NEW YORK (CNNfn) - Republic New York Corp. took on investment advisor Martin A. Armstrong even though red flags prompted a competitor to stop doing business with him, a newspaper reported Monday.
The Wall Street Journal said Prudential Securities Inc. dropped Armstrong as a customer in early 1995 after heavy trading by his companies triggered a routine account review.
Armstrong was indicted for allegedly losing as much as $950 million of Japanese corporations' money. It is unclear how deeply Republic dug into Armstrong's background before picking up his lucrative account, the Journal said.
Republic New York hasn't been charged with any wrongdoing, but it suspended two executives, including one who used to work at Prudential and was instrumental in bringing Armstrong's business to Republic, the newspaper reported. Republic has agreed to be acquired by HSBC Holdings PLC of London and Hong Kong.
Armstrong took his business to Republic New York after Prudential Securities' review of his account brought out his long-running clash with the Commodity Futures Trading Commission over allegedly misleading investors, and a 1987 bankruptcy filing by an Armstrong entity, the Journal said.
The paper, citing Securities & Exchange Commission filings, said Republic collected more than $14 million in fees and commissions from Armstrong's entities between late 1997 and the end of August.
Since at least 1996, Armstrong managed to sell about $3 billion of so-called ``Princeton Notes'' to foreign investors through Princeton Global Management Ltd., a Princeton, N.J., investment fund he controlled that is popular with some large institutional investors in Japan, authorities said.
He promised to invest the proceeds from the note sales conservatively 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.
Shares of Republic (RNB) rose 9/16 to 61-5/16 in early trading.