real estate investment, by purchasing a beachfront condominium there. Sutherland was challenging Mr. Elgindy on why would he leave so much excess cash in his Lebanese bank account, considering what an active trader he was.
Q: Sir am I correct that it was after you questioned him about why he would leave excess cash in the Lebanon account that Mr. Elgindy told you that he didn't give money to Middle Eastern charities ?
A: There was a point in the interview when he said that, yes
Q: And sir, the issues of Middle Eastern charities -- when you say a point in the interview, the point after you were questioning him about his excess cash in Lebanon; correct ?
A: yes (TR 4445-46)
It was at that point that Mr. Elgindy attempted to respond to the suggestion that these funds were being put to nefarious purposes by stating that he didn't give any money to Middle Eastern charities. (TR 4442-46)Broker forms mistakenly filled out by others. As far as the account-opening paperwork that mistakenly listed Mr. Elgindy as a resident of Lebanon, all indications were that it was Global Securities, not Mr. Elgindy that filled out the paperwork, most likely because, at the time he signed and faxed back the forms in October of 2001, Mr. Elgindy was in fact visiting Lebanon, as the date and location next to his signature clearly indicate (see GX 4011)
As was made clear at trial, all of Mr. Elgindy's conduct, opening a bank account, investing in beach front property in Lebanon, traveling there only to return to the United States, was all completely unrelated to any knowledge of the EDNY investigation. No jury, prejudiced or not, could deny those facts. That is exactly why Mr. Elgindy's acquittal of obstruction does nothing to negate his being prejudiced with regard to any of the other charges. It's enough if the jury were to simply believe that Mr. Elgindy, sympathized with terrorists.
As far as Mr. Elgindy's informing Ms. Bryant, his new probation officer of his decision
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to quit the "whistleblowing" business (TR 3499), this was because of threatening emails and personal attacks, including death threats (See, GX 3001(B/C 10/24/01 11:22)). As it turned out all that Mr. Elgindy did was take InsideTruth.com private (making it a subscription site) and the AnthonyPacific site kept operating uninterrupted.
"Preparation for flight" theory implied Elgindy was tainted by terrorism connections, irreparably damaged Elgindy's chance for a fair trialThe government's decision to allege that Mr. Elgindy was preparing to flee was as damaging as if they had accused him specifically of 9/11-related crimes. The government states clearly how they will advance their plan and how the court would assist them in insinuating Mr. Elgindy's ties to terrorism. This painted him in the most negative possible light, and therefore increased the likelihood of sustaining guilty verdicts on a variety of other complex and far-reaching charges. On page 46 the Government states:
"As the court has warned the defendants throughout the trial, even as the court severely restricted the government's ability to elicit details concerning the 9/11-related information, any attempt by the defense to suggest that the 9/11 investigation had no basis would open the door to additional evidence regarding that investigation." (TR 2153-54)
No fair trial could occur under these circumstances; "With his life at stake, it is not requiring too much that [Elgindy] be tried in an atmosphere undisturbed by so huge a wave of public passion..." Irvin v. Dowd, 366 US 717, 728 (1961). Yet, despite extensive briefing, the Court denied Mr Elgindy's motions to transfer venue without even permitting a hearing. [CITE -ELGINDY/Lefcourt venue motion, and the record] Pamplin v. Mason, 364 F. 2d 1, 6 (5th Cir. 1966)(The denial of a pre-trial[venue hearing] was in itself a denial of due process"[KE1]
The government repeatedly introduced numerous 9/11 allegations and "evidence" that was incendiary, extremely prejudicial and most significantly, completely false as they overzealously pursued this "preparation for flight" argument that made absolutely no sense. It is inconceivable to understand why anyone would pick up their entire life and abandon their American citizenship to flee an investigation of something he had nothing to do with. But that is exactly what the government alleged. Fairness should have dictated that Mr. Elgindy should have been able to demonstrate that the matters introduced were baseless.
When the court told the jury that there were no "formal" charges against Mr. Elgindy, that this was a similar investigation to thousands of others that were launched after 9/11, and for them not to "pay attention" or let that "distract" them, it cannot be reconciled with the government's assertion that Mr. Elgindy was then preparing to flee from these "run-of-the-mill" allegations, charges that he allegedly knew about.
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Court initially took position that the tainted material was harmless The court's observations early in the trial, in November, that the evidence was initially coming in a "white bread" and "harmless" fashion that didn't produce "any reaction" from the jury, obviously changed, 5 weeks later when the relentless assault with this so-called "evidence" not only produced a reaction from the jury and everyone in the courtroom, but from the Court itself, when a well seasoned judge, with over 20 years on the bench was forced to stop the government as they pressed for more and more 9/11 evidence to come in; "Stop it, I didn't get to sleep last night, now it's going to my stomach. Please enough with this."(TR 7838, A405) If this "9/11" "evidence" ultimately had this kind of an impact on the court, one can only wonder as to how it affected the jury.
While the government continuously looked for more and more opportunities to introduce more and more of their 9/11-tainted material coming in, they intensified efforts to communicate it's growing seriousness.
Q: Did Mr. Royer say anything about the imminence of the investigation ..Let me ask that a different way...Did Mr. Royer express whether he thought anything was going to happen soon?
A: Yes, his exact words was that the noose was tightening around Mr. Elgindy's neck (TR 955)
To fully understand the devastating nature of this comment to Mr. Elgindy's prospects for a fair trial, one has to realize that the context of this conversation can only be a 9/11-related investigation. Neither party in the above testimony was aware of the existence of an investigation of the stock-related matters of this trial.
Furthermore, the self-serving comments of the District Court, prominently reiterated by the government, as it "pats itself and the government on the back," for showing such "enormous restraint", only strengthen Mr. Elgindy's argument further. Since the government was restricted from bringing in even more prejudicial information, the implication is that the court and government were successful in restraining Mr. Elgindy's attempts to mitigate prejudicial damages. Mr. Elgindy was entirely prevented from attempting to prove that that the 9/11 allegations against him were false, and that he had no connection to terrorism, under threat of even more incendiary and prejudicial allegations, of which none one were true.
It makes no sense to say on one hand that Mr. Elgindy is not a terrorist and has no connection to terrorism and all the information" regarding 9/11 would be offered only in "off-handed", "white bread", "casual" way, presented in a "harmless fashion" without giving it any "prominence" and then turn around and allege and zealously try to prove that he really was trying to flee and leave the United States to go to Lebanon, all in an attempt to get away from this same run-of-the-mill 9/11 investigation.(GBr 43)(TR 2896)
The government's statement on page 46 is truly extraordinary in that it effectively makes Mr. Elgindy's argument of prejudice on his behalf. The seriousness and simplicity of the words cut right through to the heart of Mr. Elgindy's appeal. The government's desire to introduce emotionally charged, incendiary and extremely prejudicial evidence and allegations that it knows are totally false and then not allowing Mr. Elgindy to defend himself was exactly their intention, and their creation.
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First, it clearly establishes the court's responsibility ("As the COURT has warned." [emphasis added]) in creating the prejudice that ensued. Second, it readily acknowledges the untenable "Catch-22" that resulted from Mr. Elgindy's inability to challenge any insinuation that he was somehow connected with terrorism-that is, without incurring the introduction of even more inflammatory and prejudicial "evidence".
Indeed, in making this statement, the government's brief itself shines a spotlight on the district court's failure to live up to its own ruling as referenced in (TR. 2153):
THE COURT: Nevertheless, other than allowing the government to elicit from Mr. Cleveland, Mr. Royer shared specific details about it WITHOUT IDENTIFYING IT, I'm not going to allow any more at this point.[emphasis added]
Government brief misleads recasts Court's concerns about contaminated material as being the fault of Elgindy's Defense
The government's own brief provides still more evidence of the lose-lose situation in which Mr. Elgindy was placed. Though it was careful not to say so EXPLICITLY, the government's brief rather subtly - if disingenuously -- attempts to deflect the court's frustration at the introduction of more and more 9/11 material (as reflected in its remark, "Stop it. I didn't get any sleep last night") onto Mr. Elgindy by saying, ".in fact, the court was struggling with how to deal with the defendants' decision to introduce 9/11 evidence through Royer and to suggest that the evidence demonstrated the defendants' good faith." (FN #30, p. 51)
In addition to making the rather audacious claim that it was Mr. Elgindy who sought to "introduce" 9/11 evidence, the government once again concedes that they had sought -- and obtained from the court -- the ability to prevent Mr. Elgindy from responding to the inflammatory and prejudicial insinuations they made. Thus, in the government's own words, even attempting to proclaim "the defendants' good faith" -- which is SUPPOSED to be the purpose of putting on a defense in the first place -- is now deemed to be inappropriate, for Mr. Elgindy.
Furthermore, when viewed within the full context in which the court's "sleep" remark was made, there can be no doubt as to the source of the court's anxiety and to whom it was directed:
MR. BREEN: They are statements that we would say are hearsay statements. We would say that they are unreliable, that they are being offered for their truth to show what Mr. Elgindy's feelings were, which we think are not trustworthy under the circumstances. It would be misleading to the jury, and should be excluded under both hearsay and 403 grounds.
MR. LEVINE: Your Honor, if they really want to offer those statements, and the Court would permit it, then I think there is no longer even a door, because it's just -- everything comes in. Everything.
THE COURT: Stop it. I didn't get any sleep last night. Now it's going to my stomach. Please, enough with this. I only saw portions of the September 10 chat, because the government was pushing me to introduce it. (TR. 7837-38)
---- PAGE 16 ----
Indeed, later during the same sidebar, in response to additional pressure by the government for even greater latitude, the court again tells the government to "stop it":
MR. LEVINE: If -- you know, Your Honor, obviously we will argue that that's -- Mr. Elgindy, he likes to play things pretty close to the vest. He is a pretty clever guy. If we are going to have this argument, fine.
THE COURT: Is he clever enough, Mr. Levine?
MR. LEVINE: We will find out.
THE COURT: Stay tuned.
MR. LEVINE: Exactly. If that's going to be done I think we should have even more latitude to put in the whole 302 of Mr. Ross.
THE COURT: Stop it, will you?
MR. LEVINE: Every time we do one thing they want to do more.
THE COURT: You are not going to push me closer to the edge. You get my metaphor? You are not going to put me and this case closer to the edge.(TR. 7844-45)
At that point, of course, it was already too late. The court had already hurled itself over what it would later describe as a "26,000 foot precipice".Further damage to fairness during Royer's testimony The government's message truly was very simple, and one that created instant and unavoidable prejudice. Who else would try to run and hide except a terrorist?
Unfortunately, the only thing the verdict in the obstruction counts proved is that Mr. Elgindy did not know he was being investigated for being terrorist suspect. It did nothing, however, to dispel the very real suspicion they sowed that he might possibly be connected to terrorism himself.
With respect to Mr. Royer's testimony, Mr. Elgindy played no role, yet suffered the full blunt force of it's prejudice. As Mr. Royer attempted to deal with what was presented about 9/11, Mr Elgindy's attorney, anticipating the ensuing cross examination strenuously objected to the introduction of even more "9/11" related "evidence", especially since the trial was coming to an end.
" We are very much objecting to the government going into any of the specific 9/11 issues beyond that which is already in the case."
THE COURT: Why don't I give you a standing objection along those lines
Judge I would prefer, I mean, but its a real objection because to the extent that Mr. Royer may have said certain things, certainly there is nothing Mr. Elgindy did that opened the door to what is evidence and information that remained as extraordinarily prejudicial right now as it was at the beginning of the case when we briefed this for months and argued it forever, particularly at this stage, Judge where the securities fraud issues and other related issues are teed up for the jury to consider.
At this late date, for evidence of damning and prejudicial information about something as emotional and inflammatory as 9/11 to come out at this stage against
---- PAGE 17 ----
Mr. Elgindy, in whatever form, would be extraordinarily prejudicial. I would say at this joint trial under Rule 403 and I think probably other grounds we cited in all our briefs, your Honor should keep that out."(TR 6838-43)
Mr Berke followed by stating;
"I'm not meeting any concession about what Mr. Royer has done or hasn't done. My view is it doesnt matter as to Mr. Elgindy. Yes the allegations in these reports are not benign, they are also argued not to be true, and we have not been in a position where we spent the months to contest them and prove them not to be true. There are a number of facts we have in evidence. We have to disprove each of these allegations. We started briefing on this. If you let the plain allegation Mr. Elgindy is a terrorist or that he had foreknowledge of the first terrorist act ever occurring in the US, we submit he cannot get a fair trial in this case.
There is a cost to the government of having a joint trial. We moved for severance from the beginning and we raised --It couldn't be any clearer or made any plainer that we do not believe Mr. Elgindy can get a fair trial if these allegations come out. If Mr Royer did or said what he said, I dont address because I dont think it's relevant to protect Mr. Elgindy's rights....
Mr Elgindy did not take those actions. he chose not to take those actions and he did not take those actions and now the consequences, whatever that may be, however they may go to Mr. Royers credibility, which as your Honor says, I would argue cumulative." (TR 6839)
As to the 9/11 stuff, whatever relevance it has to Mr Royer's credibility, the extraordinary prejudice it would have to the subjects of those reports, Mr. Royer -- Mr. Elgindy, who is involved in this joint trial, cant be minimized, cant be dealt with with an instruction. We're at the 11th hour where the case is framed for the jury."......
THE COURT: Enough. I cant say that I entirely agree with your comments, but I certainly share your concerns, and your point is well taken, this is not Mr. Elgindy's doing, at least not within the four corners of the trial."(TR 6838-43)
The government then tried to argue that Elgindy who had introduced evidence that they believed was an attempt to "belittle" their 9/11 evidence, was just as responsible as Mr. Royer who was, according the government, portraying himself as a "crusader against terrorism"(Gbr 44)
MR LEVINE: I have argued several times at side-bar, they have injected 9/11 issues into this case. They put the email in, they put up these emails from Lebanon trying to spin benignly that whole issue. So I think they are in this as much as Mr. Royer." (TR 6843)
"THE COURT: They are trying to answer the evidence that I let you get in from the get-go, evidence of the preparations of flight and so forth."(TR 6844)
---- PAGE 18 ----
Before this trial began, the record reflects the Court's extraordinary pretrial attempts to clarify a line between the content of this case - a complex white-collar stock market matter - and 9/11 references. This was intended to keep strictly out of the jury's awareness any conceivable connection to emotion-laden, inflammatory 9/11-related suspicions, which were not any part of the stock-related charges against Mr. Elgindy. This Court's concern was all the more relevant since an Arab-American was on trial just minutes from the site of the World Trade Center tragedy, (the appropriateness of venue having been vehemently argued), as the only American ever to be accused publicly by an official of the US government of having had foreknowledge of the 9/11 attacks.
At the outset of the trial, the Court showed great concern for holding fast to this bright line to protect its corrosive effect from contaminating the jury. But the record shows as the trial went on, that intention succumbed to a slippery slope, which only became more hopeless as the trial progressed. The jury was irreparably contaminated with suggestion after suggestion of Mr. Elgindy's involvement in 9/11-related matters, made worse by his defense being barred from demonstrating the stream of alarming but obvious falsehoods being entered "not for the truth".
When a review of the logical, legal and evidentiary flaws are matched to the specific guilty counts, the suggestion of the role of bias in this case emerges from a shadow to a concrete form. The jury, squeezed by the burden of attending a four-month trial, and weighed down by the massive load of complex and industry-specific details the case grappled with, was unable to escape the shaping of their opinion of Mr. Elgindy to "find him guilty of something". The set of logically inconsistent and wholly insupportable verdicts they returned have to be assessed in detail, then recast in light of the massively biased environment in which they considered this case.
When reviewed from the depth of its details to the big picture, there is no way this judicial result can be sustained as a fair trial.
Point 2 Venue
Sufficiency of basis for venue in EDNY
In arguing sufficiency, the government claims that since a site member who resided in the Eastern District of New York could "view" Mr. Elgindy's site, that is enough to establish venue. Aside from being wrong, the government never introduced any evidence whatsoever that any site member, viewed, heard or received anything while being "located" in the EDNY. There are no phone calls, no emails, no faxes, no trades and certainly no testimony from anyone at all from the EDNY. The government put no one on the stand and Mr. Elgindy wasn't able to ask questions or cross-examine any witnesses.
The government in defending VENUE recites a long list of activity and evidence that it asserts occurred in the EDNY. They cite "emails", "chat viewing", "trading
---- PAGE 19 ----
commands", faxes, phone calls and trades all connected with the EDNY, yet never introduced any evidence whatsoever that any of these things occurred in the EDNY.
The Anthonypacific.com site was not a freely accessible site, the public was restricted, and nobody could just stumbling upon it and view its contents. Interested parties had to follow certain steps to gain access. Part of that access was to a long disclaimer and disclosure that they were required to affirmatively agree to as a prerequisite for joining. By not putting on any of these subscribers, Mr. Elgindy wasn't able to properly question them on their participation or lack thereof, or about their experiences and understandings about the workings of the site.
The government's argument that the "transmission of the information" was essential to the conspiracy because subscribers trading as directed by Elgindy, forced down the share price of targeted companies, enabling the conspirators to realize profits on their trades, " is completely unfounded. (GBr 74) As pointed out in much greater detail in POINT 4, the evidence shows that very few people paid much attention to Mr. Elgindy's trading in many of the stocks in this case. The government wasn't able to introduce a single trade by a single subscriber alleged to be a resident in the EDNY, in any of the 32 stocks identified.
Furthermore, as explained in POINT 4, the government's argument that the "transmission of messages to AP site-members, was the "engine" of the securities fraud conspiracy," was rejected by the Court, as we detail in POINT 4. (June 16, 06 Sent Hearing)
Moreover, the government's claims that there were "market-makers" who made markets in many of these stocks". This is also a red herring. Not one share was traded between any of these "market-makers" and any of Mr. Elgindy's site members or himself. (GBr 74)
The government's claims about Research Frontiers, Inc. (REFR) being located in the EDNY are irrelevant because nobody on the AP site ever traded or made any trade calls in Research Frontiers, Inc. (Gbr 75) Nor was any trading in REFR possibly foreseeable to Elgindy.
Government references to "wholovesya" -- never identified or testified
The government's references to "wholovesya" only reinforce Mr. Elgindy's argument that the government has stretched the rules of evidence beyond all bounds. It is unclear as to why "Wholovesya" was never called to testify; in fact, to this day the government has never identified "wholovesya"'s real identity. There is no evidence what "wholovesya" ever viewed, believed or participated in any activity related to this case while he was "located" in the EDNY.(Gbr 74)
The government's argument that since "Mr. Elgindy manipulated market prices of the stocks, that conduct affects others in the market in a way that straightforward inside-trading may not," (Gbr 75) is moot because the Court rejected the government's various manipulation theories, including "group-trading" and because as we explain in POINT 4, the government's theory of manipulation is legally unsupportable and invalid.
---- PAGE 20 ----
The government's claims that while Royer's accessing of information happens elsewhere, "In each case, Elgindy disseminated the misappropriated information on the AP site on multiple occasions to the site subscribers, including subscribers who were located in the EDNY.(Gbr 77) However, there is no evidence that anyone was "located in the EDNY", the government just says it is so, but cannot cite where in the record such communications, between Mr. Elgindy and any of these alleged subscribers, can be found.
It should be noted that every single trade made by Mr. Elgindy was made at Global Securities, located in Vancouver B.C and the "contra party" (other side) of his trades were all with other US market makers, but none of them are located in the EDNY. (DX 11058, DX 12130, DX 07363)
FBI Evidence from site not retained despite site monitoring
Probably the most significant evidence that there was an issue with the alleged EDNY subscribers, market makers and investors was the complete absence of evidence gathered by the Govt and the FBI that were actually "located" in the EDNY. It was learned during the trial that the FBI secretly went undercover as an individual named Mohamed Rahman, of Brooklyn, and joined the AP site on Dec 7, 2001 and remained until May 21, 2002, the day Mr. Elgindy was arrested. The FBI provided contact information, a credit card and the email address of Moharahman@aol.com, and was then granted 24 hour unfettered access to Mr. Elgindy's site. When confronted on cross examination, former FBI case-agent, David Sutherland testified that the FBI didn't preserve anything at all during their 6 month undercover operation. Not a single email, audio broadcast, chat log. [FN: Agent Chaves testified that at one time they did save some logs, but they were all "lost")]
Furthermore, it is significant to note that during this period of time that the FBI was monitoring the AP site from a Brooklyn location, the government claims Mr. Elgindy extorted Paul Brown, the CEO of "NSOL", engaged in inside-trading and manipulated many of the stocks in this case, such as BGII, EGBT, NECO, IVSO, MHUT, IMCL and many more.
The government relies upon "Rowe" and just like Rowe where an undercover law enforcement officer "located" in Rockland County NY, "connected to the internet, entered a chat room and saw a posting (advertisement for child pornography)", the FBI also signed up and gained access to the AP site, as undercover law enforcement, but this is where the similarities end.
In Rowe the undercover detective testified that he viewed the advertising for child pornography posted by Rowe, while he was "located" in Rockland County. In this case nobody testified that anything occurred while anyone was actually "located" in the EDNY, despite the fact that the government admits to being present during the commission of what it believed to be criminal activity. Former FBI agent david Sutherland on cross examination:
Q: You had joined the AnthonyPacific.com website under a different name?
---- PAGE 21 ----
Q: You had full priveleges so you were able to look at anything that was written, anything that was written beginning in December of 01, correct?
A: Anything that written in the short selling chatroom, yes. It was my understand that there were other private chatrooms where side conversations took place that I did not have access to.
Q: Lets talk about that. Two or three, for example, two different chatroom members could have a seperate conversation,, right?
MR BREE: Objection, beyond the scope.
THE COURT: beyond the scope
Q: Let me ask you this sir, any rooms where things were discussed that any site member had access to, you had access to, correct ?
MR BREEN: Objection scope (TR 4468)
MR BREEN: I wanted to point out for everyone the door is swinging open on this sensitive stuff. Mr Berke is making an insinuation the FBI should stop the extortion of Paul Brown. the reason we didn't step in because we were doing a terrorism investigation.
THE COURT: I understand (TR 4468)
Having learned that the FBI was present and monitoring the site during the period in which all these alleged crimes took place, Mr. Elgindy sought to question what the FBI witnessed, only to be hurried along and shut down by the Court, as it dismissed the incredible significance of this discovery, in front of the jury. For example in regards to "NSOL" the company Mr. Elgindy allegedly extorted openly on his site, the following interchange occurred;
Q: If we could go to JX 289, 11:13. Sir do you see the reference to Anthony: who here is short NSOL ? At 11:13 Anthony says: please go here #secretprivatesexyroom. See that sir ?
Q: Did the FBI make any efforts --the FBI would have had access to this room when it was monitoring the site at this time correct ?
A: Yeah we could have clicked on that and probably gone into the room. I understand that's how it worked.
Q: Did the FBI make any efforts to in fact copy and save whatever was going on in this room regarding NSOL on Dec 27, 2001 ?
A: No (TR 6690)
Q: And sir, do you recall that there were broadcast emails the following morning indicating that there was going to be an audio broadcast about the issues involving NSOL and Paul Brown and everything that was going on here?
A: I don't recall that
THE COURT: But in any event, if there had been, you didn't get into it, you didn't monitor the audio, you didn't go into the priavte rooms and copy and monitor that correct ?
A: That's correct
THE COURT: You just watched the site --you and your colleagues watched the site from time to time without going into private rooms, without listening to audios ?
A: That's correct
THE COURT: Okay, Move along.(TR 6691)
The significance obviously is that the government claimed that much of Elgindy's criminal activity occurred on audio-broadcasts & unlogged private chatrooms, the very same chatrooms and audio-broadcasts it had real-time access to, yet didn't preserve.
Instead of saving their own easily preserved evidence, the government preferred relying on the testimony of an admitted perjurer, forger and convicted drug-trafficker, Derrick Cleveland.
It is implausible that in the weeks after 9/11 the office of the FBI's largest and most motivated special agents, would identify a target that they suspect might have had foreknowledge of the 9/11 attacks, launch an undercover operation, gain unhindered access to a site where they suspect crimes are being committed, be present in real time, as Mr. Elgindy is purportedly disseminating stolen FBI and SEC information, manipulating stocks through trading commands, threats and coordination, yet not preserve one scintilla of that evidence.
As Rowe clearly demonstrates, had any of this material been preserved, venue would have been easily established. By not preserving any of this evidence, then dragging Elgindy 3000 miles, claim he is properly charged in the proper jurisdiction yet never being required to prove it, thereby preventing any of that proof from being tested, is indicative of something far more sinister.
Mr. Elgindy argues that the government had good reason to not preserve any of that evidence, because it was exculpatory. Instead Mr. Elgindy was forced to stand trial in front of a New York jury that got to hear Mr. Cleveland testify about $6 million dollars of stock that Mr. Elgindy sold on Sept 10th (which never occurred), about crimes in hidden chat rooms, crimes over audio broadcasts, money going to suspect charities among a litany of other untrue and false allegations. They sat through and were exposed to to various allegations from relatives and former business associates who all suspected Mr. Elgindy of having ties to terrorism. Lastly, they got to hear Mr. Cleveland describing how the "9/11 noose" was tightening around Mr. Elgindy's neck and they got to hear it all across the river from "ground-zero".
In US vs Thomas 74 F.3d 701 (6th Cir. 1996), the 6th circuit affirmed a couple's conviction for operating an electronic bulletin board from which paying subscribers could download obscene images. The couple lived in California, but were prosecuted in the Western District of Tennessee after a federal postal inspector there, acting on the complaint of a private individual, subscribed to the site and viewed, downloaded and then saved these images. The court held that "because defendant Robert Thomas knew of, approved and had conversed with [a bulletin board] member in that judicial district, who had his [Thomas's] permission to access and copy the [the images] that ultimately ended up there.", venue in Tennessee was proper. Here there is no such evidence that anything was ever downloaded or saved in the EDNY.
In Rowe, at the venue hearing, the District Court concluded that, "this crime occurred in any district in which the advertisement appeared...anywhere where the internet chatroom was accessible and was actually accessed by anyone." Here we have no evidence whatsoever that 'anyone' in the EDNY actually accessed anything while they were actually "located" there.
---- PAGE 23 ----
In Rowe, this Court held; "Where a crime consists of distinct parts which have different localities the whole may be tried where any part can be proved to have been done. Again in this case, there is no evidence and certainly no proof offered that could be tested, that any "part" of any of these alleged crimes, actually occurred in the EDNY. The government can thank Mohamed Rahman for that.
The District Court's Refusal To Transfer Venue Denied Elgindy A Fair Trial.
No fair trial could occur under these circumstances: "With his life at stake, it is not requiring too much that [ELGINDY] be tried in an atmosphere undisturbed by so huge a wave of public passion.." Irvin v. Dowd, 366 U.S. 717, 728 (1961). Yet, despite extensive briefing and declarations from prominent experts, the district court denied Mr Elgindy's motions to transfer venue without even permitting a hearing. [CITE FROM ELGINDY/LEFCOURT VENUE MOTION & TRIAL RECORD]
Pamplin v. Mason, 364 F.2d 1, 6 (5th Cir. 1966) (the "denial of a pre-trial [venue] hearing was in itself a denial of due process"). Venue Case Citations Presumed prejudice is only "rarely" found, and is limited to "unusual" and "extraordinary" cases. Busby v. Dretke, 359 F.3d 708, 725 (5th Cir. 2004); Mayola v. Alabama, 623 F.2d 992, 997 (5th Cir. 1980); U.S. v. McVeigh, 918 F.Supp. 1467,1469 (W.D. Okla. 1996). This was an extraordinary case, and "f there were no constitutional right to a change of venue" on these facts, "one can conceive of virtually no case in which a change of venue would be a constitutional necessity." Coleman v. Kemp, 778 F.2d 1487, 1538 (11th Cir. 1985). Courts have repeatedly reversed convictions or granted habeas corpus relief where the defendant or his alleged crime evoked strong emotional responses in the community, including many cases with far less egregious facts than this one:
In Johnson v. Beto, 337 F.Supp. 1371 (S.D. Tex. 1972), the defendant was widely viewed as a "black militant" in Houston, and was publicly associated with racial unrest. A jury convicted him for "the gift of one m@riju@na cigarette," and he was sentenced to 30 years in prison. On habeas review, the court held that community prejudice deprived him of a fair trial.
Point 3 JURY CHARGE & INSIDE-TRADING
Jury Instructions re definition of "public information" regarding stocks is misleading and wrong
The government's contention that since Mr. Elgindy was charged with both inside trading and manipulation, that he must show that evidence was insufficient as to "both" theories, is completely wrong. Since the governments theories of manipulation through "group-trading" and through the use of overwhelming "negative", yet truthful information are invalid, none of the convictions can stand, since it is impossible to know if the jury convicted for the valid theory, the invalid
---- PAGE 24 ----
one or both. A detailed analysis of both theories follows in POINT 4.
A In this specific case, the holding of "Mayhew", that "information becomes public when disclosed to achieve a broad dissemination to the investing public generally without favoring any special person or group" is the standard applied specific to issuer companies, their fiduciaries and nominees.
Outside of that narrow context, it is nonsensical to state that information is only public when it is broadly disseminated. The entire securities research business works every day to gain information which can be turned into market advantage by anticipating price moves by which stocks are continuously revalued in the stock market.For instance, analysis and research firms perform "channel checks" in which they call customers of target companies' products, in order to assess the strength of a company's future business, the accuracy of its projections, and ultimately challenge or confirm its value as reflected by the market. They go into retail stores and count customers, as well as size of inventory. They then provide this research to their clients for their and their clients' financial advantage.
The lawful gathering of information was the original intent of the anthonypacific.com site. The gathering of information, verification of claims made by security issuers and their officers, conducting due-diligence and informed discussion of various securities in order to identify good investment opportunities, are all legal activities that can and often do result in the possession of knowledge that other investors and the public at large may not have.
As a result this jury charge has no provision for the legitimate gathering of information and makes what is lawful into a crime. By adopting this jury charge the District Court allowed no provision for honestly and legitimately discovered information that is not widely known. There is no requirement for an investor who, through his own hard work, research and due-diligence, learns of a "material" fact not known or disclosed by the company, to share that information nor abstain from trading the related security, even if he is the only person with that information.
Furthermore there is no restriction to whom he may share it with or not share it with. Nor is there any requirement on that investor to publish and then wait for the information to become impounded into the price, before he can trade on it. This jury charge actually converts all the information that Mr. Elgindy and his site members legally obtained into "non-public" information, and doesn't take into account the realities of the public stock market.
Wrong legal instruction regarding definition of public vs. non-public information.
The following instruction by the Court is not only confusing, it is simply wrong;
"The fact that some criminal records are "publicly" available in the sense that they can be found in a public place if a person is looking for them, knows where they are being kept and has the information required as a practical matter to link the records to specific individuals connected to particular companies, does not necessarily mean these records are "public" for the purposes of the insider trading laws." (RyrBr 26)
---- PAGE 25 ----
If ANY INFORMATION (emphasis added), not just criminal records, are publicly available and can be found in a public place, regardless if a person is or isn't looking for them, knows or doesn't know where they are being kept, has or doesn't have the required information to link that information to a specific person or company, that information is absolutely "public information" and any holding otherwise is not only contrary to common sense but the law.
The Govt's case and the Court's instructions regarding inside-information, which did not require any information to have been misappropriated or stolen, created a whole new opportunity for the jury to convict Mr Elgindy of inside-trading because of the Court's Mayhew instruction and charge to the jury.
That charge effectively rendered all legitimate and honestly obtained research and information to be deemed as "non-public inside-information", preventing him and his site members from trading on that information, unless Mr Elgindy published his findings to the general public first and not kept it for himself or without "favoring any special person or group." In fact the court's specific charge in this case renedered all legally obtained research to be illegal until that research is published to the public at large and this is simply NOT the law."
The court's instruction is fatally flawed; it converts what is publicly available into "non-public" information, without further explanation. The only instruction that was appropriate for the facts in this case, about a research and discussion site that was engaged in rigorous due-diligence was the "Cusimano" instruction. The jury had no choice but to find the vast majority of information uncovered by Mr. Elgindy, in addition to the tiny amount which came from Royer to be "non-public."
Inside Trading on Information Elgindy developed and gave to regulators:
As the record shows, Mr. Elgindy gave information on fraudulent companies for years to the NASD, SEC and others in law enforcement. A far more detailed account follows in POINT 4 since the government has taken the unusual view that Mr. Elgindy actually "used" the SEC to "halt" stocks as part of his manipulation, thereby criminalizing, for Mr. Elgindy, what the SEC itself asks of the public.
Having spent years researching, investigating analyzing and trading stocks, Mr. Elgindy has been responsible for initiating countless FBI and SEC investigations into companies in which he was able to uncover some kind of wrong-doing. Equally, he was able, many times, to assist in ongoing investigations as well. As a result he often times had information that arguably no one else could possibly have had, unless of course someone were to gain the same experience and take the same exact steps
---- PAGE 26 ----
that Mr. Elgindy had.
The Government does not, because it cannot, deny that Mr. Elgindy started both the SEC and FBI investigations into SEVU, nor do they deny that he started any of the investigations into OSIN, BGII, VLPI, EGBT, IVSO, NECO and many more, but he was charged anyway because Mr. Royer, at times, told Mr. Elgindy what he (Elgindy) already knew.
A detailed discussion of VLPI is included in POINT 4. In summary, Royer did not obtain any stolen information in VLPI and Cleveland's testimony is shown to be demonstrably false when we affirmatively prove that his testimony couldn't possibly be true.
At trial the evidence demonstrated that Mr. Cleveland testimony about an "SEC investigation with documents and an "undercover SEC agent" was all a complete fabrication intended to impress Mr. Elgindy and other site members (TR 304, 1287-1307, 1637) with Mr. Cleveland's researching prowess. The truth was there was no FBI or SEC investigation into SEVU until Mr. Elgindy started investigating the company's claims and reported his findings to the SEC and FBI. Mr. Elgindy contacted SEC Branch Chief, Kyra Armstrong who sent Mr. Elgindy's information and InsideTruth reports to other SEC attorneys,(TR 2932-36, 2978-79) causing Ms. Armstrong's SEC office to open an investigation into SEVU.
FBI agent Neil Palenzuela admitted at trial that it was Mr. Elgindy's source at SEVU, Ken Cook and the Insidetruth reports that he received, that prompted his opening an FBI investigation into SEVU.(TR 3201-02, 3212-13, 3244-49,, 3251-54, 3257-58, 3262). Upon learning of the investigations he started, Mr. Elgindy posted it in his site so members could see the fruits of their work, on Jan. 12, 2001;(GX-RH-12)
"[16:44] AnthonyPacific>> 4 the 3 investigations are wire fraud, mkt manipulation, and mail fraud officially by the FBI SEC is doing a title 15 investigation...and none of this can leave or go public..if you do you will be pros."(GX-DC-56)
Mr. Elgindy then wrote to his probation officer and reported what Mr. Royer had told him, almost verbatim, as part of his disclosure requirements for any contacts with law enforcement.(GX-3711-0011)(TR 1392-93)
SEC attorney, Bob Tercero testified that Mr. Elgindy had been providing him information, including taped phone calls between Mr. Elgindy and the CEO of OSIN, from Feb 23rd through the 26th, in fact Mr. Tercero provided a Fed-Ex acct number for Mr. Elgindy to use. Mr. Tercero then opened an investigation on Feb 27th(TR 6238, 624-45). Mr. Elgindy knew the SEC was investigating OSIN because he started it.
---- PAGE 27 ----
the investigation. He then reported, in writing, to his probation officer and relayed what Mr. Tercero and he were working on;
"SEC has started official investigation on OSIN based on tape recordings of CEO manipulation of his stock. It has SEC scratched out, some stuff, Bob, I dont know LA office." (GX-3711-0005)
"3/13 Bob Tercero from, with a line indicating SEC from Louisiana office called, wants audio-tape or written copy of OSIN broadcast, sent audio via FED-EX provided by him, official report on OSIN regarding assault and fraud committed by CEO James O'Brien, part of a company called Optimum."(TR 3453-55)(GX-3711-0005)
Mr. Royer had nothing to do with OSIN, neither did SEC attorney, Gortimer of the Forth Worth office of the SEC, since Mr. Elgindy was working with Mr. Tercero, in the Los Angeles office, directly. To the extent that Royer gave any information to Mr. Cleveland, he was simply disclosing what he learned Mr. Elgindy was doing independently of him or Mr. Gordimer. Mr. Elgindy's conviction in OSIN is continuing further proof of the extreme prejudice affecting the jury.
Prior to March 23, 2001 MR. Elgindy had never traded PLMD, nor had he ever made a trading call. At 13:52 an update on a news story is released and then copied into the AP site by a site member. At 13:55 "Tara" posts a story released by CIBC World Markets disclosing that one of their analysts had "confirmed a FBI investigation" into PLMD's billing practices. The stock was off sharply, down 21% to $26 5/8. Seeing this, Mr. Cleveland notifies Mr. Royer. At 14:42, in chat, Mr. Elgindy discloses that he has no position in PLMD. Four minutes later at 14:46 Mr. Royer searches for PLMD and discovers nothing "new". (GX-JL-1). Thirty nine minutes later at 15:25, all trading in PLMD is halted by the NASD.(TR 598)
At no time was any information that Mr. Royer had seen ever put into chat, or in an email or on a message board. Mr. Cleveland's testimony that Mr. Royer had told him that "something definitely happened" is utterly meaningless and hopelessly vague. There was news everywhere of a "confirmed FBI investigation" streaming under the noses of every trader and investor in the world who is online.
Nevertheless, Mr. Elgindy didn't trade PLMD during the 54 minutes before Mr. Royer's search nor did he in the 39 minutes after. Furthermore, Mr. Elgindy made no trading calls nor did he ever suggest to anyone to buy or sell a single share, long or short. The only thing Mr. Elgindy did was talk about all the "confirmed FBI" news swirling all around PLMD before and after the trading halt. As far as the remark about an "unnamed spokesman confirming", that came directly from the CIBC news story and not from Mr. Royer; notably Royer was never a 'spokesman' for the FBI. (DX---CIBC story No.)
It is ironic that in the government's brief, on page 106, they state; "Elgindy claims that he did not obtain any non-public information based upon press articles describing an unconfirmed FBI investigation, " when immediately after Cleveland's testimony quoted above, he relays the substance of what it is that Royer told him. " He had just gotten off the phone with Tony...they were discussing PLMD.... the information that he was talking about as far as the raid and stuff, that was very
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old news, it was nothing new, something from the past....and also that there was not a raid that had taken place on PLMD."(TR 598)
Mr. Elgindy is currently incarcerated because he was convicted of either "inside-trading" or "manipulation" and possibly both in PLMD. He was convicted for knowing about a "confirmed FBI investigation" that was all over the news, in a stock and on a day in which he never traded prior to it being halted.(See Elgindy/trading recs.GX-2582) As a result, no reasonable jury could find Mr. Elgindy guilty of any of these crimes beyond a reasonable doubt.
There is no better evidence of misleading testimony, deception and charges brought in bad faith, than the Government's case presented in PLMD and there is no better proof of prejudice than the jury's subsequent guilty verdict.
Manipulation and AnthonyPacific.com and InsideTruth.com
The evidence demonstrated that the AnthonyPacific.com and Insidetruth.com websites were overwhelmingly engaged in legitimate stock research and investment activity, with bona fide members seeking and exchanging lawfully obtained information about stocks, while benefiting from Mr. Elgindy's extensive trading experience and entertaining personality.
Mr. Elgindy made over 3,000 "trading calls" - each of which was a disclosure of a trade Mr. Elgindy was making at that time, and was explicitly NOT offered as trading advice. Over 95% of these related to stocks other than the 22 Mr. Elgindy traded on, or the 10 others traded on Mr. Daws's secret site "RC Chat". (Opp to Forf, Aug 2, 2005 (Kelner Aff" 28-31 at Exs F&G)
For the government to make a market manipulation and RICO case, it had to portray Mr. Elgindy's activities with the AnthonyPacific.com and Insidetruth.com in a particular and sinister way. This included the image that Mr. Elgindy ruled over his group of subscribers, coercing them to trade at his behest to move the market for targeted stocks. This was not only contradicted by dozens of chat log excerpts, but specifically in the excerpts reflecting training given to new subscribers, who were consistently and explicitly informed that all investment decisions were their own. Particularly with regard to the "calls" made by Mr. Elgindy and others in the room, they were told these were nothing other than the disclosure of personal trades being made in real time by experienced traders, which could be followed or not, in the subscriber's sole personal discretion.
The government also had to invent a novel theory of market manipulation law, one which had never previously been applied in the stock market (except in the case of NASD vs Elgindy, which was at the beginning of trial, under appeal to the SEC, and during trial, overturned by the SEC in favor of Elgindy), which was that truthful information made available to the public could nonetheless be used as the basis of a market manipulation crime.
Finally, the government had to contort a definition of inside information beyond all
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reason. Mr. Elgindy is found to be trading on insider information on the theory that he received confidential information regarding regulatory investigations in process on the stocks in question, when in fact, it was the information of his and his site's own research into those companies, which, submitted to regulatory authorities and vetted by them, that had stimulated investigations by those regulatory bodies.
As applied to the specific stocks for which guilty verdicts were returned, each of these three seriously flawed premises figures in the government's rationale. None of the government's characterizations of specific citations used to justify the verdicts hold up to reasonable review of the context from which they were drawn.
In the alleged manipulation of SEVU, the government states that Mr. Elgindy "instructed AP site members to stop 'hitting' SEVU stock because he wanted it in the 7's", and he threatened to cut off 'inside information' if they did not obey."(GBr 16) The government relies solely on Cleveland's testimony that he interprets the following interchange in chat on Dec. 12, 2000---" Are we putting SEVU stock into a nose dive now?" [Mr. Elgindy's answer;] "No we shouldn't be . SEVU should be about 7-" as Mr. Elgindy telling people to stop hitting SEVU to keep it $7 per share.( TR 339-340) When the statements are viewed in context, an entirely different meaning emerges.
The specific context is as follows: On December 12, 2001 the site is discussing SEVU as a potential scam and conducting due diligence. Specifically, Mr. Elgindy calls Home Depot in an attempt to confirm or disprove a public claim made by SEVU regarding a major sale. The call is being broadcast to site members in real time. A site member asks if information being revealed is causing the stock price to fall. Mr. Elgindy states his opinion that no, the stock isn't falling, the stock should be in the 7's - which in fact it was at the time. There is no mention of trading, shorting or not shorting, hitting or not hitting SEVU or wanting SEVU at $7. (JX 28)
The site continues to perform research on SEVU for the rest the day. Later that evening, Mr. Elgindy actually makes a trading call (Email Broadcast to all members) in the middle of the night; " SEVU <----- sell short 30- 40% from 6 to 9, building on rallies or on stagnation " (JX 28; GX 3001(broadcast 12/12/00, 18:57) This isn't manipulation of any kind. It is an expression of his strategy with regard to taking a short position in the stock, in the face of uncertainty about where the price may go in days to come. The price range given spans both significantly lower and higher prices than SEVU's current price. [ The reference to 30% - 40% was in the context of his risk management strategy, which he often described to other site members. The percentage was in regard to 100% being a "full" position, of which one might have 8 or 10. So 30% - 40% meant the position he intended to build was 3% to 4% of his portfolio. (Peter Michaelson's testimony TR 5176 ) ]
Similarly in the case of SLPH, (one of the acquitted stocks) the government allegation that Mr. Elgindy manipulated the market has no basis in the record. When Mr. Elgindy stated "I want SLPH in the 5's" and he was telling the site to trade in some artificial way to keep the stock down so he could get a cheaper block of stock is simply false. The government once again relies on Cleveland's testimony that he
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wasn't included in a block sale of SLPH. The problem with this testimony is that no such event ever occurred.
Moreover, the government doesn't even cite the chat where Mr. Elgindy says this, likely because the context shows what was really happening.
Mr. Elgindy was trying to sell short 5,000 shares of SLPH at $6.30 to the market maker Herzog (HRZG), which according to "Derrick" was f!g-t!ng to keep SLPH's price up. Site member "rag" was complaining about not being able to short SLPH which was trading in the 6's. Member "Ned_Flanders" asks rag if he is certain he really wants to sell SLPH in the 6's because the stock has fallen already from 11. Mr. Elgindy then replies that he wants SLPH in the 5's, in other words he would still want short it even in the 5s. (JX 151)
June 7, 2001
[14:12] anthony>> comon slph dont crap out on me yet
[14:13] Derrick>> HRZG putting up a f!g-t on SLPH
[14:14] well i hoep its ok if i sell 5 to hrzg
[14:14] anthony>> at 6.30
[14:14] rag133>> damn i cant get shares still of SLPH
[14:16] anthony>> ok so i took out HRZG
[14:17] ned_flanders>> rag SLPH was started at around 11, you sure you want it at 6 that badly ? [FN: Ned_flanders comments clearly show that members could speak freely and discuss varying ideas even if they are contradictory to Mr. Elgindy's views...]
[14:18] anthony>> I want SLPH in the 5's
[14:23] Davidh>> are buy-ins still a problem with SLPH ? I was bought in when it was still FWLD
[14:23] peter>> yes David
[14:24] Davidh>> Thnx peter
[14:25] bond1>> SLPH..B/I FOR TODAY APPROX 90K
[14:27] anthony>> bond they are getting worse and worse
[14:27] anthony>> soon they wont be able to stay above 3 bucs
Nowhere in this conversation does Mr. Elgindy direct anyone to do anything. The context shows that Mr. Elgindy was not making any statement expressing intent to manipulate the price of the stock. He simply stated an opinion that he thought a short sale of SLPH, even in the 5's (a conjecture, because 5's was well below the then-current price), was still an attractive investment.
The government has once again lifted a short cryptic message from a chatroom log, and given it an interpretation aligned with their charge, that is wholly different from its genuine meaning. (2nd Sent Mem, Feb 2006 at 9-10)
Similarly, the government's contention that Mr. Elgindy manipulated trading in FLOR stock on August 16, 2001 just as they alleged in SEVU and SLPH is erroneous and the chat excerpts were once again taken completely out of context. First there is the indisputable fact that Mr. Elgindy did not have the means and methods to know, and
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could never have possibly known if any one of the hundreds of anonymous site members ever took action to buy or sell any stock, or simply ignored his thousands of trading calls and remarks about stocks. Nevertheless, the government continues to allege that Mr. Elgindy directed their trading and "monitored and penalized" members who didn't obey his commands. The government previously described what occurred in FLOR on August 16, 2001, in their sentencing memorandum filed in February 2006, like this:
"the defendant and AP site members, at his direction, heavily shorted FLOR stock, causing significant downward movement. Nassar (FLOR's CEO) believed that the information posted by the defendant on the AP site caused FLOR's stock to drop and created a severe, potentially bankrupting problem for the company (TR 3690) Nassar, therefore contacted David Slavney, who put Nassar in touch with Peters(TR 3692) NASSAR ASKED PETERS [emphasis added] how to get rid of the defendant, and Peters told Nassar he should offer the defendant a below-market block of stock (TR 3694)." (Government Sent Memorandum 2/10/06 pg 22-23)
The points as laid out by the government affirmatively disprove that Mr. Elgindy ever extorted Mr. Nassar. Negotiating a purchase of a block of stock, either at or below market prices, is exactly what happens every single day, and thousands of times each year, in the Over-the-Counter stock market. The evidence showed that Mr. Nassar, through Mr. Peters solicited Mr. Elgindy, to advise him that he wanted him to stop shorting their stock. Mr. Elgindy ultimately agreed and they settled upon a price of $2.45, with NO discount from the market price, on August 16, 2001. (TR 3789)
A careful review of that day's chat log shows a much different picture as to what really occurred. Mr. Elgindy placed a bid at $2.45, at 10:30 a competing bid at $2.50 appeared, topping Mr. Elgindy's bid. Mr. Elgindy assumed it was another site member, who was interfering with his order at the negotiated price 5 cents lower. Mr. Elgindy at no time could have ever known who placed the $2.50 bid, nor could he ever have done anything about it, aside from complaining and verbalizing his displeasure, neither of which are crimes. At 10:30 he says "get off the damn bid"..."you are screwing up everything for everyone". ( ) Mr. Elgindy was trying to help the few subscribers who were in FLOR to pay the agreed upon price he had negotiated for a block purchase, and NOT trying to manipulate anything.
In fact at 10:32, sensing that nobody was paying attention and seeing no change in FLOR's price, Mr. Elgindy says in chat "forget it'..."everyone is on their own" ( ).Shortly thereafter, the $2.50 bid gets filled and Mr. Elgindy is finally able to call a cover at $2.45. At 10:46 he says; "FLOR we can all cover at $2.45". At 10:49 Mr. Elgindy relays what he was told by Mr. Nassar through Mr. Peters, that the price of FLOR is expected to go higher once they cover their short position. He says " this will be your only opportunity to get hit in FLOR, after today, I can't help you." ( ) At 10:50 Mr. Elgindy reiterates his belief that he had fulfilled his promise to the site that he would try and cover FLOR shares at the lowest possible price for anyone who wanted them.( ) At 11:17 he noted that covering the FLOR shares was "like pulling teeth" (i.e. was proceeding slowly). At 11:27 and after, site members began reporting their orders at $2.45 were finally being filled.
Immediately afterwards, member "nico" pointed out that FLOR"s price dropped even further down to $2.35. Member "Peter" noted that whoever it was at FLOR that was selling stock at these levels was "making a fortune"( ) In response to the price continuing its unanticipated drop, Mr. Elgindy stated; " well I only relayed what I was
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told" and if site members were able to do better than the $2.45 negotiated price, "then good" ( )
On the stand, FLOR's CEO Mr. Nassar testified that Mr. Elgindy's purchase of FLOR shares at $2.45 was a fair and "reasonable" price. (TR 3795) Contrary to the government's unfounded claim that Mr. Elgindy and his site members had put in "massive sell orders depressing the price of FLOR shares" (Government Brief ) it was pointed out during Mr. Nassar's questioning that the total of Mr. Elgindy and his site member's cumulative short position in FLOR was roughly 30,000 shares, of which Mr. Elgindy had one-third, approximately 9,000 shares. A 30,000 share short position in a stock that had 54,000,000 shares outstanding and was trading at $2.50 is a negligible six-tenths of one percent of the issue, an amount far too small to affect the price either upwards or downwards.(TR 3790)
In fact Mr. Nassar admitted that the price of FLOR stock continued to fall after Mr. Elgindy had covered his short position. On August 30th it was $2.60 on Sept 6th, it was $1.80, $1.61 on Sept 10th and on down to just 36 cents by October 24th.(TR 3695-96) (DX 7401)
The evidence shows that Mr. Elgindy did NOT manipulate shares of FLOR nor did he control anyone's trading, nor did anyone "blindly follow" his trading directives. The mere fact that only 30,000 shares of FLOR held amongst several hundred site members, is itself overwhelming proof that few if any of the site members followed along with Mr. Elgindy's trading in FLOR, regardless of whatever he may or may not have said or posted on the internet.
Aside from the fact that Mr. Elgindy and his site members could have made significantly more money had they never covered their short and ignored Mr. Nassar's complaints, the evidence clearly demonstrates that Mr. Elgindy believed that he done a good thing for himself, his members and even Mr. Nassar himself.
[11:06] anthony>> thank you for the FLOR profits and on we go
[11:06] shothemoney>> u r welcome
[11:07] anthony>> shot i think i did good in main sure we didnt f-g-t each other to buy em back
[11:08] lakewood>> yes, AP many thanks
[11:30] peter>>tony, thanks for the FLOR help (August 16, 2001 Chat log )
Site members traded independently
The government's assertion that Mr. Elgindy instructed his site members on how and when to trade stocks is not supported anywhere in the record, and certainly nowhere in the trading records.[( Cite trading records exhibit)]. Government witness Robert Hansen, the site administrator, testified that he made "his own decisions" that site members "shorted and covered at their own pace," "whether or not someone followed the call was completely up to them and the could cover when they wanted to"(TR 2726)
Peter Michaelson testified that he "believed in the trades he was making" and he believed that the site members that he knew and interacted with believed in the trades they were making.(TR 5377) The government didn't put on a single witness that claimed Mr. Elgindy had any power or control over any of their trading decisions, instead the government just says it is so. The government never
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offers any evidence or any explanation as to how Mr. Elgindy could have ever known if anyone traded along with such a call or didn't. It was, quite simply, up to each individual.
Further evidence that Mr. Elgindy and InsideTruth played no artificial role in trading and that his site members made their trading decisions because they themselves wanted to buy or sell when they did, is clearly laid out by government witness, Robert Hansen, the site administrator and site trainer in one of his training sessions;
Q: And sir, when you testified about the broadcast calls, that's when Mr. Elgindy or someone in Blue sends out a broadcast call?
Q: Now sir, if you would continue reading at 21:08, Rhansen
A: Rhansen states: You have to remember a call whether a broadcast or not, is just a trader here saying that he or she is making a trade.
Q: Then if you continue at 21:09?
A: If you follow that trader a lot, then you might choose to make the same trade, but that is completely up to you. They are not telling you what to do, simply saying what they are doing
(TR 2113) Mr. Hansen went on to testify that he made his own decisions and that is what he taught site members.
Q: Did you also tell in your classes the site people to-- dont make every trade Tony makes?
A: Im not sure, I would have to see it, I cant remember
Q: Does that sound like something you would have said?
A: Yeah, I doubt anybody could make every trade Tony makes
Q:And you made your own decisions is that accurate ?
A: thats correct
Q: And would it be fair to say that different people on the site shorted and covered at their own pace ?
A: Well the majority of trades, either the short or the cover, were made usually during the actual call
Q: But whether or not someone followed the call was completely up to them, is that correct?
A: Thats correct
Q: And the same with the cover ?
A: They could cover when they wanted to(TR 2112-13)
Site members were repeatedly told that the purpose of the site was to discuss & exchange information about companies. Each time site members logged in, a disclosure in BOLD print reminded them that the site "was created as place for people to meet and discuss the market or anything else for that matter."(DX 10533)
"We don't advise on the purchase or sale of securities. Every member must do their own due diligence regarding this site, its operators and all content any member
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offers. This site offers NO FINANCIAL ADVICE IN ANY FORM WHATSOEVER. You the investor, not us, assume the entire risk of any trading that you choose to undertake......and agree to hold us harmless in the event you suffer financial loss or hardship by following or "mimicking" trades posted on this site." (Reply Sent Mem pg 46-47Training for new members specifically advised that all members made their own trade decisions. New member orientation sessions reiterated these points, as did the subsequent training sessions conducted by Hansen and Mr. Elgindy ( Eg DX 10536, compilation of 11/14/00, 11/29/00, 3/22/01, 6/7/01 and 1/14/02 chat log excerpts included in compendium of exhibits)
Each of the following chat examples illustrates the consistency with which Mr. Elgindy responded to the many questions from site members about the selection and timing of their individual trades. In each of these exchanges, Mr. Elgindy consistently maintained his role as disclosing what he was doing, not recommending (DX 10536)(much less demanding) that anyone else do the same. (DX 11048-11066)
CHAT LOG: Feb 7, 2000
11:43 dayTraderW>> what is a good entry pooint for ENBC
11:43 ap>> I cant answer that..Im switching 35%
16:03 MONY>> Anthony should we sell more ENBC at these levels ?
16:03 anthonypacific>> Mony cmon I cant answer that question
17:04 thefish>> tony if you werent short ENBC would you sell now AH(after hours)?
17:05 ap>> fish cant answer that
17:05 moekas>> what do you think ENBC will drop to tony?
17:05 ap>> im signing off ...too many questions I cant answer
CHAT LOG: May 2, 2000
12:22 Salogen>>Tony Krem a good ss here?
12;23 anthony>> salogen I cant answer that
CHAT LOG: May 11, 2000
09:46 anthony>> Please understand that.. if the SEC ever reviews these logs for any reason, which to date they never have..they will come away and say that guy doesnt give advice..personalized advice
09:48 anthony>> You are all here for a lack of advice and instead are here to have your questions about entry and exits unanswered
CHAT LOG: October 30, 2000
12:20 amc>> should I sell homs at 35.5?
12:21 anthonypacific>> amc ..I cannot answer that please see other peoples comments..I only tell what I do
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Mr. Elgindy was so consistent that it didnt take long for members to know that he wouldnt answer such questions, nevertheless, every now and then, it happened
CHAT LOG: December 13, 2000
13:03 maximus>> Tony should I cover ETYS
13:03 maximus>> just kidding :)
13:06 anthony>> maximus I cant answer that
CHAT LOG: December 14, 2000
15:10 glasno>> tony do you think its time to cover now, or hold?
15:12 anthonypacific>> glasno I cannot tell you what to do..nor can i advise..I am short AMZN and HOMS thats all I can say
CHAT LOG: January 19, 2001
14:19 anthonypacific>> woo hooo TOY getting sold...gee Fred..whay did we buy the Toy stock after christmas? did your broker tell you it was the new technology?
15:25 siouxpal>> Tony thanks for the FMKT advice
15:26 anthonypacific>> siou x I never gave advice
15:26 anthonypacific>> didi anyone see me give advice?
15:26 siouxpal>> well whatever it is that you do
15:26 anthonypacific>> NO
15:27 anthonypacific>> i dont do advice
Thinly traded stocks were not specifically targeted
The government's claim that Mr. Elgindy targeted 'thinly' traded stocks that were susceptible to manipulation (GBr 17) and he often caused "massive sell orders" (Government Sent Mem at 71) that depressed stock prices is refuted by the record. The evidence shows that Mr. Elgindy made very few official short calls on the stocks related to this manipulation count, and thus could not have caused massive sell orders even if his site members followed those calls, as FLOR proves, they often did not. For OSIN, there was one call. For PLMD there were three, one in March (after the stock had been halted and then re-opened), one in April and one in July 2001 (which included the comment "I am not short exited") For JUNM there were two, one of which included the comment that "SEC investigation confirmed," the stock was thin, "maybe a gator", and people should "trade accordingly or watch".
For SEVU there were two, one of which included the comment suggesting to short on "rallies or stagnation" (See GX 3001; Kelner Aff Ex G) The sparseness of trade calls on these stocks severely undermines the government's manipulation argument with regard to any of the stocks.
Mr. Elgindy did not trade only in these "thin" stocks. The vast majority of his time, trading activity and profits, involved large volume NASDAQ stocks like DTHK, for which he made 12 short calls as the stock dropped from the $30's to less than $10, HAND for which he made 16 short calls and 3 long calls as the stock dropped from the $60's, $70's and $80's to $11, ZIXI for which he made 8 short calls as the stock dropped from $27 to $6 (See GX 3001; Kelner Aff Ex F). The 2001 gains in the 23 securities earned by Mr. Elgindy total $_____________ , which represented less than 4% of his trading profits. They were not a
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major focus of his investing and were no more a focus for the site than the scant proportion of the calls they represented, relative to the total investing activity he engaged in, and posted about.
Elgindy evidence re "control" of site members misleadingly quoted out of context
On pg.18 of the Government's brief, Mr. Elgindy is alleged to have threatened and controlled his site members, in two quoted sentences of an email broadcast by Mr. Elgindy. The full transcript included in Mr. Elgindy's compendium of exhibits( ) shows that the subject of the broadcast is about the site members needing to treat each other with respect, even when the market is tough. Mr. Elgindy is telling members that if they don't treat one another respectfully, he will kick them off the site. The government twists this into the threat that if they don't trade the way he says, he will kick them off the site.
They then quote more statements by Mr. Elgindy out of context in an effort to portray that Mr. Elgindy treated the public as his "enemy"(Gbr 17). Mr. Elgindy was actually conducting a teaching session in which he tried to warn others about the ways Wall Street's market-making firms view the public. What the government does not cite is the rest of the chat on November 29th that opens with Mr. Elgindy saying, "Look if you want to survive this market then you must learn how the whole scammy thing works, its a scam, its corrupt and most of all its geared to put you all at a disadvantage. I learned early on as a market-maker that the public is my enemy (JX 18). Mr. Elgindy is talking about the view he was required to internalize when he worked within Wall Street's investment institutions, when he was employed as a market maker, not at the present time he was speaking. In fact this view is corroborated in a public site policy posting he made during this relevant time.
On December 31, 2000, Mr. Elgindy posted his policies for his "Dear Anthony" thread on Silicon Investor, InsideTruth.com and the private anthonypacific.com, on the public and free "Dear Anthony thread. Rule number 8; (TR 5170)
"We cannot stand sellside Analysts and Firms they are our targets...they are the public's number one enemy."(emphasis added),
Peter Michaelson testified that he and other site members agreed with this philosophy; "Sellside means people who are trying to give you that worthless paper and get your money. We dont like them, they are our targets and they are the ENEMY(emphasis added)(TR 5170)
Not only did the government take Mr. Elgindy's remarks about the "enemy" completely out of context they are also just wrong about who was on the "other side" of these trades. The "individual counterparties" were a limited number of professional market-makers who set bid and ask prices as they see fit and hold blocks of shares in order to support their artificially high prices and to bridge the sporadic trading demand for these types of "thinly traded" stocks.
SEC staff accountant and government witness, Diego Brucceleri, explained; "A market-maker is a broker that maintains a bid and ask price in a particular security....They have a vested interest in the price of the stock, they are trying to make money on." (TR 4542).
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The trade tickets show that the counterparty to each trade was a market-maker.(E.g. DX 11508 (Elgindy trades BGII with "JPAZ" on broker side, DX 12130 (Elgindy trades SLPH with "NITE" on broker side, DX 07363 (Cleveland trades JUNM with "NITE" on broker side). Yet again no such market maker has come forward or been identified claiming to have been a victim of the conduct alleged in this case. (Reply Sent mem pg 50) Mr. Elgindy and his site members were selling short these stocks and selling it to the very firms that were working feverishly to prop up their prices.
Inflammatory comments testimony by Cleveland out of context
In regards to Mr. Elgindy's comments about the "fish" and "gagging", they too were taken out of context. Mr. Cleveland testified about both, "they see his report, they know they are caught, they know that the stock is going to probably get annihilated the next day" (TR 430). In other words, when people see that the shorts have been telling the truth and the company is the one who was lying, the stock will likely fall substantially.Government elicits false testimony from Terrell.
In one of the most brazen attempts by the government to elicit testimony of manipulation that they knew to be false, former site member and government witness, Don Terrell, aka "Quack" is shown 2 chat snippets from August 6, 2001(GX 172). The first one ends at 15:25 and the second one begins 31 minutes later at 15:56, showing Mr. Elgindy making a "cover call" to close a short position on TTRE (One of the alleged relavant conduct stocks); Elgindy sent out the following "email broadcast", " TTRE<---Official cover @ $2.30 from $6(TR 3870)(GX-DC-172) Mr. Terrell goes on to say that Mr. Elgindy wasn't the one who called TTRE as a short, he himself made the call.(known by site members as a "Quack call")(TR 3870)
Q: What is Mr. Elgindy doing here?
A: He is taking credit for the call
Q: Did you have a name for that?
Q: What did that mean?
A: That means he took credit for the call even though he didn't make it
Q: Was that in order for Mr. Elgindy to show that he is controlling the site
The chat section between these snippets reveals the true context. It was Mr. Terrell himself who was reminding Elgindy that he, had made a short call previously in TTRE, but never called a "cover", so he should do it now, since it was profitable for those who may still be short. It showed that Mr Elgindy was only doing what Mr. Terrell was asking him to do, for the benefit of everyone else, and wasn't trying to take credit for anything. When Mr. Elgindy's attorney attempted to introduce the omitted 31 minutes in between, the government vehemntly objected, claiming that the defense hadn't designated that particular chat section, before trial.(TR 3953)
Mr. Levine lamented " That this is exactly the kind of problem we were worried about before trial" to which Defense counsel defended his use of the missing section because
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the omitted section shows the "testimony isn't true", and "extremely misleading." He was "surprised" the government would do something like this. Mr. Levine goes on to say that the middle section should be excluded because it suggests the government was purposely doing things "out of context" and show somehow there is "something nefarious" going on. Of course, that is exactly what was going on. The Court answered; "You brought it out, my friend, it doesn't pass the straight face test, ..."DX-11515 is received in evidence"(TR 3953) Mr. Terrell was then put back on the stand;
Q: To put in context, the official cover here, which you claimed was Mr. Elgindy's claiming credit to control the site was at 15:56, correct?
A: that's correct
Q: Sir, now I would like to show you the chat that was in between the two chats that the government showed you sir, I would like you to begin reading now the chat that begins at 15:38
A: Quack; AP please close your TTRE, you have an open short from the 6's a long time ago
Q: now read your entry at 15:39
A: Make it official
Q: Then continue down to Anthony at 15:40
A: I called TTRE a long time ago but never held it
Q: Then pick up with your last 3 comments
Mr. Terrell goes on to say, "well some did and it's open", "Please close it". Mr. Elgindy then sends out an "official" Email Broadcast closing TTRE out at $ 2.30
Q: So, Mr. Elgindy's actions fourteen minutes later in calling the official cover was him simply doing what you asked him to do, correct ?
The evidence is clear, it is compelling and it is beyond any doubt, this wasn't evidence of Mr. Elgindy controlling the site or taking credit away from others. To the contrary, it is undeniable proof that the government knowingly and intentionally showed one of their witnesses two chat excerpts while never showing him the important contextual information contained in between. The witness, with the government's full knowledge, then manufactured testimony that seemed to fit and inculpates Mr. Elgindy of wrong doing when the government knew the truth all along and knew exactly what was between these two excerpts shown to Mr. Terrell.
The Constitution requires prosecutors to seek justice rather than victory as the Supreme Court affirmed. It has long been established that the prosecution's "deliberate deception of a court and jurors by the presentation of known false evidence is incompatible with rudimentary demands of justice." (Banks V. Dretke, US 668, 124 S.Ct. 1256, US 2004)(Gvt Sent Mem Attach D pp 83)
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Government's characterization of InsideTruth inconsistent with site's explicit published disclosure about itself The government's claims that "Mr. Elgindy used his publicly available InsideTruth research reports to further the scheme" (Gbr 18). their claim that it "wasn't about research as it was represented to the public, instead its true purpose was to put out negative reports on stocks, in order to cause those stocks to fall". "Elgindy intended that InsideTruth garner a reputation for exposing a stock and causing the stock to plummet" (Gbr 18-19)
Mr. Elgindy's 19th rule, posted publicly, addresses this issue, succinctly;
"REPORTS: Each and every report we publish goes through me or InsideTruth.com is sent to both the FBI and the SEC, it is very common for us when uncovering a scam or an impropriety that we will contact these agencies before a report is even concluded. I NEVER KNOW IF THEY ARE GOING TO DO ANYTHING OR NOT, I HAVE NEVER KNOWN< MOST OF THE TIME THEY IGNORE THE
STUFF I GIVE THEM. One might ask aren't you just doing this to profit at the expense of shareholders, they lose you win. Yes we have profit motive in doing this, but it a noble career and profiting at the expense of Touts, Creeps, Crims and Scumbags is money that is Sacred and Holy. You can feel good about yourself doing this work, plus the pay aint that bad if you are right. To existing shareholders we wish them our condolences, but my main concern is with mainly future shareholders, millions of people have been saved over the years from buying these turds that we have uncovered."
On November 1st, 2004, the first day of Mr. Elgindy's trial, the Wall Street Journal featured a story about the case, the headline read: "When Telling the Truth is a Crime, Elgindy Faces Charges that He Manipulated Stocks with Accurate Information"(See _ )
This notion that a report that contains only negative but truthful information can be manipulation is only supported by Mr. Cleveland's testimony. For example in SLPH, one of the acquitted stocks, the government asks Mr. Cleveland to read various parts of the InsideTruth report on Sulphco, starting from top;
A: Note to editors, the following is an investment opinion issued by Inside Truth.com and its protected by our constitutional right to free speech. We place a 12 month price target of less than 5 cents.
Q: Did you consider that price target to be reasonable?
A: No I did not
Q: In your view, what message did this price target send to the public ?
A: The message sent to the public that we were short the stock and we would stay short the stock until a price target of 5 cents or below
Q: In your view, was that the intent of the site?
A: No, it was not
Q: Just going to page 18 of 19 in the report, please read that out loud
A: Summary and conclusion; We at Inside Truth believe firmly that we have uncovered facts not readily available to shareholders in SLPH and potential investors in this company. We believe that we are providing not only a public service to the investing community, but also an opportunity to profit if this company fails, as we
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predict. We base this belief on the above information along with history of failed ventures operated by the above individuals. We believe that Sulphco has omitted material facts and has hidden the true background history of its officers. This is what we believe and we believe that we have told the truth. We are short Sulphco shares and stand to profit when if and when it falls in value. We strongly suggest that everyone do their own due diligence and verify the above information that we believe is accurate and painfully sourced for easier verification. Many parts of this report were contributed by outside sources that prefer to remain anonymous and we believe that their information is accurate and worthy of being on InsideTruth.com We at InsideTruth.com always protect our sources and those who struggle to bring the truth splattering down on your front lawn. And it says, special note
Q: Did you consider this to be truthful and accurate?
Q: Why not?
A: Because it states in here that we are providing not only a public service to the investing community but also an opportunity to profit if this company fails. What we were doing was again blasting the stock with this report. We weren't -- the only thing interest in the investing public we had was that the stock was in the public hands and that way we would create a panic in
the stock. So no, I don't believe this is true. (TR 685-686)
As utterly absurd as this testimony was, it shows the lengths that the government went to, in order to turn anything Mr. Elgindy wrote or said into an alleged lie or false statement to confuse the jury in the absence of real and material falsehoods. As we argued in our opening brief, none of this conduct is manipulation, irrespective of how negative a report is. The SLPH report is 19 pages long, filled with details and research, photos and video clips. The report was and remains 100% truthful.SEC Branch Chief and government witness Doug Gordimer speaks directly to this point:
Q: The site InsideTruth.com was involved in investigating companies that were potentially involved in frauds and scams correct?
A: It purported to be that, yes
Q: And you yourself found that it had often had helpful information that companies were in fact involved in fraud or scams correct?
A: Yes, sometimes
Q: And I assume that was one of the reasons why you continued to go back to it ?
A: Yes, I believe I testified to that
(TR 3615-16) Mr. Gordimer went on to testify that he knew about Mr. Elgindy's checkered past, that he ran Insidetruth.com, wrote reports and "investigated the companies for which Mr. Royer asked him to run searches on." all the while knowing that Mr. Elgindy had a financial motive behind all this work.(TR 3616)
Q: but you understand he was a shortseller and that he was all about recommending good short opportunities, correct ?
A: Yes , he was about negative information about the companies, yes. [FN: (Page 40, 1st Sentencing Memo): "There is no evidence that any information on InsideTruth.com about a company was knowingly and materially false." (emphasis added)]
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In regards to the government's claim that site-members "blindly followed Mr. Elgindy's orders" and commands making trades that normally wouldn't have been made for fear of being "cut off from inside information" the evidence is clear. The government did not and cannot produce any evidence of such an episode. Not one trade, not one cooperating witness nor a shred of evidence exists to support this contention. The trading records alone of the 9 named people the government claims are co-conspirators prove that there was NO coordination of any trading whatsoever. (See..Trading Records).
Their own witness Derrick Cleveland testified about InsideTruth and the site member's beliefs regarding their own trading;
Q: Sir do you recall being shown the front page of a report, of an InsideTruth.com report, for a company called IVSO (alleged relevant conduct stock)
Q: sir would you read from the top of the page on down?
A: Sure, All of our reports and our comments involve matters of public interest, regardless if the comments are negative or positive, they represent our beliefs and opinions, and as such are constitutionally protected with further protections under the California SLAPP 425.16(e) statute. All readers should keep in mind that we are already short, and as a result, there's a conflict of interest. We may buy or sell additional shares without notice.
Q: And sir, I believe you said already that throughout your time in the site you believed that the comments they were making about companies, whether positive or negative, really did reflect their true beliefs correct?
A: really did
Q: That they affected their true beliefs, they believed that correct?
A: Correct (TR 1660-61)
Government accuses Elgindy of 'using' SEC to 'halt stocks'
The government accuses Mr. Elgindy of using the SEC to "halt stocks" as part of his manipulation. The evidence shows that Mr. Elgindy for years before he ever heard of Derrick Cleveland or Mr. Royer had worked with and assisted the SEC & others in law enforcement. On the SEC's own website ( See Ex 18(Microcap Stock: A guide for investors (SEC August 2004) proclaims: " IN THE BATTLE AGAINST MICROCAP FRAUD, THE SEC HAS TOUGHENED IT'S RULES & TAKEN ACTION AGAINST WRONGDOERS, BUT WE CAN'T STOP EVERY MICROCAP FRAUD. WE NEED YOUR HELP IN WINNING THE BATTLE(emphasis added). It's difficult to conceive anyone who would venture to offer such help without a financial motive of some kind. In fact SEC Branch Chief Jon Levy testified that back in 1996, he was dealing with Mr. Elgindy in his investigation of QGLY stock, he admitted that he knew Mr. Elgindy was short and that Mr. Elgindy possessed knowledge that no one else in the public had, namely that the SEC had a nonpublic investigation into the stock, he knew that because he was assisting the SEC.(TR 6223-24)
Similarly, FBI agent Mike Gaeta, testified that he had dealt with Mr. Elgindy in his investigation of QGLY looking for possible organized crime links. Mr. Gaeta
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recommended that Mr. Elgindy should be used for future investigations and that the general public would not have known about such an investigation.
Q. Do you recall that Mr. Elgindy sent you tape recordings or that you got tape recordings that he had made through other sources?
A. I don't recall as I sit here right now, however, if it's in the fileI'm not saying that it did not happen.
Q. Do you recall getting any tapes from the SEC that Mr.Elgindy had made?
MR. TIRSCHWELL: Judge, I understand that there's no objection, we have a 40-second message that this agent we would like to play and we'll be finished. I believe the Government has no objection.
MR. BREEN: No objection.
THE COURT: Is it marked.
MR. TIRSCHWELL: We don't have a transcript but we can provide one.
THE COURT: We'll have to provide one eventually just to we have one.
MR. TIRSCHWELL: Very well.
THE COURT: Play the tape.
You heard this Mr. Breen?
MR. BREEN: I have. Well, I looked at the transcript.
THE COURT: Okay.
(Audiotape played in open court.)
BY MR. TIRSCHWELL:
Q. Do you remember receiving that message?
A. I don't remember it.
Q. Does it sound like your answering machine?
MR. TIRSCHWELL: Judge, if I can one minute, please.
THE COURT: Yes, sir.
(Brief pause in the proceedings.)
MR. TIRSCHWELL: Nothing, further, Judge.
THE COURT: Thank you.
THE COURT: Any cross.
MR. BREEN: Yes, sir.
BY MR. BREEN:
Q. Good afternoon, Special Agent Gaeta.
A. Good afternoon.
Q. Now, Special Agent Gaeta, was there a time during December 1, 1996,when Mr. Elgindy was opened by you as a confidential informant?
Q. If you look at -- I'm going to show you on the screen -- it's anexhibit that's in evidence. It's marked as GX-SAC-5. Do you recognize that as a form that was prepared by you in connection with opening up Mr. Elgindy as a confidential informant?
Q. And the date of this is?
A. December 18, I believe, 1996.
Q. And, the second page of this, do you recognize that as the document
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prepared by you in connection with closing Mr. Elgindy as a confidential informant?
Q. So, it was open for five days?
A. Yes, correct.
Q. Now, the reason you gave here, Special Agent Gaeta, for disclosing him as a confidential informant was questionable reliability, correct?
MR. BREEN: Your Honor, I would like to inquire as I mentioned at sidebar. I thought the court was going to rule after the direct.
THE COURT: Oh, I beg your pardon. I thought we had completed that discussion. I think the examination is sufficient as it stands now.
MR. BREEN: Thank you. I have no more questions.
MR. TIRSCHWELL: I'm sorry, your Honor. Could I have additional questions?
THE COURT: Go ahead.
BY MR. BREEN:
Q. Let me ask quickly, the conversation that was played on the tape, is that conversation that took place in close proximity to the time when Mr. Elgindy was open for five days as a confidential informant?
A. It is would have been immediately before the opening or during that week.
MR. BREEN: Thank you.
THE COURT: Mr. Tirschwell, do you have any further questions?
BY MR. TIRSCHWELL:
Q. Sir, just putting that same document GX-SA-DC-5, second page up? Now, you had -- I'm sorry. You seen the last line, am I right, that you wrote that the captioned individual, that is, Mr. Elgindy, should be considered for future operations.
MR. TIRSCHWELL: Nothing further. Thank you, sir.
BY MR. BREEN:
Q. Special Agent Gaeta, just focusing on the decision that you made regarding questionable reliability. Was that decision made based on communication you had with another FBI agent familiar with Mr. Elgindy.
A. Yes. That was prompted by a conversation that I had had with an agent out of our Dallas field office.
COURT: Hold on. Next. Excuse me. I will sustain the objection to any further inquiry on this point. Anything else, Mr. Breen?
MR. BREEN: No, Your Honor.
THE COURT: Thank you, Special Agent Gaeta. You may step down. (TR Gaeta - Direct/Tirschwell 6280-6287)
SEC attorneys testify to usefulness of Elgindy's information
The trial was filled with undisputed testimony of SEC attorneys and FBI agents who admitted - albeit at times unwillingly - that Mr. Elgindy's information had assisted them in starting and continuing investigations. For example, SEC attorney Bob Terceror stated in an email to another SEC attorney that Mr. Elgindy was a"crusader" for propriety in the market place" and was "effective in exposing some fraudulent stock operations and in providing his information to the LA office" (DX 6022(email of
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SEC Tom Etter) SEC attorney Tom Etter testified as follows regarding 'relevant conduct' stock OSIN;
" We were talking about the company OSIN, and I think I asked who this man was, Elgindy. Mr. Terceror said he is someone who has had a checkered past but who is doing some useful work in the industry, noting that he has investigated companies, especially companies that have inflated market value, and he has done some useful investigation work reporting some of the information to the LA office of the SEC, but also selling the stock short at the same time." (TR 6462-63)
There were many such additional instances. SEC attorney Kyra Arkstrong admitted that she and a colleague recieved a call from Mr. Elgindy where he provided information regarding SEVU, and that she forwarded Mr. Elgindy's InsideTruth report on SEVU , (parts I and 2) to other SEC attorneys because the information was useful.(TR 2932-36, 2978-79) FBI agent Neil Palenzuela admitted that Agent Royer had referred Mr. Elgindy's source and former employee,. Ken Cook, of SEVU to him and that the information he recieved from Cook , including Mr. Elgindy's InsideTruth reports, formed the basis for his opening an FBI investigation into SEVU. (TR 3201-02, 3212-13, 3244-49, 3251-54, 3257-58, 3262, 3271), an investigation that Mr. Elgindy is currently incarcerated for knowing about.(SEVU insidetruth hyper-link)
SEC Branch Chief Douglas Gordimer testified that Royer told him about Insidetruth.com in late 2000 and about Mr. Elgindy and his background in January 2001. (Tr. 3548, 3553.) Gordimer visited Insidetruth.com "numerous times" and found "good," "useful" and "helpful" information there. (Tr. 3548 ("good information"); 3567 ("useful"); 3611 ("At times the website did have helpful information"); 3615-16.) Gordimer reviewed the reports and other information on Insidetruth.com and in fact, he used the information to start several investigations. (Tr. 3562-64, 3622-24 (reviewed IJON report and called Mr. Elgindy, who explained the fraudulent activities surrounding IJON); 3625 (IJON information "certainly was interesting and useful to us"); 3568 (information from Insidetruth.com report was "exclusively" the basis for opening informal investigation into BYTE).)
SEC Attorney Brent Baker testified to a long and fruitful relationship with Mr. Elgindy. Baker testified that some months later he received Mr. Elgindy's InsideTruth.com report on SLPH, including photographs of company equipment and other information that Baker had never seen before. (Tr. 5779-5793; DX 5218 (email to Baker).)17 Baker contacted Mr. Elgindy seeking information about certain individuals affiliated with SLPH that Baker had read about in Mr. Elgindy's report, and thanked Mr. Elgindy for this information; Baker then continued to request information from Mr. Elgindy about SLPH to assist him in his investigation. (Tr. 5811-5815, 5819-5820, 5830-5832, 5834-5836 (Baker); DX5371, DX5370, DX5203, DX12199, DX5373 (emails between Baker and Elgindy).) In fact, Baker indicated in an August 14, 2001 phone conversation with FBI Agent Marcus Knutson that he was investigating SLPH and had "worked with" Mr. Elgindy in the past. (DX6142.) This caused Knutson to refocus his own FBI investigation from Mr. Elgindy to SLPH.
SEC Attorney Rob Long testified that he contacted Mr. Elgindy several times and Mr. Elgindy gave him additional, useful information about GENI. (Tr. 6095, 6100-104, 6119-22.) In fact, Long requested Mr. Elgindy's report on GENI (Tr. 6104-05), contacted Mr. Elgindy to "follow up" on GENI (Tr. 6124-25, 6133-40), and received and reviewed the email alert on GENI from Insidetruth.com (Tr. 6145-46). The SEC ultimately sued several individuals for the manipulation of GENI stock, many of
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whom had been discussed with Mr. Elgindy.
The information that Mr. Elgindy and other site members provided to these law enforcement agencies derived from intensive work researching companies and their directors and officers on the internet; contacting the companies and their vendors, customers, competitors, etc.; visiting the companies; inquiries to colleagues and subject matter experts about the viability of technologies; and much, much more. The voluminous segments of chat presented at trial (and a lot more that was not presented) documents the research the site members engaged in with regard to the companies at issue. In fact, the vast majority of information the site obtained on these companies and used to trade came from such research. Only a tiny percentage of the information Mr. Elgindy had about a given stock was law enforcement information, and in most of those cases he had been the source of the information.
Agents from the SEC and the FBI expressed appreciation and encouragement to Mr. Elgindy. Mr. Elgindy believed that what he was doing was decent and lawful work and when the SEC or FBI took an interest in what he had done, it only validated what he had been doing for years. When information did come from Mr. Royer, Mr. Elgindy believed it was intended to let him know that what he and the site were doing was making a positive difference. (GX-DC-56 (Mr. Elgindy tells the site that the information on the investigations into SEVU is "for all of our hard work").)
A more detailed presentation of this evidence is chronicled on pages 50 to 56 of Mr. Elgindy's 12/23/05 Sentencing Brief. During the March 22nd Sentencing hearing the court itself found Mr. Elgindy's work and assistance to the SEC and law enforcement to be legitimate and mutually beneficial:
"I'll deal with what is apparent and what is OBVIOUS(emphasis added) from the facts. But as to say, to whatever his relationship with the SEC put in very favorable terms by Mr. Berke and Mr. Tirschwell was a mutual --we'll call it that -- a mutual relationship, the SEC, you can understand their interest in Mr. Elgindy and his resourcefulness. And you can certainly understand Mr. Elgindy wanting to maintain a relationship with these folks in terms of specific instances." (March 22 Sent. Hearing, p. 95, lines 11-20)
To the extent that stock prices fell after one of Mr. Elgindy's reports was published or one of his remarks resonated with investors and traders, any resulting price move was due to the introduction of additional truthful information into the market place. To the extent that InsideTruth and Mr. Elgindy had garnered a reputation for anything, it was one of credibility and veracity. Among the 1100 days of chat logs, millions of lines of text, tens of thousands of Mr Elgindy's own trades, over 3000 trading calls, over 85,000 posts on Silicon Investor and the 24 published InsideTruth reports, the govt found 2 instances of allegedly innaccurate information, and as we noted in our first brief and as shown here again, they were wrong on both of those. (2nd Sent Memorandum pg. 11-12)
Aside from the government's own declarations and self-serving rhetoric about "controlled" trading, "furious" coordination and the "monitoring and penalizing" of site members who didn't follow Mr. Elgindy's directives and commands, the government wasn't able to put on a single witness to testify that any of his/her
---- PAGE 46 ----
trading was done solely at Mr. Elgindy's behest, nor were they able to offer even one single episode of such an occurrence, with the accompanying trading records showing the synchrony of trades of any two parties.
The government's case is built upon a characterization of Mr. Elgindy's site as a dictatorship, in which he somehow demanded complicit trading from over 300 site subscribers, most of whom were known to him only by alias. Market manipulation charges could not possibly have applied to this type of communication, in the absence of a means of controlling site members' investment behavior. It is clear from the consistency of communications throughout the lifespan of anthonypacific.com that such control was not present, was not intended, and was not the reason for the site's existence, thereby leaving behind the only remaining argument for manipulation, Mr. Elgindy's alleged manipulation through the release of overwhelming negative yet truthful information.
In the Government's summation, the argument to the jury was clear, they could find Mr. Elgindy guilty of manipulation if they determined that he released extremely negative but truthful information in a certain way and in stages; to himself, then a larger group of site members and then sometimes to the public. A charge of market manipulation has never been before predicated on the release of truthful information; the justification of stretching the law in this case was that site subscribers were coerced into "blindly" doing whatever trades Mr. Elgindy ordered.
"The deceptive trading practice of a coordinated release of negative and SOMETIMES(emphasis added) false information, to have the effect to crush, destroy, ruin the stock price and when its done in a collusive manner that happened here, that's improper, that's illegal and that's what they did" (Government's Sent Memorandum attachments Tab E pg 3)
As the Supreme Court emphasized in McNally, "'[t]here are no constructive offenses; and before one can be punished, it must be shown that his case is plainly within the statute,'" 483 U.S. at 360 (quoting Fasulo v. US., 272 U.S. 620, 629 (1926)); U.S. v R.L.C., 503 U.S. 291, 309 (1992) (Scalia, J., concurring)("The rule of lenity ensures that criminal statutes will provide fair warning concerning conduct renedered illegal." (quoting U.S. v. Liparota, 471, 427 (1985))).[KE1]
During the March 22nd sentencing hearing the COURT rejected, as it should have, the government's contention that Mr. Elgindy had manipulated any stock or controlled his site members trading, most notably through the novel theory that the release of negative information, even if completely true, can be the basis for manipulation; " I think there is a problem with manipulation separate and apart from Sturdivent, I have some reservations about manipulation." (3/22/06 Sent Transcript 26,24 -27)
The government in their brief continues to argue that the site was the "engine" the "vehicle" that allowed the alleged manipulation to occur, the same argument they made at the end of the March 22nd hearing by stating;
"And again, this is the mechanism for Mr. Elgindy's leadership of this scheme. Mr. Cleveland recognized early on that the use of the site would provide value because it allowed Mr. Elgindy to crush stocks. And that's what this site was about. That's why I think the site fees are completely appropriate, particularly because commonly 2(b) 1.4 is appropriate."(3/22/06 Sent transcript, pg 83)
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However, on June 19th, 2006, when Mr. Elgindy was finally sentenced, the Court ultimately rejected this argument, there was simply no evidence to support any of the rhetoric, and the Court determined that this case was about information and not manipulation.
"I for one, do not include the site fees in the calculation, I've always seen that as something different...I just don't see it as part of the securities fraud. I myself have not included those amounts".
Frontrunning and Trading Against Advice
The government claims that "Mr. Elgindy (1) deprived the AP site members of money or property and (2)deprived them of Elgindy's honest services. On appeal, Elgindy challenges only the second theory." This is incorrect, Mr. Elgindy appealed both allegations. At no time did Mr. Elgindy deprive or cost any of his members a single cent. No subscriber has ever filed a complaint nor ever made any claim of dissatisfaction. When Mr. Elgindy made a trade for himself and posted it, he always disclosed his price and suggested they trade at the same exact price. That is why the government, never discloses Mr. Elgindy's execution prices, because Mr. Elgindy's execution prices were consistently identical to his "broadcast call prices".
In any event, the government alleges that Mr. Elgindy routinely traded ahead of his site members and often times against them. As we described in detail in POINT 4, and here below, he did not.
The jury largely rejected the government's theories in these respects, acquitting Mr. Elgindy on 13 of the 16 separate counts charging frontrunning and trading against advice. In addition, as we argued in post-trial Rule 29 submissions with respect to the three such counts, 21, 29 and 32, on which Mr. Elgindy was convicted, the evidence was legally insufficient to sustain any of these. Furthermore, there were fatal defects in the grand jury proceedings with respect to these counts. (See Mr. Elgindy's supplemental Rule 29 letters dated Feb 25, 2005 and May 10, 2005)
All of the site member testimony from both government and defense witnesses showed that the kinds of things Mr. Elgindy was convicted of - such as trimming down but not closing a short position following a trading call, or trading mere minutes before announcing a trading call - were either known and/or immaterial to the investment decisions of his site members. In addition, the government presented no evidence that any site member suffered one penny of loss in connection with these allegations. To the contrary, all the evidence indicates (and the government has never disputed) that site members consistently would have made money by following the trading calls that the government charged and claimed at trial were part of criminal frauds.
In any event, Mr. Elgindy was found to have traded ahead of his site members or against his own advice to his site members on two stocks and on just three occasions out of the hundreds of stocks and thousands of trading calls that appeared on the site over time. The evidence below demonstrates that the evidence is not only insufficient but is strong proof of the prejudice that permeated the trial. No reasonable jury when presented with this evidence could possibly find Mr. Elgindy guilty beyond a reasonable doubt. It's not possible.
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Both Government witnesses Derrick Cleveland and Robert Hansen testified that Mr. Elgindy wasn't telling members what to do, only what he himself was doing or "had done." Robert Hansen was the one who trained new members;(TR 2112-14)(TR )(JX 10536)
[12:06] rhansen>> You will see two types of calls here
[21:06] rhansen>> Broadcast and Chat
[21:06] wholovesya>> good calls and bad calls
[21:06] maximus>> and long and short
[21:06] rhansen>> Broadcast calls will not only sound the gong sound but also go to your email and/ or pager
[21:07] rhansen>> Chat calls are simply posted in chat because they are risky or very short term and are only applicable to people in chat
[21:08] rhansen>> You have to remember, a call whether broadcast or not is just a trader here saying that he or she is making a trade
[21:09] rhansen>> if you follow that trader a lot then you might chose to make the same trade, but that is completely up to you
[21:09] rhansen>> They are not "telling" you what to do, simply saying what they are doing
[21:10] anthony>> and in some cases, they are telling you what they have just done (JX 10536)
In count 29, the government charges Mr. Elgindy with both "front running" and "trading against his advice"; the jury is shown a sale of 3000 shares of INIV by Mr. Elgindy at 12:44, then a "broadcast call", 6 minutes later at 12:50, followed by what appears to be a covering purchase of 3500 shares, 17 minutes later. The following information is from the chart the government gave the jury during deliberations, it represents the only information the jury had about Count 29. The verdict is GUILTY.(emphasis added)
COUNT TWENTY-NINE (Guilty) 8/17/2001 FRONTRUNNING/TRADING AGAINST ADVICE
8/17/01 12:44 pm Elgindy shorts 3,000 shares on INIV GX-2582
8/17/01 12:50 pm Elgindy sends broadcast: INIV <-- short 15-20% @ 4.45 GX-3001
8/17/01 1:07 pm Elgindy covers 3,500 shares of INIV GX-2582
What the government doesn't show the jury is that Mr. Elgindy had sold a total of 8,000 shares short in INIV, including 2 lots of 3,000 shares back to back, a few minutes before the "email call", beginning at 10:09, 12:44, and 12:48. At 12:50 the "broadcast call" goes out.
10:09 am: Elgindy sells 2000 INIV short @ 4.30 GX-2582
12:44 pm: Elgindy sells 3000 INIV short @ 4:45 GX-2582
12:48 pm: Elgindy sells 3000 INIV short @ 4.20 GX-2582
12:50 pm: Elgindy sends broadcast: INIV <--short 15-20% @ 4.45 GX-3001
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1:07 pm: Elgindy buys the 3500 shares @ 4.56 GX-2582
Having sold 2 lots of 3000 shares back to back, within a few minutes, Mr. Elgindy decided to trim his short position in INIV from 8,000 shares to 4500. What was simply a decision to trim down a short position (at a small loss) and reduce his risk exposure appeared to be something nefarious since the government's chart (which was only produced during deliberations) didn't include any of the other relevant trades. In order to appreciate how misleading their presentation of the evidence was and further proof of a prejudiced jury, one only has to review Count 30.
In Count 30, the charges are exactly the same as they are in count 29, they are practically identical but on different days. In Count 30, Mr. Elgindy shorts 3000 shares of the same stock INIV at 1:55, 2 minutes before the "broadcast call" and is followed by what appears to be a covering purchase, 14 minutes later, of 3000 shares. This time however, the jury finds Mr. Elgindy, NOT GUILTY (emphasis added) of either "front running" or "trading against his own advice."
COUNT THIRTY (Not guilty) 8/23/2001 FRONTRUNNING/TRADING AGAINST ADVICE
8/23/01 1:55 pm Elgindy shorts 3,000 shares on INIV GX-2582
8/23/01 1:57 pm anthony sends broadcast: INIV <- short 15% @ 4.35 (add) GX-3001
8/23/01 2:11 pm Elgindy covers 1,000 shares of INIV GX-2582
8/23/01 2:15 pm Elgindy covers 1,000 shares of INIV GX-2582
8/23/01 2:18 pm Elgindy covers 1,000 shares of INIV GX-2582__________________________________________________________________
Counts 24 and 32 are similar to counts 29 & 30 above. In count 32, Mr. Elgindy is charged with "frontrunning", because on 10/23/01, he sold 5000 shares of VLPI at 9:17 am. Listed after that sale, in the government's chart, is Mr. Elgindy's "broadcast call" on VLPI, that went out at 11:44 am, a delay of almost 2 1/2 hours and Mr. Elgindy was found GUILTY.(emphasis added)
COUNT THIRTY-TWO (GUILTY) 10/23/01 FRONTRUNNING
- - - - - - -
10/23/01 9:17 am Elgindy shorts 5000 shares of VLPI GX-2582
10/23/01 11:44 am Anthony sends broadcast: VLPI<--short 20% @ 1.80-2.00 (add) its junk GX-2582
---- PAGE 50 ----
In Count 24, Mr. Elgindy is also charged with "frontrunning", because on 2/20/01 at 10:20 am, he purchased 2000 shares of BIOP, followed by a "broadcast call" at 3:04 pm, a delay of almost 5 hours. However, this time the verdict is NOT GUILTY.(emphasis)
Mr. Elgindy's convictions in counts 21, 29 and 32, provide strong proof, like the convictions in SEVU, PLMD, OSIN and JUNM, of illogical verdicts that make little sense, strongly suggesting an extreme prejudice to "convict on something."
Sentencing / Forfeiture
Absence of reasonable basis for sentence Mr. Elgindy appeals his sentence and the forfeiture judgment as both being unsupported and unreasonable. The government's claim on page 61, that "at no time did Elgindy (or Royer) argue that the government's calculation was incorrect or unsupported by relevant trading records" is a stunningly inaccurate remark, considering the record and the massive rebuttal effort put forth by Mr. Elgindy, who has contested every single dollar, stock, and trade the government included, at every possible opportunity.
At the conclusion of the first (March 22nd, 2006) sentencing hearing the Court itself recognized that there was a '"painstaking" effort put forth in refuting the government's numbers, calculations and conclusions, noting the many issues that were contested, the Court indicated that it would "figure out" it's own guideline calculations and offer a written opinion of it's findings: "I think it's important that I write on some of these issues, at least because they'll be scrutinized carefully as they should be, on appeal...the next time we convene, you'll have my views on what I believe to be the correct calculation of the advisory guidelines."(3/22/06 Sent. Hearing, p. 50)
However, On June 19th, 2006, when the parties reconvened for Mr. Elgindy's sentencing, the court offered no written opinion nor did it conduct any further fact-finding, instead it just adopted the newest $1.5 million dollar figure that the government had submitted shortly after the March 22nd hearing. It should be noted that that letter was submitted without any trading records, any stock by stock breakdown, or any other kind of documentary back up, nevertheless the Court found that this number reflected the "big-picture" of the case. The government itself concedes that the inclusion of the 28 additional stocks and a variety of traders was meant to "capture the scope of Elgindy's role in leading the racketeering conspiracy." The government says nothing, likely because it cannot, about the fact that this figure of $1,568,000 includes over $1,400,000 in gains that can be shown to have been earned legitimately, honestly and fairly. The court simply accepted the government's claim that they can prove these numbers by a preponderance of the evidence, without ever requiring them to do so.
Amazingly, the government states in their brief (GBr 161) that Mr Elgindy, never objected to either the traders or their trading in any of these 32 stocks:
"In this modified calculation, while the government used the same securities and traders as in its previous analysis . . . This calculation resulted in a gain figure of $1,568,008.93. (EA 1136) While Elgindy did not agree with employing these variables - except for the time period - in determining the appropriate Guidelines "gain," at no time did Elgindy (or Royer) argue that the government's
---- PAGE 51 ---- (numbering error; there is no page 51)
---- PAGE 52 ----
calculation was incorrect or unsupported by relevant trading records." [emphasis added]
However, as the transcript from Elgindy's sentencing hearing clearly shows, that claim is false:
"I assume judge, you've rejected all our arguments about what to consider, Im assuming you have rejected our arguments that you will limit the stocks to the 4 conviction stocks. Even with all that, I would submit that the numbers are dramatically lower than what shows up on this chart. If you do the analysis of what actually is alleged again, based on allegedly inside information, there is NO POSSIBLE (emphasis added) way to get Daws's numbers up to $908,000 under any sort of even a differing of opinion about how you apply an insider trading analysis to a unique case". (6-19-06 Sent. Hearing Transcript, p. 44)
$1,500,000 forfeiture from acquitted conduct
In calculating the alleged gain amount, the District Court adopted the govt's newest gains calculation which took Mr. Elgindy's alleged gains in the four conviction stocks (PLMD, SEVU, OSIN and JUNM), totaling a little more than $66,000, and then added another $1,500,000 in acquitted and relevant conduct. The court stated that while it was at "liberty" to consider "acquitted conduct" (Vaughn), it was bound to include all the "relevant conduct", and then added both over Mr Elgindy's objections. (June 19, 2006 Sent Hearing, p. 54). As a result, the Court, without explanation, simply accepted the Governments labeling and inclusion of the gains in 28 additional stocks on top of the 4 stocks of conviction.
While the government contends that the court undertook a "painstaking determination" of the proper gain amount (GBr 163), the record shows the opposite, and tht the Court was referring to the defense as the party that had undertaken a "painstaking" analysis, and not itself or the government (3-22-06 Sent. Hrng, p. 51).
During the first sentencing hearing on March 22nd, at which both sides presented arguments about the issues of relevant and acquitted conduct, the Government steadfastly claimed that they could prove their ever-shrinking gain figures by a preponderance, while Mr. Elgindy maintained that they could not. The Court, however, did nothing to resolve the matter. Contrary to the government's claim that Mr. Elgindy never objected to the figures, or the calculations, that is precisely what he objected to, over and over, and he has never stopped objecting.
Early in the hearing defense counsel stated;
"Judge that with all respect to the government, their numbers are unreliable. Mr. McGreggor (an alleged unindicted co-conspirator who never testified nor assisted the government) who had some of the biggest trade transactions, wasn't a member of the AP site until late 2002, when Royer long left the FBI and their is no issue about what happened at that stage."
"Mr. McGreggor separately was a member of the secret RC site that everyone
---- PAGE 53 ----
agrees, Mr. Elgindy didn't know about, is not foreseeable to him that people could create their own secret site, not tell, use him, decide to use him as a lightening rod**FN__ and say very bad things about him. He clearly didn't know about that or could have foreseen it." (3-22-06 Sentencing Hearing, p. 30-32)
As far as the various stocks that should be included and which shouldn't, he follows: "But I want to highlight why they certainly have not satisfied a burden or a preponderance of the evidence to include those. And I would like to use some examples to make the point" (3/22 sent hearing pg 33)
Mr. Berke then goes on in detail as to the evidence in some of the stocks the government claims were appropriate, as the hearing drew to a close, the issues only became less clear and the Court stated its closing position:
THE COURT: "All right, let me tell you where I intend to go with this. I'm certainly not going to complete the proceedings today, but I thought I would have these discussions before we recess. I think it's important that I write on some of these issues, at least because they'll be scrutinized carefully, as they should be, on appeal. Leave to sentencing day arguments related to 3553(e), which I've already read of course, so that the next time we convene, you'll have my views on what the I believe to be the correct calculation of the advisory guidelines, and we'll proceed then to the statutory issues and sentencing at our proceeding. Okay?" (3-22-06 Sentencing Hearing, p. 50, line 4)
Immediately after this, defense counsel emphasized again the very significant and unresolved issues about the relevant stocks and traders and the reasons why they should not be included.
"We think that the number of 4 conviction stocks are the right stocks. And the government has not presented, really any evidence that satisfies, even at a preponderance standard to go beyond those four. We've identified a variety of reasons why I believe we could go through what the proof--and some of these stocks were barely mentioned. There was a search. They are the principal stocks, which you know, are the conviction stocks and the acquittals--acquittal stocks and I believe they were identified in specific counts for a reason. But we can go through more, but I think we've just highlighted, Judge, certainly over half of the 32. And I think there is similar arguments that apply to other of these, why the only proper stocks to look at are the 4 conviction stocks" (3-22-06 Sentencing Hearing, p. 50, line 21)
To this, the district court responded: "It's rather painstaking, as your arguments demonstrate. I'm not inviting any additional submissions, but I may solicit from you both information from the trial record about specific stocks". (3-22-06 Sentencing Hearing, p. 51, line 12)
Absent such stock specific and trade-specific testimony from these individuals and entities and absent an opportunity for Mr. Elgindy to challenge any such evidence, there is no basis for a finding that the government has proven beyond a reasonable doubt (or even by a preponderance) that any of these tippees' stock gains "resulted from" the alleged inside information that was disseminated. (12-23-05 Sent. Mem, p. 79-80)
Thus, as the district court itself acknowledged, it was Mr. Elgindy - not the court, and certainly not the government - that had undertaken a "painstaking" gain
---- PAGE 54 ----
calculation, and in doing so, proved that none of these additional 28 stocks belong in the case. The Court then failed to live up to its promise and provided no explanation -- written or otherwise - as to how or why it arrived at the $ 1.5 million figure. In the absence of any such explanation by the district court, the government is now attempting to substitute their own rendition, after the fact, of how the district court might have explained its calculation.
Inconsistent treatment with regard to others deemed to have benefited.
As to the other alleged tippees (such as Kendall McGreggor and his fund Highgate, David Slotnick, Joseph Spiegel and his fund Spinner, and Jeffrey Thorpe and his fund at Langley Capital) none of these individuals or entities (or representatives of such entities) was ever called to testify that they either received and were in possession of the alleged inside information or that their trades in any specific stock were "informed by" such information.
It should be noted that the trading by these hedge funds such as Gryphon, Highgate and Spinner, who were NOT members of Mr. Elgindy's site, was in no way foreseeable by Mr. Elgindy. Indeed with the exception of Mr. Daws, the individuals responsible for trading in these funds were active members of RC Chat and not members of Anthonypacific.com
Absent such stock specific and trade-specific testimony from these individuals and entities and absent an opportunity for Mr. Elgindy to challenge any such evidence, there is no basis for a finding that the government has proven beyond a reasonable doubt (or even by a preponderance) that any of these tippees' stock gains "resulted from" the alleged inside information that was disseminated. (12/23 Sent Mem pg 79-80)
In the PSR the government advised through probation that it can prove that Mr. Elgindy is responsible for over $11,000,000 in 43 stocks by a preponderance of the evidence. In the government's 1st forfeiture memorandum filed on April 1, 2005, the government claimed that Mr. Elgindy was responsible for over $9.1 million in illegal trading gains, in 41 stocks, and once again, could prove it by a preponderance of the evidence. Then before sentencing the government claimed that Mr. Elgindy is responsible for a drastically reduced figure of $ 3 million in 32 stocks, and once again they claimed they could prove so by a preponderance of the evidence. Mr. Elgindy in both his sentencing memorandums challenged the standing assertion that the government could prove any of these figures by any standards of evidence, including preponderance.
In their sentencing memorandum, the government simply ignores the objections to the inclusion of various stocks and traders and their transactions in Mr. Elgindy's gain calculations. When all the parties finally met at the March 22, 2006 sentencing hearing, both sides discussed in general their various arguments, there was no fact-finding or an examination of the various claims and objections made by Mr. Elgindy. In fact, this hearing only cast more doubt on the reliability of the government's numbers and the hearing concluded without any findings or analysis of the proper gain amount. Nor did the Court address the various serious evidentiary and factual issues raised, in which the evidence clearly exonerated Mr. Elgindy.
---- PAGE 55 ----
On March 23rd, the following day, the government followed up by sending a 2 pg letter and an attached chart offering yet 3 more calculations. The government provided no trading records or any supporting material behind these smaller figures. Not once does the government or the District Court address any of the substantial issues raised in pages 65 thru 68 or 105 thru 110 of Mr. Elgindy's 12/23/05 sentencing memorandum, or the 61 page final reply brief filed Feb 24, 2006, which contains a detailed analysis of why certain trading profits related to certain securities should not have been included in the calculations of Mr. Elgindy's gains.
From $66,000 in 4 conviction stocks earned personally to $ 1.56 million in 28 additional stocks earned and retained by 8 other traders, is an increase of over 2300% in money & a 9-fold increase in participants. Mr. Elgindy's repeated requests for an evidentiary hearing or a stock by stock, trader by trader analysis, from January of 2005, when the verdicts were read until he was sentenced on june 16th, 2006 were never granted.
As we will demonstrate below, the government's most recent claim that the District Court engaged in meaningful fact-finding in connection with the appropriate stocks, gains and traders is not true. From the beginning, the government has claimed it advised the District Court, Probation, defense counsel and now this Court that it can prove their varying stock and trader gains in the acquitted and relevant conduct by a preponderance of the evidence. And at every opportunity Mr. Elgindy has objected and asserted that they cannot.
Clear error in including BGII gains
The government claims in their brief that "Mr. Elgindy, does not approach the requisite showing of clear error. Elgindy's argument focuses on the court's inclusion in it's gain amount of BGII Industries, contending that Royer did not perform any searches with regard to BGII and that Elgindy was the source of any information about BGII posted on his AP site. Elgindy argues that the court's calculation was riddled with such errors. As to BGII, Elgindy' argument simply ignores Cleveland's testimony." ( GBr 18 ).
Since a defendant challenging the sufficiency of the evidence bears a heavy burden we will adresss Mr. Cleveland's testimony and the balance of the evidence in BGII and several other of the 28 stocks that account for the $1.56 million figure that Mr. Elgindy has been held liable for.
To remind the court, BGII was a security that was NOT named or the subject of a specific or a substantive count in the indictment, yet the allegations involved insider trading and manipulation. The PSR assigned BGII a loss of $2,451,958 of its $11 million plus number, the largest single loss alleged in the PSR, BGII accounts for more than 1/3 of the government's revised and rejected $ 3 million plus gain figure ascribed to Mr. Elgindy. It likely bears the same proportion of the $ 1.56 million figure proffered in their chart the government appended to it's March 23, 2006 letter and which served as the basis for the forfeiture judgment. (A 1010)
The only evidence regarding BGII is Cleveland's testimony that he learned of "raids" by the "Texas Rangers" and of an SEC investigation into BGII from Royer in Dec 2001 and that he passed on that information. (Tr 908-10)
---- PAGE 56 ----
Q: Have you heard of a company called BGI industries?
Q: How did you refer to it?
Q: Was that the ticker symbol ?
Q: Do you remember how the site --well, was it an AP site stock ?
Q: Do you remember how the site became interested ?
A: Yes, it was another stock that was moving up rapidly, price was going up quite a bit on a daily basis and the site got interested as to why the stock was making moves that it was moving.
Q: Did you do any research on it?
Q: What did you do ?
A: Again, I followed my normal procedure of going to the SEC web site, Edgar, and pulling the financials to get the names and other information to give to Mr. Royer.
Q: Did you give the names to Mr. Royer?
Q: While he was still an FBI agent ?
Q: Did he provide you with information ?
Q: When approximately was this ?
A: BGI the play was around --started around I think, November, December 2001.
Q: What information did he provide you with?
A: I had him run the CEO of the company, a gentleman by the name of Reid Funderburk and he came back with nothing on Funderburk but shortly thereafter that in a few days, after that he had come to me and or called me and let me know that he had just gotten off the phone with the Texas Rangers and they had begun raiding some of BGI's different places where they had
their charity machines and also seizing some of their funds.
Q: Who are the Texas Rangers ?
A: Texas Rangers are - it is a law enforcement people in the state of Texas
THE COURT: Is it akin to like the state troopers in another jurisdiction?
Q: Now again, when he provided you this information was Mr. Royer still an FBI agent /
Q: Did he provide you with any other information in this time frame?
Q: What did he provide you with?
A: He told me that the SEC was looking at BGI Informally at that time.
Q: What did you do with this information?
A: I gave the information to Mr. Elgindy, I gave the information to Mr. Daws, I gave it Quack and I gave it to Nico.
Q: What information did you give them ?
A: That the -- that BGI, different places where they had their machines was being raided by the Texas Rangers, that the machines were being seized, that different bank accounts they had were being seized and that the SEC was informally looking at them.
---- PAGE 57 ----
Q: Did you tell them where you received the information ?
Q: What did you tell them in that regard?
A: That the information had come from Jeff
Q: Do you remember what it was that Mr. Elgindy did with that information ?
A: he eventually put some of it out to the site . It seems like it took a little while but eventually it went out to the site.
Q: After receiving the additional information from Mr. Royer did you get additional information ?
Q: What did you hear next?
A: That the SEC investigation had become an official SEC investigation, it was no longer informal, it was official and also he informed me that the raids and the seizures were still taking place.
Q: when did you receive this information ?
A: I received this information, it was early to mid December 2001.
Q: And the SEC information, was that received in the same time frame ?
Q: Who did you communicate this new information to?
A: Mr. Elgindy, Mr. Daws, Quack and Nico.
Q: Did Mr. Elgindy release any of the information on the AP site?
A: Eventually he did, yes.
(Tr 908-910) No evidence of any phone calls with anyone at the SEC or with the Texas Rangers was introduced. According to (GX-JL-1) Agent Royer did no searches related to BGII. The information about the Texas Rangers came from a newspaper article in October 2001 that was available on the internet. ( DX 3534(article) DX 5322 is an email from Mr. Elgindy to SEC atty. Brent Baker containing that article.
Moreover, nobody at the SEC was "informally looking at them" because SEC Branch Chief of Enforcement, Douglas Gortimer testified that no one at the SEC was looking at this company until agent Royer told Gortimer about the InsideTruth.com report.
Furthermore Cleveland's testimony that Mr. Royer had told him that the SEC investigation had become an "official investigation" in December of 2001 was a lie. SEC Atty Gortimer, testified that the formal investigation into BGII was started and based on the InsideTruth.com report about BGII that Mr. Elgindy wrote and then published in January of 2002.(DX 12120)
Q: Id like to ask you about a stock called BGII. That is the symbol. And do you recall the business of BGII ?
Q: what was that ?
A: They were in the business of putting eight liners or gambling machines in Seven-Elevens and road-stops, rest-stops and things like that.
Q: Do you recall, I think you talked about that there was an investigation that began based on information obtained by Mr. Elgindy and other people who worked with Mr. Elgindy on the site?
A: I believe that the opening of the informal investigation was based on their report that was on InsideTruth.com
(TR 3640) Mr. Gortimer then testified that nobody at the SEC had been looking at
---- PAGE 58 ----
BGII until he had read Mr. Elgindy's report.
Q: And there was no ongoing SEC investigation at all, as far as you know, nobody at the SEC was looking at this company until Agent Royer told you about it, correct?
A: Right, it was opened after he told me about the InsideTruth.com report.
(TR 36__ ) With regard to the manipulation allegations, Mr. Gortimer testified that BGII stock's price plummeted not because of any manipulation by Mr. Elgindy, but because the truth became known to the public, truth that was first published in Mr. Elgindy's Insidetruth.com report that was then mirrored in the news.
Q: The stock price plummeted correct ?
Q: And it plummeted because the article in the newspaper disclosing some of the things that were already in the insidetruth.com website. It plummeted before we brought our action. I think there was also an article in the newspaper but either way it did fall not too long after this came out.
Q: You recall -- I think you said the information in the article was the same information as InsideTruth?
A: I dont know if it was all identical but very similar.
Q: There was no doubt in your mind it was falling because the truth of the company was coming out, correct ?
A: It was falling because it showed the company was not telling the truth earlier.
Q: So investors saw that they were investing in was , in fact, not what they expected it to be correct ?
A: Yes (TR 3640-42)
[ link to BGII report ]
The government had unlimited access to Mr. Cleveland, his trading records, SEC Branch Chief Gordimer along with all access data and records. They knew when Mr. Cleveland traded and when the investigations began, yet they chose to pursue and elicit this testimony anyway. This is clear error.
Thus, as Mr. Elgindy argued at trial and tried to argue at the 1st sentencing hearing it was his truthful exposure of the stock on InsideTruth.com that caused the SEC to open it's investigation into BGII, and the stock's correction in price. Therefore any inclusion of the gains and trading in BGII is clearly inappropriate. As this court has said previously, "Where the prosecution knew or should have known of the perjury, the conviction must be set aside, if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury, (US v Wallach, 935 F.2d 445, C.A.2, (NY), 1991, US v Seck, 48 Fed Appx 827, 2002 )
SLPH and acquitted conduct
For the acquitted conduct in SULPHCO corporation (SLPH), the evidence at trial made abundantly clear that Mr. Elgindy did not get any law enforcement information from Agent Royer and that Mr. Elgindy's information on SLPH came from his due diligence, his probation officer, SEC atty. Brent Baker and former SLPH employee Todd Orme.
The site followed SLPH for months before Royer searched it on May 18, 2001
---- PAGE 59 ----
(JX 93;JX 100; JX 138; JX 139; GX-JL-1) The search result; "No records found" (GXC-3100) SEC attorney Gordimer searched SLPH on May 21, 2001 and found nothing. (TR 3558, 3560)(12/2 Gordimer testimony); GX-DG-3.) On May 29th Mr. Elgindy shorted SLPH (GX 2582). That short sale was included in the government's previous profit calculations even though the accesses by Royer turned up absolutely nothing.
Mr. Elgindy and some other site members then visited SLPH on June 6, 2001, taking pictures and interviewing it's officers. (JX 151) On June 7, Mr. Elgindy shorted 8000 shares, covered 2500, shorted 1000 more and covered 4000 shares. (GX 2582) From June 5 to 7, Cleveland shorted SLPH and between June 7 and 15 he covered and closed out his position.( GX 2578)
On June 18, 19, and 22 Mr. Elgindy shorted a total of 5500 shares, and then covered 900 shares from June 22 to June 28. (GX 2582) All of these trades were included in the government's profit calculation, even though no law inforcement information had even been accessed. (GX-JL-1 at 19; see supra.) and June 22, Mr. Elgindy posted publicly on Silicon Investor.com that SLPH is a scam (DX 1338) and on June 26, Mr. Elgindy published a 19 page report on SLPH (.... SLPH REPORT....) on Insidetruth.com. On June 29, Royer searches again: "No records found" (GX-JL-1; GXC 3100 at B1559.)
GX-JL-1 lists chat on July 17 (GX-DC-155) that supposedly contains law enforcement information. It says "SLPH is complaining to the FBI" The chart would suggest that this information came from one of the earlier searches listed on the chart, but there have been no results found in any of those searches, so the connection to chat on GX-JL-1 is misleading and untrustworthy. The information really came from Mr. Elgindy's probation officer, who had been contacted that day by FBI agent Knutson, the agent that was investigating Mr. Elgindy regarding SLPH. (TR 3418(Reidling testifying that he "received a call from Agent Knutson on July 17").) Royer did not find this investigation until he searched "Todd Orme" as opposed to "SLPH" on July 26. ( GX-JL-1; GXC 3100)
On July 24, 2001, former SLPH employee Todd Orme contacted Mr. Elgindy and told him about the FBI investigation and Mr. Elgindy then put that in chat. (JX 182) Not until July 26 does Royer even get a result by searching "Todd Orme" and then the search still indicates that that it is Mr. Elgindy under investigation. (GXC 3100) On August 3, 2002, Mr. Elgindy gave SEC Atty. Brent Baker Orme's contact information. (DX 5371) Cleveland claimed Royer told Mr. Elgindy about the SEC investigation, but it was clearly Baker. (DX 5371(Baker-Elgindy email): TR 5851 (Baker testified he had never heard of Royer); TR 3558, 3560 (12/2 Gordimer testimony):GX-DG-3 (Gordimer never found anything).) On August 6, Todd Orme told Mr. Elgindy that SLPH was under FBI investigation.( GX 3001(broadcast 8/6/01 9:15 pm).) This is before Agent Royer could have known, as he first saw the document changing the target to SLPH on August 23. (GX 3102(showing that Royer viewed Serial 4 indicating the change in target on 8/23).)
Meanwhile, Mr. Elgindy shorted SLPH on July 5, July 24 (the day Orme informed him of the FBI investigation into SLPH that Royer was still unaware of), July 30, and not again until September 24 and then October 18, roughly corresponding with emails between Mr. Elgindy and Brent Baker about SLPH. These trades too were improperly included in the government's gain figures. Once again the evidence at trial proved Cleveland to be lying and the government's insider trading theory impossible. (All this in SLPH is from the 12/23 memorandum by Kramer Levin)
---- PAGE 60 ----
There are many other examples which consistently demonstrate that the government's numbers are wholly unreliable and their reliance upon Mr. Cleveland's testimony regarding the remaining 26 stocks and 8 traders was misplaced. The evidence clearly demonstrates that the error in including BGII wasn't unique for the alleged "relevant conduct" securities. VLPI, BIOP & IMCL provide 3 additional examples.
VLPI: Cleveland's testimony can't possibly be truthful
In VLPI the evidence is clear, Mr. Cleveland's testimony couldn't possibly be truthful.(TR 813-20)
Q: Have you heard of a company called Vital Living products?
Q: How did you refer to it ?
Q: Was that the ticker symbol ?
Q: Was it an AP stock?
Q: Do you remember how the site became interested in it?
A: The stock was making some rapid upper moves, moves upward and the site began to talk about the stock
Q: Was it a trading call on the site?
Q: Did you do any research regarding VLPI?
Q: What did you do?
A: Followed normal procedures of pulling the financials from the Edgar online site, getting whatever names together I could get and other information on the company to give to Mr. Royer so that he could do his normal checks for me
Q: Did you in fact give that information to Mr. Royer?
Q: What did you ask him to do?
A: The gentleman behind the company that we were interested in, his last name was Proderbarac, I had him do a background check on Proderbarac, see if there was any past problems, if there was any current investigations and if there is anybody out there looking at VLPI the company itself.
Q: Did Mr. Royer provide you with information thereafter ?
Q: What did he tell you?
A: He told me that Proderbarac had had several past problems with the SEC but he didn't see anything with the FBI
Q: what did you do with that information?
A: I gave the information to Mr. Elgindy
Q: Did you give it to Mr. Elgindy close in time to when you received it yourself?
---- PAGE 61 ----
Q: Was there a time that you learned more information about VLPI from Mr. Royer?
Q: When approximately?
A: Just a few days after we had started taking a hard look at it. Mr. Royer informed me that the SEC had opened an investigation on VLPI, something about their test not being a certified test.
Q: What did you do with that information?
A: I gave it to Mr. Elgindy
Q: What did you tell Mr. Elgindy?
A: I told him specifically what Jeff had told me, that there was an open SEC investigation into VLPI and that again it had something to do with--the test wasnt certified or some official language
Q: Mr. Cleveland this is a chat log for Nov 28 would you please read the highlighted portion.
A: yes, At 13:30 Anthony states; VLPI SEC investigation, test was never certified and /or approved by anyone
Q: Is that the information that you recieved from Mr. Royer?
Q: Is that the information that you then communicated to Mr. Elgindy?
Q: Please continue down the page
A: At 13:31 Anthony states: VLPI, SEC in Frisco is where we sent all our stuff on this turd. [FN: Insert the excerpt where the government mentions that I spoke with SEC personnel in their brief.....the point being that they questioned my claiming to have started the investigation into VLPI..... (I dealt with SEC attorney Tom Ochs in the San Francisco office and he is the one who got the FBI back east involved.)] [NOTE: The government makes a very big deal that I used to take credit for things that I had nothing to do with...and they cite my remarks about being responsible for the action in VLPI ... here is Cleveland's testimony that it was Royer who told him that I started the investigations (government claimed I took false credit).]
Q: Did you continue thereafter to get information on VLPI from Mr. Royer ?
Q: What did he tell you next?
A: The next thing I remember him telling me was in a conversation he told me that the AP site, our private site was the ones responsible for the raids taking place and also that Proderebarac was going to face criminal indictments and was being looked at for fraud charges
Q: What did you do with that information
A: I gave it to Mr. Elgindy
Q: What did he do with it
A: he gave it to the site(TR 819)
The evidence regarding VLPI demonstrates that NO insider trading occurred. Mr. Elgindy first built a large short position in VLPI from October 15 to 18 because he researched, determined and then publicly declared his belief that VLPI was a
---- PAGE 62 ----
The site at that time was monitoring news that VLPI supposedly had invented a "home anthrax test kit". The site members were scrutinizing the company's financials as well as its scientific claims. The discussions noted how unfeasible the company's claim was, based on the lack of resources, scientific capabilities and development demands of such a product.(JX 237 at1-2; JX 239 at 5,8, 11; JX 237 at 12; JX 240 at 2-3)
Most relevant is Mr. Cleveland's testimony regarding Mr. Elgindy's discussion about VLPI with members on the night of October 17, 2001.
Q: 14:07 what does Mr. Elgindy say?
A: VLPI has $ 400 bucks in cash
Q: In other words it has no assets, correct?
Q: Moving on read the top what Mr. Elgindy says at 14:43
A: Yes, Anthony states VLPI anthrax test kit, mouse in cage, pass mail through bars, and take out other side, leave mail in stack, if mouse dies, its positive
Q: And continue reading sir 14:40 Mr. Elgindy
A: Folks, VLPI is a scam of massive proportion, It was 5 cents two weeks ago
Q: So on October 17th, Mr. Elgindy is calling VLPI a scam, correct?
Q: And that's based on research and investigation done by the site, correct ?
Q: And if we continue down, sir, to Mark Lehman, Mark L-E-H
A: yes, Mark Leh says, VLPI, this is the first time I have ever seen an item on the balance sheet of a publicly traded company labeled bank over-drafts
Q: And Mr. Elgindy responds to the bank overdrafts on a financial statements by saying at 15:04
A: VLPI is a turd of massive proportion
Q: And you recall at this time the stock had moved up?
Q: Do you recall that VLPI had shot up a total of 2000% ?
A: yeah at least , yeah (TR 1186-1893) (GX 2578, DX 8829)
The discussion goes on late into the night of the 17th, at 11:46, site member "choban" a government contractor who works with bio-detection companies, informs the group that the companies he works with don't believe VLPI's claims.(TR 1890) Mr. Elgindy learns that a large sample of anthrax in a lab setting is required. Choban offers, "only gullible consumers would buy VLPI crap" and "anyone talking about a solution now like VLPI are frauds." (TR 1892)
At 11:55 pm Mr. Elgindy states, "No way we will ever allow the public a test kit for anthrax, he then says, "That's it, it's illegal...Wooo hooo, I got them ". Mr. Cleveland continues reading at 23:56;
A: I'm sorry moekas says how do you know it's illegal ?
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Q: What does Mr. Elgindy say ?
A: Anthony says Its illegal you cant sell test kits to the public
Q: And then at 23:57 what does Mr. Elgindy say?
A: I'm calling multiple Fed agents now, standing by and then he repeats it
Q: He says he's calling the government, correct ?
Q: Then at 54 past midnight what does Mr. Elgindy say?
A: Anthony says I suggest everyone call every SEC enforcement staff department at every office as soon as possible
Q: Mr. Elgindy is not joking right ? He's telling people call the SEC about this fraud correct ?
(TR 1886-1893) A few hours later, at the market open, Mr. Cleveland sells 2500 shares short of VLPI at 9:14 EST am. This is the first and only short sale in VLPI Cleveland ever makes. (Trading records) Nevertheless, when Mr. Cleveland is asked about his trading, he once again gives testimony that can't possibly be true and testimony that the government should of known was false.
Q: Did you trade in VLPI stock?
Q: Was your trading based on law enforcement information?
Q: On whose behalf did you trade?
A: Jeff and I
Q: Do you know whether you made or lost money ?
A: I think we did all right on that one, I think we made a little bit of money
(TR 820) According to the government's own documentation. Mr. Royer did not search for anything related to VLPI (Specifically, it's CEO, Donald Proderabarac until the evening of October 18, 2001, long after Cleveland shorts VLPI (GX-JL-1), and after Mr. Elgindy declares it a scam and reports it to both the FBI and SEC. Moreover, the searches querying Proderbarac and VLPI revealed "no record" of any information.(GXC 3400 at 1-3; GX-HS-1 at A1746)
The Supreme Court has consistently held that a conviction obtained by the knowing use of perjured testimony is fundamentally unfair, and must be set aside if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury. (US v Agurs, 427 US 97,96 S.Ct 2392)
Finally, approximately one month later, on Nov 27, 2001, VLPI announces "big news" that it's Anthrax test kit had been "certified by an independent laboratory. (DX 3299) The news is quickly copied and pasted in the chatroom by site members and the news causes a surge in volume and price. Various members, including Mr. Elgindy responded by shorting the stock (JX 265 at 1-3).
The very next day, on Nov 28, 2001 a Bloomberg news story hits the wires reporting that the SEC had issued a subpoena concerning VLPI's purported certification and the Lab's denial of VLPI's claims from the day before. (DX 3299) The site members took notice of the report (JX 266) and shortly thereafter on that very same day took another short position in VLPI (GX 2582)
Moreover, the only VLPI query ran during that timeframe did not occur until Dec 4,
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2001, a full week later.(GXC 3400 at 11) And Gordimer never ran a query in the SEC database (GX-JL-1 at 20-21)
In the government's brief they describe what happened this way; (Government Brief pg 108),
" Clevleland asked Royer to look at VLPI. Royer ran searches on VLPI's CEO on OCTOBER 18, 2001. A FEW DAYS LATER (emphasis added or underline the stuff in CAPS) Royer told Cleveland that the SEC had opened an investigation into VLPI based on questions about their supposed anthrax detection system."
But that isn't exactly what Cleveland said, his testimony was far more specific, he said;
A: Just a few days after we had started taking a hard look at it Mr. Royer informed me that the SEC had opened an investigation on VLPI that had something to do with something about their test NOT being a CERTIFIED TEST.(emphasis added)(TR 816)
He was then immediately shown the chat from Nov 28th, 2001 and asked to read it into the record.
Q: Mr. Cleveland, this is the chat from Nov 28th, 2001. Would you please read the highlighted portion
A: Yes at 13:30 Anthony states; VLPI SEC investigation, TEST WAS NEVER CERTIFIED and/or approved by anyone
Q: Is that the information that you received from Mr. Royer ?
Once again the evidence proves that Mr. Cleveland's testimony that Agent Royer told him about an SEC investigation into VLPI"s "CERTIFICATION CLAIMS" which allegedly took place A FEW DAYS AFTER (emphasis added) Mr. Royer's search on Mr. Proderbarac, can't possibly be true, since the company doesn't make the public announcement that their Anthrax test kit has been CERTIFIED for another 5 weeks. The chat on the 27th about the CERTIFICATION came from the company's press release and the chat on the 28th, about an SEC investigation into this supposed certification came from a Bloomberg news story, and none of it could have possibly come from Cleveland or Mr. Royer, nor could it have ever been "non-public" information that "informed" anyone's trading.
VLPI InsideTruth Report: http://xxxxxxxxxxxx/insidetruth/reports/report_VLPI.htm ( http://xxxxxxxxxx/insidetruth/Companies/vlpi/vlpifbi.htm ß- FBI raids
VLPI, news story November 30, 2001)
The evidence was similar for Biopulse, (BIOP), indicating that Mr. Elgindy's and other's trades were the product of site member research and not any law enforcement information from Royer. As early Dec 1, 2000 and continuing thru January 5, 2001. Mr. Elgindy expressed doubt about BIOP"s purported urine based cancer vaccine and the tactics of its promoter John Liviakis. ( DX 8953; DX 8954; DX 8955.) Mr. Elgindy sent to his probation officer a very critical Bloomberg story about BIOP, its promoter Liviakis, and the company's claims of a cure for cancer that had come out around this time. ( GX 3725) Mr. Cleveland testified that he didn't know about BIOP or its promoter Liviakis until January 18, 2001, when he asked about
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BIOP in chat in response to which site members posted a copy of the Bloomberg story for him to read. ( DX 8951); DX 8952; (TR 1923)
SEC attorney Gordimer accessed the SEC databases on January 18, 2001 and found there was an investigation into BIOP but it had been closed 6 months earlier. Royer did try to access information about the company on January 22, 2001 but found nothing.(GX-JL-1 at 2)
Cleveland falsely testified that Royer told him that there was an active SEC investigation into BIOP (TR 531) when in fact there was none (DX 10098). As for the chat exhibits listed on GX-JL-1 that supposedly indicate the dissemination of law enforcement information, two of them (GX-DC-65 and GX DC-73) have NO law enforcement information about BIOP whatsoever and the third (GX-DC-73) shows Mr. Elgindy stating at 14:18 on Feb 9 that BIOP will be investigated to see if they are in violation of federal Mexican laws. However, Mr. Elgindy's remarks at 14:18 didn't come from Mr. Royer as Mr. Cleveland testified.
They came from a Bloomberg news story that hit the wires 17 minutes earlier at 14:01, reporting that Mexican authorities were planning an inspection of BIOP facilities to investigate whether the company was doing anything wrong (DX 3231). A site member copied text from the article into chat 7 minutes later (JX 74). Two minutes after that, Mr. Elgindy shorted the stock (GX 2582) and 8 minutes after that Mr. Elgindy broadcasted his trade and made the above statement (JX 74)
The evidence leaves no doubt that Mr. Elgindy's trades followed from his own skepticism as well as research and close monitoring of news wire services by AP site members. Irrespective of the above facts, The District Court included all trading in BIOP starting on Jan 18, 2001 the day that SEC Gordimer found there was no SEC investigation into BIOP.
BIOP InsideTruth Report http:// xxxxxxxx/insidetruth/reports/report_biop_sellrec.htm
The report prominently displays a still working link to a Silicon Investor thread posted and begun by Mr. Elgindy about BIOP on January 27, 2001 Subject 50714
IMCL - Forfeiture imposed on gains of others, when Elgindy never traded the stock or posted about it
IMCL is another stock that accounts for a large portion of the $ 1.5 million forfeiture judgment. However, Mr. Elgindy never shorted IMCL, never made a trading call on IMCL and never had any non-public information. Mr. Elgindy presented a detailed analysis of the evidence for IMCL in his forfeiture brief filed _____ at pages 19-20 showing that Mr. Elgindy clearly did not receive or trade on any law enforcement information about IMCL and could not have foreseen anyone else's trading on such information and why. There is NO evidence whatsoever in the record anywhere that Ms Wingate gave Mr. Royer any information about IMCL aside from contact information, or that Royer gave anyone else any confidential information about IMCL. The government does not address IMCL in any of it's briefs and IMCL is conspicuously absent from the list in the governments sentencing memorandum of stocks about which Mr. Elgindy received law enforcement information ( Government mem. 13 n 3) Additionally Mr. Elgindy never shorts IMCL, never discusses IMCL as a short nor does he ever make a trading call in IMCL.
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The evidence above is irrefutable, this isn't a matter where the jury or the court simply chose to believe one witness over another. Its a matter where the government is suggesting this court as they did at trial, accept the testimony of Derrick Cleveland, a convicted drug trafficker, two time felon, admitted liar and forger, over the testimony of their own SEC witness Douglas Gordimer, testimony that is simply impossible to be accepted as the truth.
On June 16, 2006, just before sentencing Mr. Elgindy, the District court opened by announcing that it was at "liberty to consider 'acquitted conduct' and must of course consider 'relevant conduct'." However, as the evidence clearly shows, that at least in this case, the alleged "relevant conduct", which accounts for over 90% of the forfeiture amount, is far less reliable than the evidence for the acquitted conduct. As the evidence also shows the court promised a written explanation of its thinking and its own advisory guidelines calculation, but failed to do so.
As the court is well aware any challenge on sufficiency places a heavy burden on the defendant to prove that no reasonable jury could find the defendants guilt beyond a reasonable doubt. Here a close examination of the evidence viewed in the light most favorable to the government ***FN __ irrefutably dictates that inclusion of the acquitted conduct and the government's alleged "relevant conduct" is improper.
While it is true that Mr. Elgindy argues that the District Court should have applied a higher evidentiary standard for the imposition of forfeiture, than it did for the forfeiture calculation than the guideline loss amount (GBr 173) , the government cannot meet and cannot be assumed to have met its burden of proof - such as it is -cannot even satisfy the preponderance of the evidence standard, much less a heightened clear and convincing (Vaughn) or beyond a reasonable doubt standard that should be applied to such uncharged and improvable conduct. The evidence shows that we have shown the requisite showing of "CLEAR ERROR" and we respectfully submit that Mr. Elgindy has met his burden.
The fact the jury gives Mr. Cleveland's testimony any credence over the irrefutable testimony of SEC Branch Chief Gordimer or the black and white trading and access records, we believe is strong proof of a trial permeated by the prejudice we argue existed in point 1.
Disparity of Sentencing Treatment of Daws
Regarding the disparity between Mr. Elgindy and all his alleged co-conspirators, specifically Mr. Daws, the limited evidence in the record regarding Mr. Daws supports that Mr. Elgindy was singled out for far more severe treatment, not withstanding the various differences between them. First, Mr. Daws did not cooperate nor did he assist the government and only pled guilty after Mr. Elgindy's trial was over.
Mr. Daws was charged in this case, much like Mr. Elgindy was, with being a manager/supervisor in a RICO conspiracy including insider trading, market manipulation, and extortion. Mr. Daws is described by the government and Probation as someone who profited through alleged insider trading to the tune of between $5.5 and $6.2 million dollars (Govt Forfeiture Mem. Exs. C&D; PSR ¶ 90). He admitted at times that he received information directly from Agent Royer and Derrick Cleveland and that he disseminated that information - as well as other information - to other
---- PAGE 67 ----
traders completely unconnected to Mr. Elgindy (Daws Plea Tr. at 21-22), through RC Chat, a chatroom site from which Mr. Elgindy was specifically excluded, and the existence of which was purposely concealed from him. (See Kellner Aff 42-43)
In contrast, Mr. Elgindy's sites were open to the public. Furthermore, Mr. Elgindy specifically invited SEC attorneys like Brent Baker to join the AnthonyPacific.com and InsideTruth.com sites, providing them free usernames and passwords (TR 5840-43, 5853-54, DX 12193-94)(TR 6156-57). And in contrast to Daws, who concealed Royer, calling him "the "hantom" on RC Chat, Elgindy reported his contacts and the information received from Agent Royer to his probation officer on an almost daily basis. [ATTACH PROBATION/CHAT Color chart about SEVU & OSIN)(2/26/06 Reply Sentencing Memo, p. 57]
For example, in RC Chat on Nov 27, 2000 starting at 15:50 Mr. Daws, (aka "Trebuchet") states that he does not share information from RC Chat with Mr. Elgindy or on the Anthonypacific.com and that he has not told anyone that RC Chat even exists. In RC Chat, on January 12, 2001 starting at 15:22, an RC Chat member states that he wants nothing to do with Mr. Elgindy. On March 12, 2001 at 12:02, Daws asks if he should give Mr. Elgindy information about OSIN and says he will keep it secret if the RC Chat members prefer, but states that he likes the idea of Mr. Elgindy "being the lightning rod" for trouble on OSIN (Id).
Daws repeatedly disseminated information that he received from Royer, Cleveland and Elgindy, without Mr. Elgindy's knowledge on RC Chat. For example, on March 1, 2001 at 16:36, Daws says, "OK, I got news for this site only. No one repeats this OK, just talked to FBI agent, OSIN under investigation by SEC." Contrary to any notion of being merely a "passive recipient" of information, Daws goes on and says, " I am going to encourage him to short a little OSIN tomorrow." (12/23/05 Sent Memo, p. 78)
As the government argued to the Court in its second in limine motion, Mr. Daws, "known on the RC Site as 'Archer,' 'Trebuche[t]' and 'Trebear,' offered a variety of manipulative suggestions" and discussed using Mr. Elgindy and other members of the Anthonypacific.com site without their knowledge. (Gov't Second In Limine Motion at 29-39). In addition, it is RC Chat, not Anthonypacific.com, that discusses "carpet b--bing," "price walls," and "painting the tape" (id.); yet all are erroneously referenced in Mr. Elgindy's PSR as something Mr. Elgindy engaged in (PSR ¶¶ 37-39). Here are some examples from the government's brief:
January 24, 2001 RC Chat log (note "carpet b--bing" and participation of Mr. Slotnick ("hemo"), Mr. McGreggor ("leto"), and Mr. Spiegel ("jjs64")):
[14:11] <Trebuchet> PVII is a terrific idea
[14:11] <jjs64> always
[14:11] <SH> I've only followed it recently since its been running up
[14:11] <Trebuchet> Please let me know when you are completely filled
[14:12] <Trebuchet> Then I will begin carpet b--bing
[14:15] <hemo> Would like to start PVII, pls holler when you gents are done
[14:18] <Trebuchet> Go ahead of me hemo
[14:18] <Trebuchet> I want to be the last one
[14:19] <hemo> Danka Treb, Bricking
[14:29] <Trebuchet> I will wait till the very last so everyone tell me when they complete PVII
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[14:30] <Trebuchet> That is probably the best way to handle these, because if we find one that eats through my offers and keeps running, we are in some trouble
[14:30] <Trebuchet> Or at least in for a bit more f!-ht than we are used to
[14:30] <leto> thx treb
[14:31] <jjs64> my order is in on PVII
[14:31] <jjs64> f!re away
[14:31] <hemo> all clear here, thanks gents
[14:33] <TeamTi> I tossed out a brick at 6. Don't back off on my account though leto treb
[14:33] <N-tilde> PVII: short interest in December was 0.2%. Lots of float.
[14:33] <Trebuchet> I think this is a good protocal for us to use going forward
[14:34] <Trebuchet> We are a small enough group we can coordinate
[14:34] <leto> i like the fact we can coordinate to stop a run
[14:35] <leto> Above information for entertainment purposes only.
[14:35] *** hemo changes topic to 'RetiredChatters: Operation Desert Storm_'
[14:35] <Trebuchet> Too late, log already forwarded to appropriate authorities
[14:36] <hemo> Any similarities to real persons is purely coincidental
[14:36] <DukeCallz> All data is trading simulation.
[14:37] <SH> Testing the efficient market hypothesis
January 12, 2001 RC Chat: (note use of AP site members):
[15:22] <Trebuchet> AP/Pluvia love to put out reports
[15:22] <Trebuchet> And they will take all the heat
[15:25] <CB> I don't like giving AP a preview because his sheeple will wreck the position.
[15:25] <Trebuchet> We would have our position on before giving it to AP
February 12, 2001 RC Chat: (note carpet 60mbing, painting the tape "red," "RC manipulation" and hemo and leto's participation):
[15:34] <Archer> I am going to get a little rough with GSFT
[15:35] <CB> get nasty
[15:49] <Archer> GSFT carpet 60m6ing about to commence
[15:50] <CapSS> thought you already started
[15:50] <Archer> See how well they absorb this
[15:50] <SH> Let em fire Arch
[15:50] <Archer> Just put in the order
[15:56] <Archer> If any of you have a little GSFT a-mo, I suggest you use it
[15:56] <SH> Excellent chart forming Archer
[15:56] <Archer> A red close would really help the cause
[15:56] <leto> firing
[15:59] <Archer> At least it will close well below the gap
[15:59] <Archer> Somebody really holding it at 2.75
[16:00] <leto> i feed him some at 2.75
[16:00] <hemo> If 2.75 breaks, candle says Bye Bye
16:00] <surelock> arch i don't have recording ability yet, can you tape the prav call, or anyone else?
[16:00] <Archer> But, I think this will put some erode their resolve
[16:00] <hemo> they will try to hold it
[16:03] <Archer> congrats to RC manipulation
February 21, 2001 RC Chat: (note "crim stock manipulators" and leto's participation)
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[09:55] <leto> timing would be k!ller for GSFT today
[09:55] <Archer> I totally agree with leto on the timing
[09:55] <Archer> Should put out what we have today
[09:56] <Archer> They are vulnerable
[09:56] <surelock> i just need 15 or 20 minutes
[09:56] <leto> right now would be k!ller as the stock is weakened (after archer's paint job last night)
[15:47] <leto> it's over
[15:47] <leto> for GSFT
[15:48] <TeamTi> Just confirmed his email and fax
[15:48] <Archer> High fives for all us Crim stock manipulators
[15:48] <CB> HIGH FIVE
[15:48] <SH> *High Five*
[15:48] <leto> ^^^^^^^^5's
Notwithstanding the government's broad-based indictment of Mr. Daws, the numerous examples of self-incriminating statements from RC Chat, Mr. Daws' own admissions in connection with his plea of guilty, and the millions of dollars in trading profits attributed to him. the government now reverses their original view and alleges that he was merely a "passive recipient" and he is not to be held responsible as a manager or supervisor, or for any other enhancement. Even accounting for Mr. Elgindy's different criminal history category of III and no adjustment for acceptance of responsibility because he chose to go to trial, if Mr. Elgindy were otherwise treated the same as Mr. Daws (despite the fact that his gain from the offense was significantly less than that of Mr. Daws, his guidelines sentence range would be 33 to 41 months. And even taking account of the extortion conviction, if Mr. Elgindy were otherwise treated the same as Mr. Daws, his guideline range would be 41 to 51 months. This is precisely the type of unwarranted disparity that 3553(a)(6) proscribes.(12/23 Sent Mem pg 107-108) [KE1]
Further proof that Mr. Daws was not merely a "passive recipient" of information, is the government inclusion of all the gains Mr. Daws and other members of RC Chat earn shorting "IMCL". Mr. Cleveland testified that Royer, after flying to Texas to meet with Mr. Daws, searched for information on IMCL for Mr. Daws and another hedge fund manager on RC chat, and had nothing
to do with Mr. Elgindy.
Q:What did he[Royer] tell you
A: That Johnathan Daws' fund, Griffin Partners, as well as another fund that shared an office with Daws, a fund called Cardinal fund, both of the funds were short IMCL, and they were looking for information, negative information on the company to help them out in their short. They had told Mr. Royer that if he could help them out, that they would pay him some percentage, they hadn't decided on how much they would pay him, some percentage for his information. (TR 925)
(The evidence showed that the only information Royer ever got on IMCL was the contact information for the agent who was working on IMCL)(________)) By the spring of 2002 Daws considered that Royer was actually working with him and not Mr. Elgindy.(3/22 Sent Tr pg 34). On April 29, 2002, Just 3 weeks before Mr. Elgindy was arrested, Mr. Daws states in RC Chat, that he speaks regularly with Mr. Royer who is located in Mr. Elgindy's office, is there operating as his "bug in Mr. Elgindy's office".(12/23 Sent Tr pg 78)
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Disparity of Sentencing with other alleged conspirators
Although the PSR claims that Mr. Elgindy "received the largest share of the proceeds from the various criminal activities committed by members of this enterprise" (PSR ¶ 73), and Mr. Elgindy was certainly treated and sentenced as if this were true, the evidence and the government's various submissions and forfeiture memorandum makes clear, Messrs. Daws, McGreggor, Spiegel and Thorpe, and their hedge funds Gryphon, Highgate Master Fund, Spinner and Langley, account for over 80% of the trading profits attributed to the alleged criminal activity. Yet, McGreggor, Spiegel and Thorpe escaped all charges and Daws received probation, and none of them are being asked to forfeit any of their trading proceeds, while Mr. Elgindy faces over 11 years in prison and must forfeit over $1.5 million. Such a result -- shifting blame and responsibility to Mr. Elgindy -- was, ironically, exactly what Messrs. Daws and McGreggor expressly hoped for, as the following two excerpts from the March 12, 2001 RC Chat show: (12/223/05 Sent Mem pg 109-112)
[12:04] <Archer> I like the idea of AP being the lightning rod
[12:10] <leto> Y, let AP take the heat, eff the glory, we just want to make $
The following table presents a picture of the disparate treatment of so-called coconspirators who allegedly traded on law enforcement information in this case:
Alleged co-conspirator/ Alleged Personal Gains Forfeiture Demand Sentence Cooperators GX 2574-98
Derrick Cleveland $ 41,701.23 $0 Probation
Robert Hansen $ 52,680.23 $0 Probation
Kent Terrell $ 29,136.07 $0 Probation
Johnathan Daws $ 908,471.67 $0 Probation
Jeff Thorpe $ 112,312.83 $0 NONE/No charges
Kendall McGreggor $ 32,695.35 $0 NONE/No charges
Joseph Spiegel $ 47,293.69 $0 NONE/No charges
David Slotnick $ 29,906.65 $0 NONE/No charges
Anthony Elgindy $ 364,104.11 $ 1.568 million 135 months
The record before this Court provides ample basis to conclude that Mr. Elgindy was
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singled out at sentencing for disparate treatment and the punishment was not fairly or equitably imposed among the various coconspirators.
Lynn Wingate false connection
The government's claim that "Elgindy lined up Wingate as Royer's replacement" (GBr 167) is also totally false. The only evidence in the record shows that Ms. Wingate was Mr. Royer's girlfriend and any searches she did were either at the behest of Mr. Royer or Mr. Daws, regarding "IMCL". There is NO evidence that Mr. Elgindy ever contacted Ms. Wingate, or even knew of her existence.
False Statement at Airport Case Unrelated
Mr. Elgindy's two cases are unique and completely unrelated. As a result, the government's claim on pages 168-169 that Mr. Elgindy ignores U.S.S.G. 5G1.2 which holds that the "sentence on each of the counts including the false statement counts was to be based upon the total punishment for all the counts, including those in the RICO indictment. It does not matter that the false statement counts were alleged in a separate indictment rather than as additional counts in the RICO indictment," is disingenuous.(GBr 168-69)
The government argues that both cases, the 2000-2002 securities case and the 2004 airport case should be considered together regardless of the fact that the airport offenses and the securities fraud offenses are not groupable and are completely distinct in time, kind and harm. (Government Mem. 45 & n.22 (citing United States v. Sullivan, 255 F.3d 1256 (10th Cir. 2001), and United States v. Butler, 429 F.3d 140 (5th Cir. 2005).)
The government even concedes that the securities fraud offenses and airport offenses are not groupable (id. at 78-80; PSR ¶ 142), which leaves only one category of relevant conduct that is even potentially applicable in this circumstance. See §1B1.3(a)(1) (relevant conduct includes conduct "that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense"); §1B1.3(a)(2) (relevant conduct includes conduct that was "part of the same course of conduct or common scheme or plan as the offense of conviction" "solely with respect to offenses of a character for which §3D1.2(d) would require grouping"). The securities fraud conduct simply does not fit within this framework; it is not logical to say that Mr. Elgindy engaged in the securities fraud conduct "during," "in preparation for," or "to evade detection or responsibility for" the later, post-revision airport offenses. The November 2001 Guidelines therefore must be applied to the securities fraud case if § 2B1.1 is applied.
The Court when confronted by this argument at the 1st sentencing hearing on March 22nd, rejected it by saying, "We have this other rule...so-called One Book Rule which, I think, has been, to a large extent, modified of necessity, in this case may be one of those unusual cases where the One Book Rule doesn't really have a lot of --make a lot of sense frankly."(3/22/06 Sent Tr.pg 7)
Ironically in the government's own sentencing memorandum, the government calculates Mr. Elgindy's advisory guideline range to be 2 to 8 months, Probation recommends a range of 4 to 10 months and Mr. Elgindy is also at 2 to 8 months, with the understanding that some portion of this sentence is to run consecutively to
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the sentence in the underlying case, which is 108 months in this case.
Lastly, unlike the RICO case, Mr. Elgindy pled guilty and accepted responsibility. Neither the government or the court has ever indicated that there was any reason or unusual factor to sentence Mr. Elgindy to anything greater than what the advisory guidelines call for. Nor did the district court ever articulate any reason or explanation to justify a sentence of over 7 years, which is 9 times greater than the highest level of the guideline range. As a result, Mr. Elgindy's sentence of 87 months in the False Statement case must be reversed as being extremely unreasonable.