Investor Accused of $1B Fraud
By LARRY NEUMEISTER
12:16 AM ET 09/14/99
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.
