‘Princeton Notes’ scheme settled; restitution to exceed $600 million
By: George Frey
The Republic New York Corp. of New York City agreed Monday to a restitution of over $600 million for its role in a scheme that defrauded about 140 Japanese investors of more than $700 million through securities and futures investments.
Martin Armstrong, a onetime area financial adviser, was apparently the central figure behind the scam, according to lawyers of Republic New York Corp. in their case.
Mr. Armstrong had businesses located at Carnegie Center in West Windsor in the 1990s, including Princeton Economics International Ltd., Princeton Global Management and Cresvale International Ltd.
Mr. Armstrong sold promissory notes that became known as "Princeton Notes," administered by Republic New York. Mr. Armstrong became so successful at the sale of the notes he eventually managed about $3 billion in about 450 different Republic New York accounts at the height of his financial scheming, according to The New York Times.
The Princeton Note scam began around 1995 but started to unravel in May 1999, when the Financial Supervisory Agency, Japan’s securities regulator, audited Cresvale International Ltd. accounts.
What authorities found was that Mr. Armstrong was issuing fake account statements to about 140 Japanese investors, and misappropriating their money to cover losses so they would continue to invest. Mr. Armstrong took the money investors thought was going to U.S. government securities and invested it into the securities and commodities markets where he lost millions of dollars, all of which officials with the Republic New York Corp. knew about, according to the federal investigation.
The two counts of securities and commodities fraud against the Republic New York Corp., which has since been purchased by the British firm, HSBC Holdings PLC, charged that officials within the company helped Mr. Armstrong by also issuing fake account statements and covering up losses. Republic was also charged with allowing Mr. Armstrong to continue bilking investors by transferring funds and paying off those who invested earlier in Princeton Notes when the notes became due.
Two senior executives with Republic New York were suspended, though Mr. Armstrong is the only person indicted at this time in the United States, The New York Times reported. Also, two people in Japan face charges.
Mr. Armstrong, who lived in Maple Shade in 1999 and once ran a gold, silver and currency exchange in the Quaker Bridge Mall in Lawrence, was also the co-owner of an art gallery in Robbinsville. He has been in jail since January 2000, and is facing lawsuits from the Securities and Exchange Commission and the Commodities Futures Trading Commission for failure to turn over assets from the various businesses and related charges.
Prior to the "Princeton Notes" enterprise, Mr. Armstrong had a history of fraudulent investment behavior and sketchy business dealings. In 1985 and 1987, the Commodity Futures Trading Commission accused Mr. Armstrong of not registering and not maintaining proper investment records. As a result of the 1987 charges, he was fined $10,000 and had his trading privileges suspended for one year.
The brokerage license of Republic New York Securities has been revoked by the SEC, and the firm agreed to pay a $5 million civil penalty to the Commodities Futures Trading Commission. The loss of the brokerage license which was not used since HSBC bought the company would not affect the parent company, and HSBC would account for the fine to its subsidiary, The Wall Street Journal reported. HSBC would also not be prosecuted separately.