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U.S. Securities and Exchange Commission

Before the

Release No. 45157 / December 17, 2001

Administrative Proceedings
File No. 3-10653

In the Matter of






The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") be, and hereby is, instituted against respondent Republic New York Securities Corp. ("Republic Securities").


In anticipation of the institution of this administrative proceeding, Republic Securities has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Republic Securities and over the subject matter of these proceedings, which is admitted, Republic Securities consents to the entry of the findings and the imposition of the remedial sanction set forth herein.


On the basis of this Order and the Offer submitted by Republic Securities, the Commission finds that:1


1. Republic Securities has been registered with the Commission as a broker-dealer since January 22, 1992, and is also registered with the Commodity Futures Trading Commission as a Futures Commission Merchant.


2. Martin Armstrong ("Armstrong"), age 50 and a resident of Maple Shade, New Jersey, during the relevant time, owned and controlled a series of limited liability companies formed in the Turks and Caicos Islands, British West Indies, that were headquartered in Princeton, New Jersey. These entities included Princeton Economics International, Ltd. ("PEI"), an investment adviser, Princeton Global Management, Ltd. ("PGM"), and a series of special-purpose companies that issued notes to investors ("Princeton Notes") and received investor proceeds and deposited them into Republic Securities.

3. Cresvale International Limited Tokyo Branch ("Cresvale Tokyo"), a corporation organized under the laws of Japan, is a wholly owned indirect subsidiary of Cresvale Far East Ltd. which is, in turn, a wholly owned indirect subsidiary of PEI. Cresvale Tokyo was a registered securities dealer in Japan and marketed the Princeton Notes issued by the PGM subsidiaries to Japanese investors.


4. For approximately four years, Republic Securities knowingly participated in a fraudulent investment scheme by Armstrong. Throughout the course of the fraudulent scheme, hundreds of millions of dollars entrusted to Armstrong by Japanese companies and deposited in special-purpose accounts at Republic Securities were dissipated as a result of Armstrong's unsuccessful futures trading strategy and diversions to companies controlled by Armstrong. Republic Securities participated in Armstrong's concealment of this fraud and continued solicitation of new investments by, inter alia, providing more than 200 letters concerning the Net Asset Value of the accounts at Republic Securities. These NAV letters, the majority of which directly misrepresented account balances, also failed to disclose the commingling of accounts and use of investor funds to collateralize negative balances in trading accounts. Republic Securities also directly misrepresented account balances to an investor who visited Republic Securities' office, and provided documents that were used by Armstrong to mislead the Japanese Financial Supervisory Agency ("FSA").


5. From at least June 1992 through August 1999, Armstrong sold billions of dollars worth of Princeton Notes to Japanese investors on the premise that he was a successful commodities trader whose knowledge of world currency moves would ensure safe, profitable investments. Armstrong promised investors healthy returns on safe investments, but instead dissipated investor assets through risky trading and other diversions of assets.

6. The Princeton Notes were issued by a series of special-purpose companies formed in the Turks and Caicos Islands ("Princeton Issuers"). Each Princeton Issuer was named "Princeton Global Management" followed by an alpha-numeric denomination. The Princeton Issuers issued two types of notes: "variable" and "fixed rate." The variable notes were redeemable at maturity for their "net asset value," i.e., the value at maturity of the trading fund underlying the notes. The fixed rate notes were redeemable at maturity for their face value and paid a guaranteed rate of interest. Armstrong represented to investors that he would open individual accounts for each of the PGM Issuers, but in many instances failed to follow through on that promise. From early 1995 through 1999, these accounts were maintained at Republic Securities.

7. Armstrong, directly and through PEI, PGM, and Cresvale Tokyo, represented to investors that the proceeds of the fixed rate notes would be invested mainly in U.S. Government Agency Bonds, with a portion of the funds being used to place a hedge against the foreign exchange risk presented by the movements in the Japanese Yen against the U.S. Dollar. In the case of the variable notes, Armstrong represented that 70% of the proceeds would be invested in U.S. Government Agency debt instruments with the remainder being used to invest in currency, bonds, stock or other instruments, primarily using index funds and options. In both cases, marketing materials claimed that "the overriding principle behind Princeton's approach to managing funds for clients is the preservation of the client's capital," and that the basic approach to fund management and investment was extremely conservative.

8. Armstrong bolstered his representations about the safety of the Princeton Notes by deliberately confusing Republic Securities with its affiliate Republic Bank, pointing to the bank's capitalization, large gold reserves, and bond rating. In addition, Armstrong persuaded Republic Securities to execute agreements for each Princeton Issuer account entitled "Supplement to Customer Agreement dated _____ covering Fiduciary Responsibilities, Payments of Fees and Relationship to Investment Manager" ("Fiduciary Agreements"). Armstrong used these agreements to bolster representations to investors that "Republic is fully aware of the fiduciary responsible [sic] they take on when they issue a receipt of deposit and sign the fiduciary agreement."

9. Armstrong also represented to investors that Republic Securities would hold the proceeds of each note in a segregated account and provided investors with receipts that identified the receiving accounts at Republic Securities as "Customer Segregated Funds Account[s]." Armstrong told investors that the "segregated" accounts would protect them in the event that Republic Securities filed for bankruptcy and that "PEI is not permitted to wire funds from the account to anyone other than the original source."

10. Armstrong's representations concerning the safe and conservative nature of his investment strategy were false. Rather than investing solely in U.S. Government Agency debt instruments, Armstrong also traded currencies, metals, bonds, options and futures. Armstrong's trading losses from this risky and speculative trading were staggering: From 1995 through 1999, Armstrong incurred in excess of $550 million in net trading losses and costs.

11. In addition, beginning in at least 1995, Armstrong commingled the investor funds and moved cash and securities among the various Princeton-related accounts without regard to the promises made to investors about the segregation of accounts. The Temporary Receiver appointed by the Court for PEI ("Temporary Receiver") has found that Armstrong transferred approximately $282 million from the Princeton Issuer accounts to PEI's account, ostensibly as management fees and performance fees. Pursuant to the standard terms of the Princeton Notes, PEI would not have been entitled to the vast majority of these fees in light of the results of Armstrong's trading. According to the Temporary Receiver, Armstrong also diverted approximately $169 million directly from the Princeton Issuers accounts to his own personal benefit. These funds were used to purchase Cresvale Tokyo, purchase a gold mine in Australia, operate Armstrong's research firm, and purchase gold bars, bullion and antiquities.


12. Republic Securities, acting by and through its President, the President of its Futures Division ("Futures President"), and other Futures Division personnel, was an active participant in and beneficiary of Armstrong's fraudulent scheme.

    A. Beginning in November 1995 through July 1999, Republic Securities prepared and delivered over 200 letters addressed to Armstrong or Princeton Issuers which purported to set forth the net asset value of a particular Princeton Issuer account as of a specified date. The majority of these letters materially overstated the account balance. These letters were prepared and signed by the Futures President and his assistant, who knew that Armstrong planned to show the letters to investors and that the letters were false.

    B. In the case of one investor, the Futures President and his assistant misrepresented the value of that investor's account directly to representatives of the investor who visited the United States annually to check on the status of their investment.

    C. Members of the Futures Division, including the Futures President and the Operations Manager of the Futures Division ("Futures Operations Manager"), enabled Armstrong to commingle funds among the various accounts and divert funds to his own benefit, even though Republic Securities knew from the Fiduciary Agreements that Armstrong was representing that the funds would be held in segregated accounts. In fact, the Futures Operations Manager, in consultation with Armstrong, created a series of eight trading accounts to consolidate Armstrong's risky trading in one place, thereby commingling the Princeton Issuer accounts inseparably.

    D. Armstrong's trading losses and his practice of making payment of principal and interest to Japanese investors out of one of the trading accounts caused large negative balances in the trading accounts. By April 1998, the negative balances totaled approximately $329 million. Following an account review in August 1998, Republic Securities acted to protect its own interest and demonstrated an indifference to the interests of investors. Republic Securities selected 15 individual PGM Issuer accounts with balances over $230 million and demanded that Armstrong sign a guaranty on their behalf securing the negative balances in the trading accounts. This guaranty was contrary to the covenants to the note holders and was not disclosed to them. Republic Securities did not take sufficient steps to determine whether Armstrong had the legal authority to sign the guaranty. Subsequently, Republic Securities created a series of sub-accounts that were ostensibly part of a master account in the name of Princeton Global Management and, as authorized by Armstrong, transferred the balances in the individual Princeton Issuer accounts to the newly created sub-accounts. Despite this new account structure, Armstrong continued to issue Princeton Notes on the same terms (i.e., as purportedly segregated accounts) and Republic Securities continued to execute Fiduciary Agreements and provide false NAV letters. After months of pressure by Republic Securities to convince Armstrong to reduce the negative balances in the trading sub-accounts, in July and August 1999, Armstrong authorized Republic Securities to transfer approximately $500 million of cash balances from the Princeton Issuer sub-accounts to the trading sub-accounts.

    E. In March 1999, the Futures President prepared two letters for Armstrong to present to investors to bolster Armstrong's representations that the investor funds were held in segregated accounts. The first letter was addressed "To whom it may concern" and stated that PGM maintained two types of accounts at Republic Securities: trading accounts and non-trading accounts that invested solely in fixed-rate instruments. The letter went on to state that "[a]ny hedging that Princeton does for its Yen exposure takes place in its own account using its credit lines at the bank. No other trading takes place in the fixed rate note accounts." The second letter stated that two specific accounts were "segregated and not commingled with any other PGM account" and repeated the disclaimer about PGM's hedging activity. These letters were false. All of the Princeton Issuer sub-accounts were used to collateralize the negative balances in the trading sub-accounts.

    F. Finally, in July 1999, Republic Securities provided Armstrong with a letter signed by its president that falsely stated that the Futures President had authority to sign net asset value letters. In addition, in August 1999, the Futures Operations Manager prepared a letter which stated that the balance in certain PGM accounts as of March 31, 1999 was approximately $369 million, but omitted to state that those accounts were collateralizing the trading accounts at that time and that the true net value in all of the Princeton accounts was only approximately $16 million. Armstrong provided both of these letters to the FSA in an effort to conceal his fraudulent activities.

13. From 1995 through 1999, the Futures Division was the most profitable business sector at Republic Securities and the fees related to Armstrong's business accounted for virtually all of the Futures Divisions revenues. From 1995 through 1999, commissions and fees from Armstrong's business totaled approximately $35 million.


14. In late August 1999, a senior official at Republic Securities' parent company learned about the FSA inquiry. Following an internal investigation, Republic Securities and its parent company notified law enforcement about the FSA inquiry and the discovery of a large number of false NAV letters.

15. On September 13, 1999, the Commission instituted a civil injunctive action in the United States District Court for the Southern District of New York against Armstrong, PEI, and PGM, alleging that they violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5. SEC v. Princeton Economics Int'l, Ltd., 99 Civ. 9667 (RO). The action seeks preliminary and permanent injunctive relief, disgorgement plus prejudgment interest, civil penalties, an asset freeze, an accounting, appointment of a temporary receiver, repatriation of assets, and expedited discovery. The Court has granted the Commission's motion for interim relief and has appointed a temporary receiver. In addition, the Court has entered an order holding Armstrong in civil contempt based upon his failure to return certain property to the receiver. Armstrong is currently incarcerated pursuant to that order.

16. Also on September 13, 1999, Armstrong was arrested on criminal fraud charges and, on September 29, 1999, Armstrong was indicted by federal grand jury in the Southern District of New York on 14 counts of conspiracy, securities fraud, and wire fraud. United States v. Armstrong, 99 Cr. 997 (LMM).

17. At least 55 defrauded investors have filed lawsuits against Armstrong, the Princeton entities, Republic Securities, officers of Republic Securities and Republic Securities' parent company seeking to recover the losses caused by their investments in the Princeton Notes.

18. On December 17, 2001, Republic Securities entered a plea of guilty to federal charges of securities fraud and conspiracy to commit securities and commodities fraud and agreed to the entry of an order directing Republic Securities to pay restitution totaling approximately $606 million. Republic Securities' parent company has agreed to pay to certain defrauded investors the difference between the restitution amount and Republic Securities' available capital in exchange for releases by those investors.


By reason of the foregoing, Republic Securities willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5.


On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offer submitted by Respondent Republic Securities. In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.

ACCORDINGLY, IT IS ORDERED that Republic Securities' registration as a broker or dealer be, and hereby is, revoked.

By the Commission.

Jonathan G. Katz


1 The findings herein are made pursuant to the Offer submitted by Republic Securities and are not binding on any other person or entity in this or any other proceeding.


Modified: 12/17/2001