Armstrong admits Japanese fraud role

August 18, 2006|By BLOOMBERG NEWS

NEW YORK -- Former financier Martin Armstrong, who has spent six years in jail for defying a judge's order, pleaded guilty yesterday to federal charges that he conspired to defraud Japanese investors out of millions of dollars.

Armstrong, the former money manager and founder of Princeton Economics International Ltd., faces up to five more years in prison after admitting that he lied to investors about losses incurred by his fund in commodities futures trades.

"By falsely representing to investors that my trading performance was better than it actually was, what I was doing was wrong and improper," Armstrong, 57, told U.S. District Judge John Keenan in New York. "I knew at the time that I was deceiving the investors."

Armstrong was charged in 1999 with defrauding Japanese investors out of more than $700 million. In December 2001, Republic New York Corp., now a unit of HSBC Holdings PLC, pleaded guilty to charges of helping Armstrong swindle Japanese clients and agreed to pay $606 million, then the largest reimbursement by any corporation to investors victimized in a fraud.

In a related civil case, the Securities and Exchange Commission and the Commodity Futures Trading Commission sued Princeton Economics and Armstrong in 1999. The judge in that case jailed Armstrong in January 2000 for contempt after Armstrong refused to surrender $14.9 million in gold bars and rare coins. Armstrong said he didn't have them to turn over.

No one has ever spent more time in jail for civil contempt of a federal court order. Keenan said he hasn't decided whether to credit Armstrong for his time behind bars on the contempt citation when he's sentenced on Jan. 3 on the conspiracy charge.

Armstrong's financial reputation was built on his theory that economic cycles recur over centuries. From an office overlooking Tokyo's Imperial Palace, his now-defunct New Jersey-based firm grew to manage as much as $3 billion for Japanese investors.

U.S. authorities claimed Armstrong hid huge trading losses by using funds from new investors to pay off old ones. He faced up to 11 years in jail if convicted at a trial, Keenan said.

At yesterday's plea hearing, Armstrong, initially appearing dazed, admitted that he commingled investors' funds with other accounts at Republic as a way to offset trading losses.

Armstrong has spent the past week in solitary confinement after being accused of damaging a prison vent.

Defense lawyer David Cooper said yesterday's guilty plea doesn't put an end to Armstrong's civil contempt, which he is appealing.

The decision on whether to end the civil contempt will be made later by U.S. District Judge Richard Owen in Manhattan.

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