Tycoon Relocates From Luxury Hotels to Cramped Prison Cell

Instead of a pinstriped suit, Martin A. Armstrong is wearing a prison-issue brown jumpsuit. Instead of expensive leather shoes, he sports blue canvas shoes, no laces.

Just six months ago, the oft-quoted market forecaster from Princeton, N.J., drove a BMW, flew first class and stayed in the best hotels. He spent summers at his $2-million beach house on the Jersey shore.

Now Armstrong, founder of Princeton Economics International Ltd., is accused of committing one of the biggest securities frauds in history. He was sent to the federal Metropolitan Correctional Center in Manhattan on Jan. 14 for contempt of court after failing to turn over corporate assets and records.

In his first in-depth interview since the FBI raided his company in September, Armstrong talked about his life from riches to rags.

Armstrong, 50, is no easy character sketch. One minute he’s talking about economic theory; the next he says he’s the target of a U.S. government conspiracy. But ultimately what is most striking is his will to get up off the mat again and again.

Authorities allege Armstrong sold $3 billion worth of securities to Japanese companies, pledging to repay them with interest. Instead of putting the money in conservative bonds, as promised, he made risky bets on currencies and other investments. Faced with mounting losses, he tried to hide the truth from investors by giving them false account statements, they allege.

He repaid $2 billion, but still owes $1 billion.

Armstrong acknowledges he was helping Japanese companies mask and try to reverse their own losses. But he blames executives at Republic Bank of New York, where the funds were held, for mishandling the accounts.

A spokeswoman for HSBC Holdings, which recently acquired Republic Bank, declined to comment.

In many ways, the journey that Armstrong took started when he was 13. His family was preparing for a European vacation. “I wanted to have my own spending money. So I got a part-time job at a gold and bullion shop,” he says.

But his weekend job helping out behind the counter became his passion in high school when he saw the 1937 film “The Toast of New York,” about Jim Fisk, the 19th century medicine showman who became a notorious Wall Street financier. Fisk went bust trying to corner the gold market in 1869.

“I knew gold was $35 an ounce, and there I was in history class watching Cary Grant [who played Fisk’s partner, Nick Boyd] reading the ticker tape quoting gold at $162 an ounce. . . . I began to find that very curious, so I started doing reading on my own,” he says.

Armstrong’s hand makes a wave motion in the air as he describes learning about the cyclical nature of gold prices.

His own life has followed a similar pattern of ups and downs: Armstrong claims he was a millionaire at 15, but eight years later he was ostracized by stamp collectors for fraud. He became a commodities consultant and charged $2,000 an hour, but he owed millions in back taxes. He says he advised foreign governments on financial issues, yet he filed for personal bankruptcy in 1987.

Asked about this pattern of success and failure, Armstrong blames U.S. government agencies, saying, “They’re paranoid. . . . Once you beat them, they keep coming back at you.”

When Armstrong was a teenager, he was probably a lot like a young Jim Fisk. Armstrong saw an opportunity when the U.S. Mint switched from silver quarters to cupronickel-clad quarters between 1964 and 1965.

“I would go down to the bank and buy $100 and ask for quarters and take out the silver and sell it,” he says.

But a 15-year-old with $1 million?

“The ‘60s [were] a pretty wild period. . . . There were some Canadian pennies which had--they made a rare variety, and I had kind of lucked out and got some of them, and then bought some others, and they went up in value quite dramatically to the point that my mother thought people were crazy. [Coin collectors] would fly down and buy a roll of pennies from me for $600 apiece, and she wanted to know what was going on.”

Armstrong’s remarkable claims of early success could not be corroborated, and his business practices later came under fire when he started selling rare postage stamps.

In 1972, when Armstrong was 23, he was expelled from a prestigious stamp collectors’ group, the American Philatelic Society.

Robert Lamb, executive director for the organization, says Armstrong was banned because customers complained he did not fill their mail orders or refund their money.

“That’s not true,” Armstrong says. “There was an old coot there and they expelled me because I was a minor. I was running a business, and I wasn’t 21.”

Armstrong went on to write three reference books on stamp collecting, but his stamp business declined.

Armstrong didn’t miss a beat. He turned his love of coins and precious metals into a commodities-forecasting newsletter.

In May 1983 he founded Princeton Economic Consultants in the city of the same name, with no affiliation to the Ivy League university. His success seemed instantaneous--one month later he was quoted in the Wall Street Journal as a high-priced consultant who charged “clients $2,000 an hour for private consultations. Those who don’t need a full hour can talk to Mr. Armstrong for $33.50 a minute.”

A History of Legal Tangles

Within two years, by 1985, his company had offices in Geneva and London, according to the International Herald Tribune, which described Armstrong’s clients as “ranging from South African gold mines to national governments.”

Behind the headlines, though, Armstrong was in trouble again.

The Commodity Futures Trading Commission filed a complaint against him in 1985 because he was not a registered commodity advisor, and another complaint in 1987 for not keeping proper records.

Armstrong recalls: “They hit me with that subpoena to force me to turn over all my lists of clients worldwide, which I denied. . . . Then they went to the FBI and accused me of mail fraud, saying that I was selling subscriptions [of his newsletter] and not giving them to some. I was then raided by 30 or so FBI agents.” He says the claims of mail fraud were “total B.S.” He was never prosecuted for mail fraud.

Around the same time, the state of New Jersey went after Armstrong for failing to collect sales tax on gold bullion sales.

Armstrong disputed the interpretation of the law, claiming he himself had written the law at the behest of state Sen. Walter E. Foran. If Armstrong indeed had a hand in writing the bill, it never became law because Foran’s 1980 bill was vetoed by the governor. Foran died in 1986.

Armstrong fought the tax case to the state Supreme Court, where he lost and was ordered to pay more than $600,000 in back taxes.

Meanwhile, the Internal Revenue Service raided Armstrong’s office for not keeping records on bullion purchases and sales over $10,000. IRS agents seized his records and kept them for three years, he says, preventing him from filing tax returns.

By September 1987, Armstrong’s debts totaled $4.4 million, including $2.7 million in unpaid taxes. The day before Capitol State Bank was set to foreclose on his home, Armstrong filed personal bankruptcy.

Despite his success, Armstrong’s only assets were his $344,000 house in Pennington, N.J., $350 in cash, a gold ring and some stock in his company that later turned out to be worthless.

His dire financial straits were surprising, given his reputation as a savvy market forecaster. Armstrong and several of his clients, for example, claimed he predicted the October 1987 stock market crash, which happened less than a month after Armstrong sought protection from creditors under bankruptcy laws.

Indeed, Armstrong seemed unfazed by his unpaid bills and continued to expand his business, opening offices in Hong Kong, Australia and Tokyo. When Armstrong started raising money from Japanese investors in 1991, he was still in the process of liquidating his estate.

Armstrong says he didn’t know his bankruptcy case was still open. His memory on the dates is poor. “I thought it was discharged in ’86 or ’87. I didn’t find out about that until the early ‘90s when the Internal Revenue Service sent me a bill.”

When Armstrong’s bankruptcy case was closed in August 1993, the IRS and the state of New Jersey each got $10,733 in back taxes. No other creditor got a dime.

But Armstrong bounced right back, and three months later bought a $1.24-million beach house using the name of his newest company, Princeton Global Management Holdings--one in a web of companies with the Princeton name that he allegedly controls. The home is worth more than $2 million, according to sales agents.

Investment Losses of $500 Million

That same year, Armstrong lost his fight against the Commodity Futures Trading Commission when the U.S. 3rd Circuit Court of Appeals ruled against him.

He has never paid the $12,000 fine to the CFTC, and, according to Armstrong, he won that case.

Blacklisted by regulators from U.S. commodity markets, Armstrong simply avoided their scrutiny by managing offshore investments for foreign clients.

In Japan, he distributed sales literature to companies and spoke at seminars. His claims about his credentials stretched the truth.

His resume, for example, said he had been “studying market behavior since 1962.” In fact, Armstrong was 13 in 1962. It also said he “holds a degree in Computer Science and Engineering.” It did not mention the degree is from a two-year program at RCA Institute, a technical school in Cherry Hill, N.J., which no longer exists.

Armstrong says he has not seen the marketing resume, which was submitted in court papers by the prosecution.

In recent interviews, Japanese investors said they were unaware of Armstrong’s bankruptcy or trouble with regulators.

“If we had known, we would never have bought [the securities],” said Takeo Nakahara, a manager at Maspro Denko, a Japanese electronics company. “In the end, it was all a fraud.”

At least 26 of Armstrong’s Japanese clients have filed lawsuits against him in U.S. District Court for the Southern District of New York, alleging fraud and racketeering.

Federal prosecutors say Armstrong lost almost $500 million trading the Japanese yen and other investments between 1997 and 1999. Investigators are still searching hundreds of accounts and dozens of companies for the other $500 million he owes.

Planning a Comeback From Jail Cell

Now Armstrong’s personal and business assets have been frozen, and U.S. District Judge Richard Owen has thrown Armstrong in jail for failing to turn over $1 million in gold bars and $1.3 million in gold coins, plus antiques and corporate records. The judge appeared particularly annoyed that the four computers Armstrong surrendered had been damaged or their files recently erased.

Armstrong testified that he erased the files accidentally. He said he has done his best to turn over the assets, but wanted more time.

“There is $1.3 million in coins that are missing. You have pleaded earnestly with me that you have not had a chance to look for them,” Owen said on finding Armstrong in contempt. “I don’t believe that. I believe you know exactly where they are.”

If Armstrong does not agree to turn over the missing assets, he must prove he does not have them. Otherwise he may spend the next 18 months in jail while his civil and criminal trials proceed.

Of the many peaks and valleys in Armstrong’s life, this appears to be a new low. And yet he is unbowed.

“I am a pretty good [computer] programmer,” says Armstrong, planning his comeback. “I think I would go into developing products along the line of Microsoft--computer software.”

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AP investigative researcher Randy Herschaft and Tokyo newsman Joji Sakurai contributed to this article.