graphic
News > International
Arrest in $1 billion fraud
September 13, 1999: 9:58 p.m. ET

Princeton Economics, Republic New York tied to fraud in Japan
graphic
graphic graphic
graphic
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 internal investigation. Based on the findings of that investigation, Republic replaced the management of the RNYSC futures division and suspended James Sweeney, chief executive officer of RNYSC.
     RNYSC and its parent Republic weren't charged with any wrongdoing, Krantz said.
     Republic New York spokeswoman Melissa Krantz confirmed that the suspicious client was Princeton Global Management, a unit of Princeton Economics, and that the company maintained an account with RNYSC. That account held about $46 million in assets when it was seized by the U.S. government.
     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 risky trading.
     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.
     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 latest scandal comes as Republic (RNB) is in the midst of a $10.3 billion merger with London-based banking and financial services company HSBC. It also comes in the wake of allegations that Russian criminals laundered some $10 billion through accounts at republic and the Bank of New York (BK).
     In the Russian case, Republic alerted authorities in 1998 about unusually large wire transfers coming through its coffers from Russia. From that point, British and U.S. law enforcement officials monitored the ebb and flow of cash through both banks, which led to a much broader investigation.Back to top
     -- from staff and wire reports

  RELATED STORIES

BNY dismisses another - Sept. 2, 1999

Is the system fraud-proof? - Sept. 1, 1999

  RELATED SITES

Republic


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic