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Thanks for posting the CNN news story Jose. Here's a follow-up from the NY
Times. Martin has been making veiled comments about the authorities in Japan
and the US out to get "legitimate" information providers etc. for quite some
time now
http://www.nytimes.com/library/world/asia/091499japan-fund.html
September 14, 1999
Investment Manager Faces U.S. Charges of Bilking Japanese
By GRETCHEN MORGENSON
s a global investment manager, Martin A. Armstrong had little trouble
selling himself to sophisticated clients overseas. On the strength of a
stellar performance record, an impressive Web site and his claims of running
one of the world's largest economics advisory firms, he raised more than $3
billion from Japanese companies eager for American-style gains in their
portfolios.
Now those companies are facing giant losses and probably ruing the day they
heard of Armstrong's investing techniques.
Armstrong, 49, chairman of Princeton Economics International Ltd. and its
Hong Kong brokerage subsidiary Cresvale International Ltd., surrendered late
Monday to federal authorities in Trenton, N.J., and was charged with
engaging in an enormous securities fraud that has resulted in more than $500
million in losses to investors.
According to a complaint unsealed Monday by Mary Jo White, the U.S. attorney
for the Southern District of New York, Armstrong lied about returns he was
generating in his customers' accounts and illegally pooled their money,
essentially using funds raised from new investors to pay off older
customers.
The fraud appeared to be a desperate attempt to hide massive trading losses.
Indeed, Armstrong owes some $1 billion to investors, but prosecutors say
only $46 million in assets remains in the accounts.
The alleged fraud occurred in accounts held by Republic New York Securities
Corp., a subsidiary of Republic New York Corp., which also owns Republic
National Bank of New York.
As the case is sorted out, Republic's planned merger with HSBC of London has
been delayed. The bank is conducting an internal investigation into the
management of its futures division, operated out of Philadelphia, where the
accounts of Princeton Economics clients were held. The shareholder meeting
to vote on the proposed merger has been postponed until Oct. 12.
Karen Ng, a spokeswoman for HSBC in London, declined to comment on whether
the new developments would affect the planned merger. A spokeswoman for
Republic New York declined to comment. The bank was not charged with any
wrongdoing and has suspended two top officials of the securities subsidiary.
The lawyer representing Armstrong, Marc Durant, a partner at Durant & Durant
in Philadelphia, said his client vigorously disputed the allegations and
maintained his innocence.
"He definitely will fight this," Durant said. "He disputes how the
fiduciary, which was Republic New York Securities, handled the funds and the
accounts. He believes he's being made a scapegoat for honest, noncriminal
trading losses." Although Armstrong concedes that there were substantial
losses in the accounts, he disputes prosecutors' figure of $500 million.
The arrest of Armstrong is the latest piece of a puzzle that began to emerge
in May when the Financial Supervisory Agency, Japan's securities regulator,
surprised management of Cresvale's Tokyo offices with an audit of its
accounts. Cresvale, which also has offices in London, New York and Sydney,
Australia, was acquired by Princeton Economics International in 1995.
According to prosecutors, Cresvale raised $3 billion from investors on the
strength of Armstrong's fictitious record as a money manager. An April 1998
announcement of a new hedge fund started by Armstrong, for example, put his
firm's investment returns at more than 28 percent a year since 1992.
Instead, prosecutors say, Armstrong lost hundreds of millions trading.
To hide his losses, Armstrong paid old investors with the proceeds raised by
newer clients, a venerable type of fraud known as a Ponzi scheme. It was
named for Charles Ponzi, an Italian immigrant to the United States, who
swindled $15 million from 40,000 people after World War I. The people
thought they were investing in postal reply coupons, but Ponzi actually
pocketed most of the money, paying early investors with cash from new
investors.
Armstrong, of Maple Shade, N.J., was released on $5 million bond on his
signature. He did not return a telephone call to his office seeking comment.
A secretary at Princeton Economics International in Princeton said no one
was at the office late Monday afternoon to comment on the charges.
Prosecutors say that Cresvale sold what it called "Princeton Notes," backed
by Princeton Economics International, to Japanese companies promising
returns of at least 4 percent and the potential for much more. With interest
rates in Japan far lower, the 4 percent returns were attractive. No one
outside Japan, nor any individuals are known to have invested with Cresvale.
As of late August, there were 113 accounts managed by Princeton. Among the
companies that had invested money with Princeton were Alps Electric Co.,
Chudenko Electronics Co. and Gun Ei Chemical Industry Co.
Bloomberg News reported Monday that Alps Electric said it might lose as much
as $185 million in the current fiscal year because of its investment with
Princeton. Shares of these companies and others that invested in Princeton
Notes have fallen in Japanese trading in recent days.
Armstrong published journals and newsletters on financial subjects, giving
him the patina of an intellectual. He was quoted in numerous publications,
including The New York Times, on subjects ranging from projections on
interest rates to the trading of foreign currencies and other commodities.
He was a critic of the European monetary union, and commented on the silver
market when Warren Buffett was buying silver last year.
In April 1998, he joined Magnum Global Investments to form a hedge fund
offering institutions and wealthy investors access to what he called his
market-forecasting expertise.
A promotion for the hedge fund stated that Princeton Economics could
forecast trends on markets more accurately than other managers because of
its economic model, "which provides specific forecasting on more than 30,000
economic and financial statistics worldwide." The model predicted the 1987
stock-market crash, the 1994 bond crash and the demise of the yen since
mid-1995, according to the sales material.
But Armstrong had had run-ins with regulators before. In 1985, the Commodity
Futures Trading Commission filed a complaint against Armstrong and three
consulting companies that he ran for failing to register as commodity
trading advisers and for not maintaining proper records.
Two years later, the commission filed a second complaint charging that
Armstrong's company, Economic Consultants of Princeton, misrepresented
hypothetical performance results and omitted a required disclaimer in its
advertisements.
When he filed to overturn the commission's findings in U.S. appeals court,
Armstrong claimed to have begun working at a coin and stamp dealership at
age 13. He was a millionaire at 15, according to court documents, and opened
his own collectors' store when he was 21.
In 1973 he began publishing commodity market predictions as a hobby. The
appeals court upheld the commission's ruling. On a further appeal, the
Supreme Court declined to hear his case.
Armstrong's link to Republic Securities appears to be James Curley, a
director of Cresvale International, who was chairman of Republic Securities
from March 1994 through June 1996. Since 1994, James Sweeney has been
president of Republic Securities. On Sept. 1, he and William H. Rogers,
president of the firm's futures division, were suspended by the bank pending
the outcome of its investigation. The bank is cooperating with federal
authorities.
According to prosecutors, the futures division of Republic Securities was
dominated by Armstrong's trading, accounting for 90 percent of its business.
Princeton may have opened accounts at Republic as early as 1995.
Prosecutors say that Armstrong conducted his fraud with the help of letters
on Republic New York Securities stationery from Rogers; the letters inflated
the values of customers' accounts. Authorities allege that when a customer
wanted confirmation of his account's value, Armstrong would figure how much
the client should have earned under its agreement with Princeton, and then
request that Republic Securities issue a letter confirming that amount.
Rogers would then provide Princeton with that letter.
If the actual balance in the investor's account was less than the figure
supplied by Princeton, funds from other accounts were generally transferred
to cover the shortfall, prosecutors said.
In addition to the criminal charges, the Securities and Exchange Commission
filed a civil suit Monday against Armstrong and Princeton Economics
International alleging securities fraud. The judge in the case froze the
assets of both Armstrong and Princeton Economics International and appointed
a receiver for the company.
The Commodity Futures Trading Commission also filed a complaint alleging
that Armstrong defrauded customers through material misrepresentations.
Neither Armstrong nor his firm was registered as a commodity trading
adviser, as is required.
Ms. White said, in a statement: "This case should send the clear and concise
message that those who commit securities fraud in the United States, even if
they use offshore entities and victimize foreign investors, cannot escape
responsibility for their actions.
----- Original Message -----
From: Jose Pascual <jpascual@xxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Monday, September 13, 1999 11:40 PM
Subject: PEI
| 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
|