* * *
By Bill Jamieson
The Sunday Telegraph (United Kingdom)
September 19, 1999
I first met Martin Armstrong, chairman of New Jersey-
based Princeton Economics, who was arrested last week
on charges over a $1bn Japanese bond fraud, in the
early 1990s. He had flown into London for a series of
investor presentations. We met for dinner in the River
Room of the Savoy. I was late. He was gracious.
There were two features of that evening I recall. The
first was his series of offbeat and iconoclastic
statements about inflation, gold, and U.S. monetary
statistics. He was convinced we were all going to hell
in a hand cart. He had the three Cs of presentation --
conviction, confidence and charm -- though the fourth,
conciseness, was some way behind. My notes filled the
inside pages and the back of the menu.
The second was a notable hesitation about paying the
bill. Armstrong, who had brought a colleague, was
somehow under the impression that I would pay. From
that moment on I was never quite able to take him
seriously.
Last Monday Armstrong was arrested and charged with
cheating clients in what appears to be a multi-billion
dollar "Ponzi" scheme that was allegedly aided by a top
executive of Republic New York Securities Corp., the
brokerage arm of Republic Banking Group.
Armstrong, Princeton Economics, and another company
Armstrong controlled -- Princeton Global Management --
are also being sued for fraud by the U.S. Securities
and Exchange Commission.
The affair has even embroiled HSBC, the global bank,
which agreed in May to pay $10.3 billion for Republic
New York. This deal is now on ice.
On Thursday, Princeton Global Fund, a $14 billion
Bahamas based hedge fund that specialized in shorting
world equity markets, closed down because of the
fallout.
The firm said it was not related to the notes offered
to Japanese investors by Princeton Global Management,
Armstrong's offshore investment group, though Armstrong
provided investment instructions based on his computer
models.
According to the U.S. prosecutors, Armstrong cheated
Japanese clients of the firm, which sold more than $3
billion of notes. Of that money, about $1 billion is
still owed to investors of Princeton Economics (not to
be confused with the ultra academic Princeton Institute
of Economics).
Princeton is said to have covered up $500 million in
trading losses in accounts held for some 300 Japanese
investors. The accounts are thought to have been co-
mingled with funds in one investor account used to pay
off interest due to investors in another.
In addition, Armstrong ran up trading losses of more
than $504 million. The U.S. attorney's office and the
SEC estimate that Armstrong owes investors a total of
$1 billion compared with just $46 million left in his
funds.
He faces up to 10 years in jail and a fine of $1
million or twice the gain or loss resulting from the
crime. Marc Durant, his lawyer, says Armstrong
"vigorously disputes the allegations and maintains his
innocence."
Another puzzling feature of the story is how long it
has taken to surface since the authorities first
struck. The sealed complaint from Anthony L. Sampogna,
special agent for the Federal Bureau of Investigation,
to Andrew Peck, U.S. magistrate judge of the Southern
District of New York, reveals that the FBI raided
Armstrong's office on Sept. 1 and issued a seizure
warrant for his Princeton Global Account at Republic
Securities on Sept. 2. But the story did not break
until Sept. 13.
Republic Securities was then made custodian, whereupon
more shots rang out and bodies fell. Republic
Securities promptly fired James Sweeney, its president,
and William H Rogers, president of the futures
division.
Who is Armstrong? And how has he come to be charged
with fraud involving such massive sums?
His arrest has startled thousands around the world who
followed him as an investment ace. His opinions were
quoted as authority throughout the business press in
America, Asia, and Europe.
In New York his arrest has been greeted with
consternation, but in some quarters, with indignant
delight.
Armstrong had followers. He also had foes. What is also
fascinating about this case is how Armstrong maintained
his reputation as a financial guru, despite the fact
that, one by one, almost all his confidently pronounced
predictions proved utterly wrong.
One of his critics said: "Armstrong had so many fooled.
He came across as Mr. Academia. But he was no Ph.D. He
did not even have a bachelor's degree. His formal
training was limited to courses at RCA Institute, an
early New York City electronics technical school."
Whatever he lacked in qualifications, Armstrong more
than made good in plausible manner and ability to sell
a simple message -- doom-laden, for the most part.
He was a popular speaker in Vancouver, a town well
known for its walk-on-the-wild-side, mining-dominated
stock exchange. Stephen Lewis of London-based Monument
Derivatives, recalls: "He was not a mainstream man, but
that may have been to his credit.
"He was a member of a club called the Noah Group -- as
in Noah's Ark. They set themselves up to try to save
the world. Maybe they wanted to repopulate the earth.
It was all a bit apocalyptic."
Bill Murphy, who owned a futures firm in New York and
who has fallen out with Armstrong over gold, said: "He
was not shy about talking his book. A renowned
commodity trader with a more renowned ego, Armstrong,
with all his brilliance, got most of the markets all
wrong in recent times.
"He was long bonds, short oil, short yen, and short
gold. Three out of the four were the worst trades you
could imagine. Bonds have gone straight down this year,
oil and the yen straight up. The only winner has been
gold."
And here Armstrong's pungent views about the bleak
future of the gold price have led to ferocious
exchanges with America's embattled gold bulls, mauled
by the $30 slide in the price in recent months. They
believe Armstrong has been a huge short seller of the
metal.
"I hate to tell you," Armstrong retorted, "but gold
will drop to under $200 until it turns ..... And I do
not want to hear how I am short or some nonsense to try
to discredit my views because it is not true. Princeton
Economics International owns a 51 percent stake in a
public gold mine in Australia. That is my long-term
view. It does not change my short-term view."
The gold gang retaliated with allegations that
Armstrong, the biggest individual silver trader on the
New York Mercantile Exchange, is short of 24 million
ounces of gold -- a massive 746 tonnes -- and it is
this that the U.S. authorities have been investigating.
In truth, Armstrong's reputation as a guru rested on
little more than a style of conviction alarmism -- and
for that he was eminently quotable and much sought-
after by journalists.
In June last year his opinions on Japan aired at a City
conference were prominently reported. Armstrong
predicted a collapse in the yen from Y135 to the dollar
to Y200 "and possibly to Y278 over the next few years."
In fact, the yen rate against the dollar has soared to
Y107.
In November last year, again on Japan, he predicted
that the Nikkei (then at 15,070) would fall for two
years and bottom out at 9,700. He warned vividly about
investing in the Japanese stock market. "Why people
would be even remotely in this environment," he opined,
"is beyond me." Two months later the Nikkei began a
sharp recovery and now stands at 17,342.
He predicted the Hong Kong dollar would be forced off
its peg. It wasn't. He predicted the Chinese renmimbi
would be devalued. It wasn't.
He predicted the real financial crisis was in Russia
and that this would destabilize Europe. In fact, while
Russia has suffered financial chaos, it has had little
effect on global markets. European stock markets went
on to hit highs this year.
In October last year he predicted silver would fall to
$3 an ounce. It is now at $5.
Last year Armstrong also predicted a strong rally in
U.S. bonds fuelled by a flood of Japanese money. But
U.S. bonds have fallen this year on interest rate and
inflation worries.
If Armstrong has been following the investment advice
he so readily handed out to others, it is little wonder
that he appears to have lost so much money.
It is not so much that his forecasts were so wrong;
most economists are wrong most of the time. What
Armstrong had was what many fellow forecasters yearned
to possess: the gift of the gab, the apocalyptic turn
of phrase, the chilling statistic, the hit quote.
Little wonder his website has attracted more than
350,000 visits.
The opening sentences of his latest forecast on
Princeton Economics' now-forlorn website this week --
"Is the Global Economy Cracking Up?" -- is a classic of
the Armstrong genre. "This week", he declares, "our
computer models begin with a Panic Cycle in global
capital flows.
"The volatility is starting to break out and the entire
global economic system is starting to become
increasingly distressed."
For 300 Japanese clients of Princeton Economics, that
has certainly proved true.
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