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Monday, March 2, 2015

Who is Martin Amrstrong?

It is quite obvious to a growing number of independent investors that something is very wrong with the global economy.  Despite permanently rosy reports from Bloomberg, Fox, and CNBC it is clear that the Eurozone is imploding with Greece, Portugal, Spain, Italy and France functionally bankrupt, Japan is on the life support of a permanently devaluing currency, Russia is ruled by a madman intent on starting world war III, Brazil is imploding, and nobody knows what's really happening in China - but growth is obviously slowing dramatically.  

That leaves the US as the sole engine of the global economy, stoking the global recovery with 2 percent growth - 5 years into a supposed recovery, while 70 percent of tax receipts go to fund an 18 trillion dollar deficit that is growing by the second.

In the search for answers as to what is going to happen many people are turning to a variety of Economic prophets, and Martin Armstrong with his Economic Confidence Model has developed quite a following.  In fact a movie has been recently released chronicling some of his amazing economic forecasts.

Personally I find a lot of what he writes to be fascinating - and useful.

Yet there is that pesky fact of his incarceration for Securities Fraud.

He claims he was set up by rivals who wanted to steal is secrets and/or silence his apocalyptic pronouncements.

The government claims he ran a ponzy scheme that bilked investors out of 700 million dollars.

You can be both brilliant and unscrupulous.

I have found a court copy of his guilty plea.

As part of his guilty plea, Armstrong entered a sworn allocution admitting to and describing his crime: Read it and judge for yourself:

In his allocution, Armstrong admitted that between 1992 and 1999, he sold
promissory notes issued by Princeton Economics subsidiaries ("Princeton Notes") to investors, mostly Japanese corporations. Armstrong, through his agents, represented to the investors that the proceeds from the sale of the Princeton Notes would be held in accounts at Republic NewYork Securities ("Republic") and that those accounts "would be separate and segregated from Republic's own accounts and would not be available to Republic for its own benefit." 

According to Armstrong's allocution, after he suffered "some millions of dollars of
trading losses," he decided "not to disclose to investors that . . . substantial losses had been experienced in this trading of futures. And we did not disclose it." 

Armstrong also admitted that his concealment of his losses went beyond non-disclosure: "letters were sent by my company to investors concerning how much money was in fact in the accounts assigned to them. I . . . did
send out those letters, even though . . . I knew the amounts in the accounts were less than the letters stated." 

Armstrong then described how the segregation of the investors' accounts came under pressure from Republic: [I]n about August 1999, Republic requested that I merge the [] investors' segregated accounts with trading accounts in which I sustained . . . substantial trading losses. 

And Republic further requested that monies in the investor accounts be used to offset trading losses in the trading accounts. I agreed to these requests . . . . This was contrary to the promises I had made and the representations I . . . continued to make to investors that the accounts pertaining to the Princeton Notes were [not] and would not be accessible by Republic itself for any purposes.

Armstrong further stated "I did not inform investors that I had agreed to Republic's request to merge the funds . . . nor did I inform the investors that the merger had in fact occurred, nor . . . [did I] disclose . . . [to] the investors that funds in their accounts had been used to pay for the [trading] losses . . . ." 
Armstrong stated that he was aware at the time he made them that "[his] representations to investors that the accounts would be kept separate was an important factor in the investors' decision to hold the Princeton Notes."

 Armstrong "understood at that time that by falsely representing the situation of Republic with respect to segregation of investors' funds [and] by falsely representing to the investors that my trading performance was better than it actually was . . . what I was doing was wrong and improper." 
Finally, Armstrong admitted, "[i]n taking these actions and agreeing with others to do so, I knew at the time that I was deceiving the investors in connection with the purchase of Princeton Notes . . . 

Armstrong claimed then that though he admitted the wrongdoing above, this did not constitute a crime.

In this case, Armstrong's actions were egregious and recurrent. He conspired to defraud sixty investors to whom he has been required to pay approximately $80 million in restitution. Armstrong was also sentenced to sixty months' imprisonment for his crime, a sentence that reflected the district court judge's view of the seriousness of Armstrong's misconduct. Armstrong's conduct was not a brief, isolated, event; his fraudulent activity lasted from 1992 until 1999 involving multiple misrepresentation to numerous clients. 
Armstrong's actions show a high degree of scienter. At the time he conspired to
commingle investors' accounts with other accounts to cover trading losses and to conceal the account commingling, he "knew . . . that [he] was deceiving the investors in connection with the purchase of Princeton Notes" and knew that "[t]his was contrary to the promises [he] had made and the representations [he] . . . continued to make to investors . . . ." Armstrong admitted that he
"understood at that time that by falsely representing the situation of Republic . . . [and] by falsely representing to the investors that my trading performance was better than it actually was . . . what [he] was doing was wrong and improper.

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