Police raids, asset seizures, SEC cease and desist orders.

Illegal slot machines masquerading as charity fundraising.

A take down by the Mad Max of Wall Street.

Yet another corporate adventure for the “acting” managing director of Bayside Housing and Services, the group Port Townsend City Council wants to get the Cherry Street Project. The City Manager ignored a $1 million cash offer that would have bailed taxpayers out of that mess because he had been directed to deal only with Bayside Housing.

Gary Keister is Bayside’s “acting” manager director. He has held that position for going on two years and basically controls Bayside with his two fellow investors in the Old Alcohol Plant and his wife, who are also Bayside trustees and officers.

I wrote about the red flags surrounding Bayside and the whistleblower complaint from a former employee now being investigated by the Washington Attorney General’s Office. You can read those stories here and here.

Mr. Keister is a convicted felon. He was sentenced to 41 months in federal prison on conviction for 35 counts of bank fraud, four counts of money laundering and one count of conspiracy committed while operating a Tukwila hardware-construction wholesaler from 1986 to 1988. The charges arose from sophisticated manipulation of a network of corporations he controlled and used to defraud First Interstate Bank of $1.2 million. After he was caught and punished, he assembled a new network of interconnected, commonly-controlled corporations. One corporation became his flagship, a sort of hub for all the others. According to an autobiographical promotional profile, that corporation, Wescom Capital, would have begun business while he was still in prison.

I thought I had found all the Gary Keister corporations–about a couple dozen here in Washington. Their purposes range from bio-fuels development to telecommunications to property management to utilities, though none of them seem to have amounted to much. Keister’s profiles claim he ran other corporations, such as an international food processing company. He has also claimed to have owned a commercial fishing fleet. Then I stumbled across another five corporations in Nevada.

Then a former employee tipped me off to one more I had missed. This one was called Washington Station LLC. It was a 2001 joint venture with an Austin, Texas company called BGI, Inc. At the time BGI was a hot penny stock, soaring from pennies to an evaluation more than 500 times higher.

It crashed fast when police in Texas and North Dakota started seizing the illegal slot machines it had placed in VFW and bingo halls. And then the SEC stepped in. But not before Anthony Elgindy blew the whistle. He was known as the “Mad Max of Wall Street.” A boiler room con artist himself, he was an FBI informant and delighted in exposing stock scams, taking down fraudulent corporations and “pump-and-dump” stock schemes while raking in short-selling profits for himself and his followers. In 2001 he set his sights on BGI and turned up Gary Keister.

Keister’s “Wescom,” Elgindy wrote, “is the master of stock promotion.”

“Charity Station”

Founded in 1994, the main product of Austin, Texas-based BGI, Inc. was a phone card dispenser called “Lucky Strike.” In exchange for buying a phone card that allowed only a two-minute call, the purchaser was entitled to participate in a sweepstakes for an instant cash payout.

In 2001 BGI stock hit a 52-week high of $5.14.

But its fortunes were turning sour at the same time management hyped the company. Its 2000 revenue, according to the 10K filed with the Securities and Exchange Commission, plummeted by almost 40%. It had an explanation: competition. And it had a solution: renaming its machines as “Donation Station” and “Charity Station” and promoting them as charity fundraising vehicles.

It also had a big problem: law enforcement considered its machines to be illegal slot machines.

As Elgindy would report, the company assured investors its machines were legal. But the Texas Attorney General disagreed. And so did the North Dakota Supreme Court.

Enter Gary Keister and his Wescom Capital. BGI announced August 13, 2001, that it had hired Wescom Consulting “to aid its expansion in the promotional sweepstakes and prepaid phone card markets. Financial arrangements call for the two companies to share expenses and revenue. Wescom Consulting will target three areas — general management, finances and marketing.”

Wescom Consulting was identified as “a division” of Keister’s Wescom Capital. “”Wescom will give us the operational expertise we need to focus on diversifying our product line and creating strong, sustained revenue,” said BGI’s CEO at the time (he would be gone soon).

The next day, BGI announced a new CFO, who happened to also have been the CFO of Keister’s Wescom Capital. That man, James Sylvester, signed off on Wescom Capital’s 2000 annual report to the Washington Secretary of State as assistant secretary and was identified as a director or officer (his title is not legible on the scanned document).

A couple weeks later, BGI and Wescom Capital announced a joint venture, called Washington Station LLC. “to explore expansion opportunities…for Charity Station.” According to Elgindy, “a source familiar with BGI and its management offered a few more details about the business. He said the Charity Station machines were structured so that for every $1 a customer put in the machine, 72 cents were paid out in prizes, BGI got 45% of the profit, and the charity and location split the remainder. Like the Lucky Strike phone card machine, the Charity Station both looks and acts like a slot machine. As a matter of a fact , according to certain law enforcement officers, the machine is nothing more than a slot machine with a different face.”

The raids started quickly. October 3, police in McAllen, Texas seized 25 machines. According to an article in the McAllen Monitor quoted by Elgindy (but no longer available online),  “.. investigators collected evidence in hopes of securing a grand jury indictment on those believed to be behind the scheme. The grand jury will have to evaluate their guilt in connection with five violations that include keeping a gambling venue and possession of a gambling device,” police said. If convicted, the suspects face a maximum penalty of one year in prison. The article continues, “Police said that many were duped into thinking the gambling machines were legal because signs posted in the area said all proceeds went to charity. A poster on the wall called the room a “Donation Station” and said proceeds from the “Charitable Sweepstakes” went to the Department of Texas Veterans of Foreign Wars. Furthermore, “Patrons might have been further confused by forms they saw tacked to the side of the machines, which advertised that tickets for free games could be obtained by writing to Charity Promotions Associates in Austin. However, telephone information operators and officials from the Office of the Texas Secretary of State did not have such an organization listed in their records.”

Then came three raids in New Braunfels, Texas that netted 200 machines. Laredo and Fort Worth police seized 72 Charity Station machines. Bexar County seized 8 machines and nearly $1 million from the company’s bank accounts. Rio Grande City police seized 33 machines. The Texas Attorney General and El Paso police seized 69 Charity Stations.

The Texas Lottery Commission ordered seizure of company funds.

The Securities and Exchange Commission enforcement staff recommended fraud charges. BGI agreed to a cease-and-desist order. It voluntarily delisted its stock. Investors lost everything, but some insiders had cashed out before the stock crashed.

Sylvester was gone as BGI CFO within three months.  Keister and Wescom Capital, and the joint venture to promote the Charity Station gambling machines, dropped out of sight.

Elgindy saw it all coming.

The Mad Max of Wall Street

Elgindy had been part of two large boiler room operations taken down by federal authorities. He turned informant and said he had dedicated himself to exposing stock fraud. He bragged that because he had done so much of it, he could spot scams from afar. He also profited off his insight by shorting stocks he exposed.

He developed a huge online following and posted many of his reports at siliconinvestor.com, which is no longer operational. On January 10, 2002 Elgindy announced he had started covering BGI and its illegal slot machine business. He exposed the fact that the favorable industry press on BGI had been a paid plant by a corrupt stock media company, owned by a man with a prison record.

Keister and Wescom turned up on Elgindy’s radar.

“Wescom is the master of stock promotion,” Elgindy wrote. It sounds like he was already familiar with Wescom but I can’t verify that. Elgindy dragged out Keister’s convictions for bank fraud and money laundering. And he claimed that he had found evidence from Hawaii, where Sylvester–the Wescom CFO made BGI’S CFO–had been an accountant. The link to the evidence is no longer operable. According to Elgindy, “that link says he used unethical practices while doing his job.”

Elgindy predicted storm clouds and he was right. BGI stock not only sank, it was delisted. Elgindy’s full report is available by clicking here.

Elgindy was good at spotting dishonesty because he was himself a crook and remained so until a huge investigation caught him and two corrupt FBI officers. He didn’t escape prison this time. Authorities suspected Elgindy, an Egyptian American born Amir Ibrahim Elgindy, had inside information on the 9/11 attacks. He had issued instructions to liquidate all his holdings just days before the planes hit the Twin Towers. A few years after release from prison he killed himself.

This American Greed episode [click here for transcript] tells the fascinating and troubling story of The Mad Max of Wall Street. Who could ever have imagined that one of his targets would be in talks with the City of Port Townsend to take over the Cherry Street Project?

[This article has been corrected to reflect that Sylvester’s exact title with Wescom Capital is not legible on the scanned 2000 filing with the Washington Secretary of State.]