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Investor Accused of $1B Fraud
Associated Press Online - September 14, 1999 00:16
By LARRY NEUMEISTER
Associated Press Writer
NEW YORK (AP) - Criminal and civil charges were filed against a New
Jersey
man accused of bilking Japanese investors out of up to $1 billion as he
tried to make up for losing hundreds of millions of dollars on risky
investments, authorities say.
Martin A. Armstrong, 50, of Maple Shade, N.J., was arrested Monday and
released on $5 million bail after an appearance in federal court in
Trenton, N.J. A message left at a telephone listed in his name was not
immediately returned.
Armstrong allegedly carried out his criminal scheme as the founder and
chairman of a Princeton, N.J.-based investment firm, Princeton
Economics
International Limited.
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.
The promissory notes were supposed to be conservative investments but
instead were used as fuel for Armstrong's failing investment prowess,
according to a portrait provided by court documents and releases.
He was accused of securities fraud by federal prosecutors and the
Securities and Exchange Commission for allegedly swindling investors
through the corporations he controlled.
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 his risky trading.
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 trouble began in earnest for Armstrong when he racked up about a
half
billion dollars worth of trading losses from November 1997 through
August
1999, prosecutors said.
He then allegedly had an officer at Republic Securities issue false
confirmation letters, some of which were given to Japanese investors,
overstating the net asset values of the funds created by their
investment.
Federal authorities said the amount of the money from investors that
has
not been paid back stood between $700 million and $1 billion while the
remaining cash and trading positions at Republic Securities was only
about
$46 million.
In a release, U.S. Attorney Mary Jo White noted that Armstrong used
offshore entities to sell $3 billion in securities to Japanese
investors.
"This case should send a 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," she said.
Besides the criminal and SEC civil charges, the U.S. Commodities and
Futures Trading Commission filed civil charges against Armstrong,
Princeton Economics International and various affiliates.
If convicted, Armstrong faces up to 10 years in prison and a fine up to
twice the loss resulting from the crime.
The SEC also filed civil charges against Princeton Economics
International
and Princeton Global Management.
Republic recently suspended James E. Sweeney, its chief executive, and
replaced the management of its futures trading division.
Republic New York is in the process of being acquired by HSBC Holdings
PLC
of London for $10.3 billion, although the deal's closing could be
slowed
by the continuing investigation, executives have said.
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