Fund Adviser Is Indicted In $3 Billion Fraud Case
Martin A. Armstrong, the investment adviser and chairman of Princeton Economics International, was indicted by a Federal grand jury yesterday on charges that he defrauded foreign investors in connection with the sale of $3 billion in securities issued by Princeton.
Mr. Armstrong, who was also chairman of Cresvale International Ltd., a brokerage firm based in Hong Kong, was charged with conspiracy and securities fraud September 13. He surrendered to authorities and was released on a $5 million bond, co-signed by his two children and his mother.
Mary Jo White, the United States Attorney for the Southern District of New York, unsealed the indictment yesterday.“+”“+”
Mr. Armstrong denied the charges, telling Bloomberg News, ”They are absolutely false, dead false.”
Federal prosecutors say Mr. Armstrong lured Japanese institutional investors into a scheme on the strength of his glowing, but false, securities trading record. A Cresvale Web site stated that Princeton Economics, of Princeton, N.J., had generated a 20.51 percent average annual return in 1998.
Investors were promised that Mr. Armstrong would use their funds to trade currencies, bonds and derivatives and that they would receive returns of at least 4 percent and in many cases much more. Between 1996 and August 1999, Mr. Armstrong took in approximately $3 billion selling so-called Princeton notes.
But prosecutors contend that instead of generating returns, Mr. Armstrong lost aboout $368 million between November 1997 and August 1999. To conceal the losses from his investors, prosecutors say, Mr. Armstrong used funds from new investors to repay those who had invested earlier. He also lied to investors about their accounts’ values, prosecutors said.
According to the indictment, between March 1998 and August 1999, more than $750 million went into Mr. Armstrong’s trading account at the Republic Securities Corporation, a subsidiary of the Republic New York Corporation, a bank holding company. At the same time, $925 million was transferred out of the account to various bank accounts around the world, including those relating to Princeton Economics, Cresvale International and Mr. Armstrong.
Although the indictment does not detail his investments, Mr. Armstrong was known to be bullish on the United States dollar. But the dollar has been weak against the Japanese yen this year, hurting Mr. Armstrong two ways. In addition to betting on the dollar in his trades, he had promised to pay his investors back their principal and interest in yen. As the yen increased in value against the dollar, Mr. Armstrong’s i.o.u.’s got much more expensive.
As of Aug. 31, Mr. Armstrong owed investors about $1 billion, but the value of his trading account was approximately $46 million.“+”