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Govt Witness Continues Testimony In Elgindy Case
By Carol Remond
Of DOW JONES NEWSWIRES
402 words
4 November 2004
10:23
Dow Jones News Service
English
(c) 2004 Dow Jones & Company, Inc.
NEW YORK (Dow Jones)--Government witness Derrick Cleveland testified in court this week that he used a Federal Bureau of Investigation agent as his personal research assistant.
Cleveland said that on several occasions in 2000 and 2001, he used information gleaned from FBI agent Jeffrey Royer to better profit from short selling the stocks of small companies, some of which were under investigation by government agencies.
Cleveland pleaded guilty to conspiracy to commit securities fraud in 2002 and is assisting the government in its case against short seller Anthony Elgindy and Royer. Others charged in the case will be tried separately.
The government alleges in the U.S. District Court for the Eastern District of New York that Elgindy and other short sellers used confidential government information to trade, and on occasion, to extort free or cheap shares from companies.
On the witness stand Wednesday, Cleveland testified that after he came across a company which he thought would be a good short selling target, he would contact Royer for further information about the company and its insiders.
Cleveland said Royer passed on information about a number of companies including: Freedom Surf (FRSH), Softquad (SXML), Biopulse (BIOP), SeaView Video Technologies Inc. (SEVU) and Genesis Intermedia (GENI). Cleveland said he shared that information with Elgindy, who then passed it on to members of his private investing Web site.
Cleveland said he and Royer traveled to San Diego to personally meet with Elgindy in February 2001. At that time, Cleveland said Elgindy offered Royer a job as a researcher to help him identify fraudulent companies that could make good short selling targets. Cleveland said Royer agreed during the meeting that he would come to work for Elgindy later that year, after he left the FBI.
During that visit, Cleveland said that Elgindy thanked Royer for information the FBI agent had provided about FBI and Securities and Exchange Commission investigations into SeaView. Cleveland said that Elgindy told Royer and Cleveland that he made $750,000 in profit on his SeaView trades.
Cleveland has testified that Elgindy used confidential government information to write two negative reports about SeaView to push the stock of the company down and profit from his short selling activities.
Cleveland is scheduled to resume testimony Thursday.
-By Carol Remond, Dow Jones Newswires; 201-938-2074 [ 11-04-04 1023ET ]
Witness: FBI Agent Helped Direct Probe Away From Elgindy
By Carol Remond
Of DOW JONES NEWSWIRES
524 words
4 November 2004
14:24
Dow Jones News Service
English
(c) 2004 Dow Jones & Company, Inc.
NEW YORK (Dow Jones)--Special Agent Jeffrey Royer used his position at the Federal Bureau of Investigation to redirect a budding investigation of short seller Anthony Elgindy's dealings with Sulphco Inc. (SLPH) into an investigation of the company, a government witness said Thursday in a Brooklyn, N.Y., courtroom.
Testifying in the criminal case against Elgindy and former FBI agent Royer, Derrick Cleveland said that after Elgindy became aware that the FBI was looking into his actions, Elgindy asked Cleveland to contact Royer to figure out what was going on. Elgindy and others in the case are charged with securities fraud, market manipulation and extortion.
Federal prosecutors claim that Elgindy and others used confidential information obtained from Royer to trade the stocks of small-cap companies. Cleveland has testified in court that he and Royer had an agreement and the FBI agent would provide him with information about government investigations into companies and their insiders - information that Cleveland would then share with Elgindy. Cleveland said his deal with Royer was one in which trading profits reaped from the information the agent gave him would be split 50-50.
Under questions by Assistant U.S. Attorney Ken Breen, Cleveland said that he first got information about Sulphco and its insiders Chief Executive Rudy Gunnerman and Chief Financial Officer Mark Cullen in the spring of 2001. Cleveland said he shared that information with Elgindy, who shared it with members of his private investing Web site. Cleveland told jurors that Elgindy and two other members of the site, visited the company posing as potential investors and that Elgindy was trying to get a block of discounted shares from Gunnerman.
Cleveland said Elgindy discussed the block of Sulphco stocks with members in a private chat room in June 2001 and that Elgindy wanted to know how many shares of Sulphco members trading through Canadian brokerage firm Global Securities were short. Cleveland said the block trade never happened and that Sulphco was trying to stop the publication by Elgindy of a negative report about the company. Shortly thereafter, Cleveland said, Elgindy told him he had heard he was under FBI investigation and asked Cleveland to check with Royer.
Royer "told me that the idiots in the Reno FBI office were investigating Elgindy while they should be investigating Sulphco," Cleveland said. The witness told jurors that Royer later told him that he had contacted the Reno office and that Elgindy was no longer under investigation, but that the company was.
Lawrence Gerzog, Royer's lawyer, said in his opening statements earlier this week that Todd Orme, an employee of Sulphco, had filed a complaint against Elgindy, but that he later recanted it.
Cleveland pleaded guilty to conspiracy to commit securities fraud and is helping the government make its case against Elgindy and Royer. Others charged in the case in the U.S. District Court for the Eastern District of N.Y. will be tried separately.
- By Carol Remond, Dow Jones Newswires; 201-938-2074; carol.remond@dowjones.com [ 11-04-04 1424ET ] |
