Jim, here is another example of how the street works, and why I prefer to trade/manage my own money>
ps, your t/a is on the money vis-a-vie INVN..
pss, one of my real old pre-rat stocks, ICOS, added to the Naz 100, (24 Dec.) thus signaling the re-start of the "health technology era"
Republic New York's Securities Arm
To Pay $606 Million in Fraud Case
By COLLEEN DEBAISE
Dow Jones Newswires
NEW YORK -- The securities arm of Republic New York pleaded guilty to criminal fraud charges and agreed to pay $606 million in restitution to Japanese investors duped by market forecaster Martin Armstrong.
Mr. Armstrong, founder of Princeton Economics International Ltd., was charged in September 1999 with running a $1 billion Ponzi scheme using accounts at Republic. Mr. Armstrong, who has denied the charges, used Republic as a custodian for securities that his firm sold to more than 100 Japanese investors.
HSBC Holdings PLC acquired Republic in December 1999, although the scandal almost derailed the $10 billion merger.
The Manhattan U.S. attorney's office, which brought the case, said Mr. Armstrong commingled investor funds to conceal enormous trading losses and caused Republic to issue reports that overstated the value of assets in Mr. Armstrong's accounts.
The wrongdoing appeared isolated to Republic's securities unit. Republic suspended two employees who managed the unit, Republic New York Securities Corp., after news of the fraud broke.
At a court hearing Monday in front of U.S. District Judge Richard Casey, Republic attorney Andrew Lawler said the employees helped Mr. Armstong "perpetrate a substantial fraud" on Japanese investors.
He told the judge that Mr. Armstrong began working with Republic in the late 1990s and quickly became one of the company's "largest and most profitable client relationships."
Soon, however, Mr. Armstrong began incurring "massive" trading losses, which he concealed through the help of the two Republic employees, Mr. Lawler said. He didn't identify the employees. After the hearing, prosecutor Brian Coad also wouldn't name the employees or elaborate on whether they were cooperating with the government.
In a statement Monday, HSBC confirmed that it had settled the criminal and regulatory investigations arising from the issuance of Mr. Armstrong's securities, called Princeton notes.
HSBC said the payout would fall within the amount already set aside by the bank to cover any resolution of the probe. In November, HSBC said it would take a third-quarter charge of $575 million, on top of an earlier reserve of $79 million, for an anticipated settlement.
HSBC said the regulatory settlements with the Securities and Exchange Commission and the Commodity Futures Trading Commission are effective immediately.
"We are pleased that [Monday's] settlement will put the Princeton Note matter largely behind us," said HSBC USA Inc.'s president and chief executive, Youssef A. Nasr, in the statement. "The prompt resolution of these complicated circumstances is a great achievement that follows from Republic's and HSBC's commitment to cooperate fully with the government."
He noted that HSBC has settled 51 of the 53 civil lawsuits brought by Japanese plaintiffs. At the hearing, lawyers representing some of the Japanese investors said they were pleased with the settlement.
Republic's securities unit is no longer an active unit of HSBC.
Mr. Armstrong was jailed in early 2000 for refusing to comply with a court order to surrender assets.
SEC Revokes Republic Unit's Registration
In a related move, the SEC revoked registration for Republic New York Securities Corp., alleging it "directly committed securities fraud." The HSBC unit settled the SEC civil action and a companion enforcement action by the CFTC without admitting or denying their allegations.
No fines were imposed on HSBC, the SEC said, acknowledging the company's cooperation with the agency's investigation and the record-breaking restitution in the criminal matter.
"The public interest is obviously served when the victims of criminal conduct are compensated without the drain of expensive litigation," Wayne Carlin, director of the SEC's New York office, said in a statement on the settlement.
According to the SEC, Republic Securities "was an active participant in Armstrong's fraudulent scheme," providing him with letters that overstated the net asset value of investors' accounts and other misleading letters Mr. Armstrong used to hide the fraud from Japanese regulators.
Republic Securities and two of its top executives also persuaded Mr. Armstrong to use investors' accounts as collateral for "huge negative balances" in his trading accounts and to offset those losses, which led to investors' funds being commingled with the trading accounts, the SEC said.
Judge Casey scheduled a Dec. 28 hearing to sentence HSBC's Republic. The unit pleaded guilty to one count each of conspiracy and securities fraud.
At a press conference in New York, U.S. Attorney Mary Jo White said the government continues to investigate other individuals who may have participated in the fraud.
She noted that the $606 million settlement is about 17 times the $35 million that Republic earned in commissions on the Armstong accounts. The figure represents the largest criminal restitution order ever issued on a single defendant that is expected to be actually paid.
Republic's conduct "was the epitome of how a financial institution must not conduct its business," Ms. White said. "Rather than join in or turn a blind eye to suspicious activity ... financial institutions must promptly investigate, stop and report such activities."
She noted that HSBC wouldn't be ordered to pay a criminal fine in order to maximize the amount of money that can be returned to defrauded investors. Many of Mr. Armstrong's investors were Japanese corporations, she said.
"The losses to investors were astronomical, and the loss to investor confidence was immeasurable," she said.
Mr. Carlin of the SEC's office in New York said the hefty restitution is "highly unusual."
"Typically, when a huge Ponzi scheme comes crashing down, the money is gone," he said at the press conference. "But in this case, the outcome for the victims is very different."
Ms. White said the restitution far exceeds Republic New York Securities' capital of $81 million and will largely be covered by HSBC resources. |
