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September 14, 1999

Widely Quoted Forecaster Is Arrested
In Scandal Involving Japanese Investors


NEW YORK -- Martin A. Armstrong, the director of Princeton
Economics International Ltd., an investment-advisory firm that has
allegedly lost as much as $950 million in Japanese corporate investment
money, was arrested and charged with securities fraud in New York.

Mr. Armstrong is a 49-year-old market
forecaster in New Jersey who has been widely
quoted about commodities and other
investments and has long been one of the most
active silver traders on the New York
Mercantile Exchange's Comex division. He
was also the subject of a separate civil
complaint filed Monday following an
investigation by the U.S. Securities and Exchange Commission and
Commodity Futures Trading Commission.

Authorities are still trying to figure out what happened to a fund that held
roughly $1 billion in investments by Japanese corporations. So far, they
can account for only $46 million. They fear the rest, or at least a big chunk
of it, may have been lost in trading. In the criminal complaint filed in U.S.
District Court in Manhattan, prosecutors allege Mr. Armstrong took the
proceeds from client accounts and channeled the money to other accounts
to cover up losses.

Mr. Armstrong, who was released on bond of $5 million, couldn't be
reached to comment. His attorney, Marc Durant, said Monday night that
his client "vigorously disputes the allegations and maintains his innocence."
Mr. Durant, of the Philadelphia law firm Durant & Durant, added that his
client "very strongly believes he is being made a scapegoat for honest and
noncriminal trading losses. He definitely intends to fight this."

Mary Jo White, the U.S. attorney in Manhattan, said that Mr. Armstrong
"orchestrated a massive securities fraud." Mr. Armstrong allegedly used
"offshore entities to sell $3 billion in securities to Japanese investors, of
which a large portion were sold even while he concealed the fact that he
had suffered hundreds of millions of dollars in trading losses."

Mr. Armstrong controls both Princeton Economics International, a
Princeton, N.J., market-forecasting firm with no relation to the Ivy League
university, and Cresvale International Ltd., an international brokerage firm
that was punished by Japanese authorities last week for alleged misuse of
investor funds. Cresvale has been aggressively marketing investment
vehicles in Tokyo that carry the Princeton name and are controlled by Mr.

The scandal also involves Republic New York Corp., a New York bank
whose securities unit served as custodian for the securities that Cresvale
was selling to Japanese investors. Republic, which hasn't been accused of
wrongdoing, had earlier suspended two employees who managed the
securities subsidiary. The bank has declined to comment. In Tokyo
yesterday, several midsize Japanese corporations said they would write off
their investments in financial products sold by Cresvale.

Mr. Armstrong induced Japanese investors to buy notes based on false
information, the criminal complaint said. Even though Mr. Armstrong had
been losing money for nearly two years, he "caused an officer" at Republic
New York's securities unit "to issue false confirmation letters" that implied
his activities were generating profits for investors, the complaint said. Mr.
Armstrong then used those documents to sell more funds in Japan, it said.

Japan's Financial Supervisory Agency, the country's chief financial
regulator, said that Japanese investors are supposed to have about $1.08
billion invested with Princeton -- all of it collected through privately placed
instruments sold by Cresvale. The agency last week suspended Cresvale
from selling financial products offered by Princeton in Japan. The products
were fixed-rate and variable-rate notes sold to private investors in
exchange for funds that were placed in the custody of Republic New York
Securities and managed by Princeton.

Investors have recently sold off shares in Republic New York on fears the
investigation into the bank's securities unit might hamper Republic's planned
$10.3 billion acquisition by HSBC Holdings PLC of Britain. Monday,
Republic shares, which had traded at a 52-week high of $71.25 as
recently as Aug. 25, fell $2.9375 to $60 in composite trading Monday on
the New York Stock Exchange. But banking-industry analysts have said
investor reaction may be overblown. HSBC has said that while it still
intends to complete the acquisition, the deal may be delayed because of
the affair with Cresvale.

Despite his active silver trading, it is difficult to tell exactly how much of
Comex's silver stockpiles Mr. Armstrong controls. What is clear is that he
also had strong views about gold. In recent weeks Mr. Armstrong's
predictions for gold had become exceedingly bearish.

However, Comex gold prices -- though in a sharp downtrend in recent
years -- are essentially unchanged compared with a year ago and actually
have risen modestly lately. Since the beginning of August, prices have
advanced $1 an ounce to $257.20. "My guess is that his silver strategy
would have been following his gold strategy, which was extremely bearish,"
one New York metals analyst said.

In convicted of the federal charges, Mr. Armstrong faces as many as 10
years in prison and a fine of twice the value of the alleged losses,
prosecutors said.

-- Peter A. McKay contributed to this article

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