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NEW YORK (CNNfn) - The United States Attorney's
office Monday arrested and charged a senior official
of money management firm Princeton Economics
International Inc. with cheating Japanese investors of
roughly $1 billions in a scheme that allegedly involved
Republic New York Securities Corp., a unit of
Republic New York Corp.
Martin Armstrong, founder and chairman of
Princeton Economics, was charged with allegedly
bilking the funds - mostly from the firm's Japanese
clients -- with the help of a senior executive at
RNYSC, according to sources familiar with the
investigation. He was also accused of holding
documents that artificially inflated the true value of
the clients' holdings.
The arrests and charges culminate an
investigation that began earlier this month after the
Financial Supervisory Agency of Japan (FSA)
received a letter detailing suspicious activities of a
client of Republic's Philadelphia's office. The FSA
informed Republic, which in turn launched an internal
investigation. Based on the findings of that
investigation, Republic replaced the management of
the RNYSC futures division and suspended James
Sweeney, chief executive officer of RNYSC.
RNYSC and its parent Republic weren't charged
with any wrongdoing, Krantz said.
Republic New York spokeswoman Melissa Krantz
confirmed that the suspicious client was Princeton
Global Management, a unit of Princeton Economics,
and that the company maintained an account with
RNYSC. That account held about $46 million in
assets when it was seized by the U.S. government.
Documents filed in U.S. District Court in
Manhattan outlined the scheme through which
Armstrong allegedly tried to cover up hundreds of
millions of dollars in losses he piled up through risky
trading.
Since at least 1996, Armstrong managed to sell
about $3 billion of so-called ``Princeton Notes'' to
foreign investors through Princeton Global
Management Limited, a Princeton, N.J., investment
fund he controlled that is popular with some large
institutional investors in Japan, authorities said.
He promised to conservatively invest the proceeds
from the note sales in segregated accounts at
Republic New York Securities Corp., a registered
broker-dealer headquartered in New York, authorities
said.
Instead of protecting the money, Armstrong
co-mingled the money in a Princeton Global account
at Republic, prosecutors said.
After losing hundreds of millions of dollars,
Armstrong then tried to cover up the financial disaster
by misrepresenting investment results and
concealing trading losses, according to court papers.
The latest scandal comes as Republic (RNB) is in
the midst of a $10.3 billion merger with London-based
banking and financial services company HSBC. It
also comes in the wake of allegations that Russian
criminals laundered some $10 billion through
accounts at republic and the Bank of New York (BK).
In the Russian case, Republic alerted authorities
in 1998 about unusually large wire transfers coming
through its coffers from Russia. From that point,
British and U.S. law enforcement officials monitored
the ebb and flow of cash through both banks, which
led to a much broader investigation.
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