Princeton/Newport Partners, the small securities firm whose senior officials face racketeering charges in an investigation linked to the federal inquiry into Drexel Burnham Lambert Inc., said it will go out of business.
Paul R. Grand, a lawyer representing one of the indicted officials, said the firm was “winding up its operations” because of the impact the indictment has had on its business.
Five partners of Princeton/Newport were indicted Aug. 4 in an investigation launched by Rudolph W. Giuliani, the U.S. attorney in Manhattan. It was the first time that officials of a securities firm had been indicted under the federal Racketeer Influenced and Corrupt Organizations Act, known as RICO, which carries stiff penalties.
Lawyers for the partners have maintained that the RICO law was invoked as punishment because the officials refused to cooperate in Giuliani’s continuing investigation of possible securities law violations at Drexel.
“I think what they have done is shameful,” Grand charged Thursday. “They essentially said at the beginning of their investigation to cooperate or be destroyed, and when the Princeton/Newport partners didn’t become cooperating witnesses for the government, they destroyed Princeton/Newport.”
Asked about the lawyers’ complaints during a press conference on another subject Thursday, Giuliani said he thought it would be “counterproductive” to respond to “some of the irresponsible comments” made by them.
But he said that evidence in the case showed a consistent pattern of illegal activity by officials at the highest level in the firm and that it would be wrong to base a decision to prosecute on whether it might harm a business.
“The U.S. government doesn’t have any responsibility for creating businesses or destroying businesses,” he said.
The indictment accused the partners of engaging in a pattern of racketeering activity through a series of sham stock trades with Drexel. The trades allegedly were intended to generate phony tax losses for Princeton/Newport, which is based in Princeton, N.J., and Newport Beach.
Edward Oakley Thorp, a founding partner of the firm who headed its West Coast operations in Newport Beach and was not among those indicted, said Thursday that he intends to launch another investment partnership within the next two months.
The new firm will also be based in Newport Beach and “will be totally disassociated from the problems with Princeton/Newport Partners,” said Thorp, a former mathematics professor who developed Princeton/Newport’s computerized investing strategy.
The new partnership will follow the same conservative hedging techniques successfully employed by Princeton/Newport, whose assets under management grew from $1.4 million in 1969 to $270 million today.
The automated technique relies on computers to buy and sell related securities simultaneously, thus offsetting investment risk.
The Newport Beach office employed 35 people, mostly other computer experts and mathematicians whose work identifies trading strategies. The actual trading, however, was done from the firm’s office in Princeton.
Thorp said his new partnership would offer jobs to most of the firm’s California employees and “many” of the 40 staffers who now work in New Jersey.
He termed the federal grand jury indictments “a big mistake and really unfortunate.”
“I would hope and expect that everybody will be found not guilty on all counts,” he said.
Thorp gained fame in 1962 with the publication of “Beat the Dealer,” a book that proved it is possible to win at blackjack by following a card counting system.
Scot J. Paltrow reported from New York, and Eric Schine reported from Orange County.