-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- ------------------------------------------------------------------------ Today's Lesson from The International Narcotics Control Strategy Report (1999) by U.S. Department of State Operation Risky Business In March of 1997, the FBI opened an investigation involving an advanced fee scheme as a result of information received by its Atlanta Division and developed through a racketeering enterprise investigation. The investigation was conducted jointly with the U.S. Customs Service. Numerous business people throughout the world were victims of this scheme, including people located in Singapore, Israel, Turkey, Australia, Greece, Germany, France, the British Virgin Islands, Canada, Ireland, the United Kingdom, and the United States. The subjects of the investigation advertised in periodicals and newspapers such as the Wall Street Journal and the New York Times, touting themselves as being able to provide large amounts of venture capital to businesses. The applications for this venture capital required that the victim-client provide a "working capital agreement" fee ranging from $50,000 to $2,000,000 based upon the amount of venture capital requested. This fee was initially sent to a bank in either Switzerland, Canada, England, or Germany, and was eventually forwarded to the American International Bank in Antigua. From there, the money was then transferred to the credit of Caribbean American Bank (CAB), also located in Antigua. CAB was wholly owned and chartered by the subjects of the investigation. After the funds were forwarded, the subjects required the victim-client to provide collateralized letters of credit up to the amount that they were requesting in venture capital. When the victim-client could not provide such a letter (virtually impossible to obtain), the subjects would invoke a portion of the contract signed by the victim-client which placed the contract in default. The "working capital agreement" fee and any other fees paid by the victim-client were then forfeited. During later portions of the scheme, the subjects required that the victim-client incorporate an entity in Antigua and open an account at CAB. This trick was used to give the false impression that no U.S. entity was involved and that only Antiguan corporations were seeking this venture capital. It is estimated that the scheme defrauded in excess of 400 people or groups worldwide, and that the aggregate loss to the victim-clients exceeded $100 million. The indictment in this matter was sealed until May 7, 1998. As of February 2, 1999, eleven subjects had been arrested, and four had entered plea agreements with the government. The other seven subjects are awaiting trial. Guernsey International Financial Fraud The FBI continues to investigate a company, registered with the Securities and Exchange Commission (SEC), which is suspected of being involved in money laundering throughout the international financial community, including offshore locations. This company was allegedly engaged in the development and sale of image processing technology. The company allegedly included false revenue, earnings and asset figures into its annual and quarterly reports and in other statements disseminated to the investing public and to stockbrokers. The president, a vice president, the controller, one director and 5 other individuals having business with the company were indicted on 17 counts of security-related violations in August 1996. The case has not yet gone to trial, however; the controller and 3 other individuals have plead guilty. The company reported that it had received approximately $8 million in revenue from ten foreign customers, purportedly from the alleged sale of computer software and hardware. The customers were incorporated by a company formation business in the United Kingdom at the direction of the principals of the company. It is believed that the customers were nothing more than "brass plate" entities, which had addresses in the Isle of Man, Ireland and the United Kingdom and had nominee directors from the Isle of Sark. The Sark directors acted on instructions from the company formation business, which in turn acted on the instructions of the principals of the company. In order to create the appearance that the "customers" had paid for the products and to avoid detection of the scheme, principals of the company allegedly arranged for funds to be delivered to the company and disguised them as payment for products sold. In fact, it is believed that the vast majority of these funds were not bona fide payments for goods sold. Rather, the source of the funds was either regular corporate earnings or the proceeds of the sales of the company's securities. The subject company issued over $20 million in unregistered shares of stock. Pursuant to the Securities Act of 1933, companies are required to register all securities with the SEC. However, Regulation S of the Securities Act (Reg S) provides a "safe harbor" from the registration requirements and allows a company to offer and sell securities without filing a registration statement with the SEC if the securities are sold to bona fide foreign purchasers in offshore transactions. A foreign entity controlled by a United States person does not qualify as a bona fide foreign purchaser. The subject company issued a Panamanian entity one million shares of Reg S stock, allegedly in exchange for consulting and investment services. The Panamanian entity was managed by a trust administration company located in Guernsey. The transfer of stock allegedly violated U.S. law because the Panamanian entity was controlled by U.S. citizens who were lawyers for the company. They sold the shares through a New York brokerage firm. The lawyers then transferred a large portion of the funds to another Guernsey entity which was controlled by the president of the subject company, who then transferred the funds to the company as payment for goods sold to "customers." In addition to allegedly creating false receivables through the fictitious sale of products, the subject company also allegedly created false assets by purportedly investing in trust deeds of over $1.2 million. It is believed that these investments in second trust deeds were shams. In one transaction, the subject company "invested" $700,000 in second trust deeds with a real estate company. The real estate company then transferred the funds to a Swiss trust company located in Zurich. (The real estate company was the subject of a separate FBI investigation. Losses to investors in that case were approximately $40 million, and the principals were apprehended by the FBI in the Philippines.) Shortly thereafter, upon instruction of principals of the company, the Guernsey trust company wired the funds back to the company, which recorded the funds as payment for products sold to its "customers." Losses in this matter are approximately $30 million. ===== Waco Was a Professional Hit Expert: Film Shows Numerous Shots Fired at Davidians by Mark England Plaintiffs in the Branch Davidian lawsuit against the government filed a document Monday in Waco's federal court stating they have an expert who will testify his analysis of a FLIR tape shows at least 60 shots were fired at the Davidians on the day their residence burned down. Edward Allard was listed among the plaintiffs' expert witnesses for the lawsuit, set for trial on Oct. 18. Allard -- who made similar claims in the 1997 film Waco: Rules of Engagement -- said he recently analyzed another FLIR tape brought to him by Mike McNulty, who is producing his second film on Waco. FLIR stands for forward-looking infrared film, which, basically, picks up the heat signatures of objects. "Any layman can look at what I looked at and say it's gunshots, assuming he knows something about gunshots," said Allard, who worked 10 years in the Army's Night Vision Laboratory and is a physicist at a private company in Virginia. On at least three occasions, the FLIR film he analyzed showed automatic weapons fire directed at the Davidians on April 19, 1993, once while their residence was in flames, Allard said. A government plane shot the FLIR images while circling Mount Carmel at 9,000 feet. "What the FLIR shows is that while a fire is engulfing the kitchen area, gun positions on the outside are pouring automatic gunfire in there," Allard said. "I stopped counting at 45 shots. You don't see 45 shots. You see a flash here, a flash there. But if you break the film down, you can actually count the number of rounds." The gun positions were about 30 yards away from the kitchen area, according to Allard, who believes the Davidians were essentially trapped in the fire. Justice Department and FBI officials declined to comment on Allard's allegations. "That's all part of the Danforth investigation," an FBI spokesman said. "We wouldn't want to comment." Attorney Mike Caddell, who represents some of the plaintiffs in the Davidian lawsuit, said he saw the FLIR tape that Allard analyzed. Caddell plans to present it during the upcoming trial, he said. "I think it's the most dramatic evidence that there was gunfire from government positions," Caddell said. "At the end of the day, I think that's what this case is going to be about. I don't know this many years after the fact if we can prove who started the fire." Allard said the FLIR tape also shows two instances where men fired at least 15 shots at the Davidians while using a tank as cover. He believes most people will conclude the "flashes" seen in the FLIR tape are gunshots. Caddell agreed. "I know of nothing in nature that will create that kind of rapid heat generation," Caddell said. "I can't imagine what else it could be. Light would not heat up something so quickly and then cool off so rapidly that it would disappear." A firm hired by the Washington Post to examine the FLIR images seen in Waco: Rules of Engagement argued that the flashes could be reflections of sunlight. Allard dismissed that premise, arguing that the company making the claim handles government contracts. He also claimed its methodology for studying the FLIR tape was flawed. Allard said you can measure the flashes shown on the FLIR tape in 60ths of a second. Some of the flashes last 3/60ths of a second, which he said corresponds to automatic weapons fire. "No technical person I know of that's looked at the tapes said it's anything but gunfire," Allard said. The FLIR tape also picked up an image of Davidians on rooftops shooting at targets away from their residence, according to Allard, who said the gunfire took place before the fire. "All we saw were two gun positions on the roof," Allard said. "We couldn't see the men at all. They had warmed up. They were the same temperature as the roof. The FLIR, which sees changes in temperature, couldn't see them. We saw flashes, three of them. They appeared to be firing into the field around them." Also Monday, the government filed a motion asking for two more weeks to produce its list of expert witnesses. According to the motion, the Department of Justice can't meet this week's deadline to produce the list because its attorneys must review all records in their possession pursuant to a subpoena from the Government Reform Committee of the House of Representatives, which is reinvestigating what happened at Mount Carmel. Mark England can be reached at [EMAIL PROTECTED] or 757-5744. Waco Tribune-Herald, Sept. 14, 1999 Money Laundering Was BONY "Money-Laundering" Scheme Simple Tax Evasion? French impressionism meets Russian dental science In the summer of 1996, two Russian-born businessmen met on a Manhattan sidewalk. They shook hands and traded small talk, then retired for lunch at an Italian restaurant on Broadway to discuss a novel business plan. On one side of the table sat Peter Berlin, a lover of French Impressionist paintings, classical music and Broadway shows. He had come to America around 1990 and was looking for ways to expand a small translation, travel and conference business run from an office in New Jersey. On the other side was Aleksey Volkov, a Moscow-trained dental surgeon who had arrived in New York just a year earlier. After dabbling briefly in the car trade, he now worked for a tiny company near his apartment in Queens that helped importers in Russia. Mr. Berlin and Mr. Volkov had never met before but shared business contacts back in Moscow, where a tight-knit group of ambitious young bankers and traders had devised an ingenious scheme to skirt a tangled thicket of tax, customs and other regulations that governed and, they believed, strangled Russia's business with the outside world. During their lunch-time conversation, conducted in Russian, Mr. Berlin mentioned an intriguing tidbit: His wife, Lyudmila, better known as Lucy to English-speaking friends and colleagues, worked as an executive for Bank of New York, a bank that had made a name for itself in Moscow for its aggressive enthusiasm for the Russian market. The restaurant rendezvous was the first of many. After weeks of planning, the two men visited the Bank of New York head office near Wall Street, and soon they had set up a system that made ingenious use of a series of bank accounts, accessible by computers in Mr. Volkov's dingy office in Queens. That small, spartan space would become the unlikely nerve center of an operation that is now the focus of an international probe into alleged money laundering. From late 1996 until August this year, say people familiar with the case, transactions worth around $6.5 billion flashed across the screens of a Compaq desktop computer and a couple of cheap IBM clones in Mr. Volkov's office. An investigation by U.S., British and Russian authorities centers on nine Russia-related accounts at Bank of New York. Much about the mechanics of the operation run by Mr. Berlin and Mr. Volkov remains unclear. Investigators believe the system was used by alleged Russian mobster Semion Mogilevitch to launder money. Mr. Mogilevitch has denied any wrongdoing and says he is a legitimate businessman. Authorities are also looking into whether any of the money that passed through the accounts stemmed from foreign aid to Russia, including loans from the International Monetary Fund. But this much seems clear: Using home computers, electronic Windows-compatible accounts at Bank of New York and a small office used by two companies, Benex International Co. and Torfinex Corp., Mr. Berlin and Mr. Volkov fashioned a murky conduit through which billions of dollars flowed from Russia. The vast bulk of this, say people familiar with the operation, was generated not by mobsters but by hundreds of Russian traders in need of a back-channel to pay their foreign suppliers beyond the scrutiny of Russian tax, customs and foreign-exchange regulators. By some estimates, the system was used by 80% of importers in Russia, as well as a plethora of other Russians who wanted to move money offshore. "It was a pretty system, very pretty," says one person familiar with the operation. "Worked like a dream." Alexander Pochinok, the head of Russia's tax service, is less impressed. "These schemes are so simple. Take any manual on how to conduct an offshore business, and you'll find such scams." He says authorities are now checking the records of several Moscow banks suspected of involvement in tax-skirting operations through the Bank of New York. They include Depozitarno-Kliringovy Bank (or DKB), Sobin Bank and Flamingo Bank, all of which are closely linked to Russian import companies. The banks all deny any wrongdoing. Typical of the thousands of transactions that went through Bank of New York accounts now under investigation was a payment made late last year by a Moscow importer of construction material. The head of the company paid a third of his European supplier's price through his firm's formal account at a Moscow bank. The importer submitted an invoice to the Central Bank, which released the required foreign currency. The remainder of the money due the supplier was then sent through a nonresident account at the same Russian bank to the Bank of New York account of Benex, which then shifted the money in just a few hours to the supplier. By hiding the true amount of money paid to the supplier, the maneuver enabled the importer to reduce the amount of duties and taxes owed on the deal. Without this route, says the businessman, his company "wouldn't have made a kopek." Such financial nimbleness by importers and some of their bankers appears to violate Russian laws, though it may be hard for U.S. investigators to prove that it constitutes money laundering. Benex and Torfinex have had their accounts frozen by U.S. authorities and have been placed under investigation, and Mr. Berlin's wife, Lucy Edwards, has been fired by Bank of New York. Nonetheless, other companies are expected to quickly fill the void, one person familiar with the matter says. Otherwise, he says, "Russia will be back to doing all its trade in suitcases." Even the head of Russia's tax police, Vyacheslav Soltaganov, pays tribute to the ingenuity of his country's tax dodgers. "Russian businessmen are very inventive," he says, estimating that 99% of companies don't pay what they should in full. "I leave out 1% just in case... . Maybe there is someone who pays everything." Paradoxically, the need for the system run by Mr. Berlin and Mr. Volkov seems to have its roots in an attempt by the Russian government to combat cheating. In the mid-1990s, it canceled duty-free privileges for various supposed charities, from Afghan veterans clubs to sports associations and religious bodies, that importers had been hiding behind. With such channels blocked, companies sought new ways to avoid duties and the prying eyes of Russian authorities. And this is where Mr. Berlin and Mr. Volkov stepped in. Neither fits the caricature of Russia's post-Soviet nouveau riche. When they met in Manhattan, Mr. Berlin, a graduate of a Moscow technical institute, was a trim, bearded man in his early 40s who took pride in a taste for the arts. He lived in a modest apartment in a tired building in New Jersey. He seemed at odds with the crass and sometimes violent world of Russia's biznismeny, as Russians call a rough-hewn new class born with the collapse of communism in 1991. He began working as an interpreter for visiting Russians, often businessmen, who didn't speak any English. But soon, according to a U.S. business associate, Mr. Berlin became known as the go-to guy who would grease the wheels for Russian businessmen seeking to operate in the U.S. He gave seminars. "He'd bring Russians over and educate them about doing business in the U.S.," the U.S. associate says. By the mid-1990s, he had a bulging roster of Russian bankers and businessmen who had passed through New York. Two of his early clients were 20-something entrepreneurs Dmitri Pevtchouk and Alexander Pliatsevoi. As a new market economy staggered to life in Russia, the pair set up an electronics company. They soon would build the company into one of Russia's largest electronics dealers, a chain known as Dial Electronics. In 1994, Mr. Berlin signed on as sole director of Dial's U.S. export-import arm, known as Dimalex N.Y., and helped Messrs. Pevtchouk and Pliatsevoi transfer money to the U.S. to buy shipments of Japanese electronics. Mr. Berlin later became Dimalex N.Y.'s president. A Dimalex accountant in the U.S. recently received a subpoena to turn over records as part of the Bank of New York probe. The involvement of Mr. Berlin's wife, Bank of New York's Ms. Edwards, is unclear. She declines to comment; the couple's attorney says neither has done anything wrong. Born in Leningrad, Ms. Edwards moved to the U.S. in the late 1970s after marrying an American citizen in the merchant marine; that marriage broke up. She started in banking as a teller, but Bank of New York transferred her to its Eastern European department, founded in 1992, and she eventually became a vice president, acting as the bank's primary contact with Russian and Latvian business clients. Her job gave her no authority over the U.S.-based accounts of Mr. Berlin, say people close to the bank. They say many of Mr. Berlin's business associates met her, and she and Mr. Berlin used their own New York-area addresses as all-purpose mail drops for some of Mr. Berlin's clients. Later, when the couple moved to London, Ms. Edwards sometimes brought along her husband to business meetings with Bank of New York clients, according to a person familiar with the situation. Around 1995 or so, Mr. Berlin saw an opportunity. A person who worked with him says: "He told me, 'There are a lot of companies like Dimalex that need to get their money out of the country.'" Business contacts in Moscow were thinking the same thing. They suggested to Mr. Berlin and Mr. Volkov that they meet. Mr. Volkov, who was 31 at the time, offered an important asset: He understood the mechanics of money transfer. Like Mr. Berlin, Mr. Volkov didn't start out in business but drifted into it. He was a surgeon at the Moscow Medical Dental Institute in the early 1990s. To supplement his miserly salary, he eventually set up a small company called Tetra and traveled dozens of times to Poland, buying compact discs and clothing and hauling them back for sale in Moscow. After he arrived in the U.S. in 1995 with his wife, who had relatives in Brooklyn, he formed Torfinex and did a few deals involving mostly Jeeps. Sometime in 1995, Mr. Volkov started working for a company called General Forex Corp. in New York. Its office was on Queens Boulevard; Mr. Berlin's Benex used the same address. General Forex helped pioneer the approach that is today under investigation. Its principal business was providing money-transmission services on behalf of Russian clients. It used an account with Citibank, now a unit of Citigroup Inc., and handled a relatively small volume of transactions, says a person familiar with its operation. Still, the money transfers aroused Citibank's suspicions: Around the end of 1995, the bank took steps to shut down the account, people familiar with the matter say. General Forex faded out of operation around 1996, but its office space and some of its equipment were taken over by Torfinex, of which Mr. Volkov was the sole shareholder and director. The exact contours of the cooperation between Mr. Volkov and Mr. Berlin are unclear, but an important part of the alliance initiated over Italian food in Manhattan was an arrangement under which Mr. Volkov acted as administrator for money flowing from Russia into Benex's account at Bank of New York, says someone familiar with the matter. Mr. Volkov monitored the flow, verifying account details, acting as a liaison with banks in Moscow and then, with the tap of a few computer keys, transferring the money on to bank accounts around the world, mostly those of manufacturers whose goods had been purchased by importers in Russia. Mr. Volkov started on his own but soon hired two Russian emigres to help. The beauty of the system, says a Russian importer, was speed. Money could leave Moscow in the afternoon, arrive in New York for the start of business the same day and then, after a brief pause to allow Mr. Volkov or his staff to check that all the details were in order, zip off to the other side of the world in just a few hours. By the following morning in Moscow, a trader could contact his supplier, confirm that the money had arrived and work out details of delivery. It was clearly appealing. In early 1997, money flows through a Benex account, which handled most of the transfers at the heart of the investigation, began to surge. They grew from about $100 million a month to up to $270 million a month, people familiar with the matter say. Mr. Volkov was a signatory of that account. Between mid-1996 and August 1999, that Benex account saw a total of almost $5 billion flow through it. Around the same time, Torfinex began offering wire-transfer services for a second Bank of New York account in the name of Becs International LLC. But like General Forex, Torfinex didn't have the license required by the state to operate a wire-transfer service, authorities say. Only in late 1997 did Torfinex formally apply for that license with the New York State Banking Department. To support its license application, which isn't publicly available, Torfinex received a $1 million guarantee from Moscow's Depozitarno-Kliringovy Bank to ensure that Torfinex had enough financial support to do wire transfers, people familiar with the matter say. Among Torfinex's early clients were Russian trading houses Belinda Star and Komfiproekt. Belinda Star gives a glimpse of the world inhabited by some of the companies that use back-channel payment systems. Company registration records identify it as a trading company and list its address as a two-story brick building that is sandwiched between a heap of garbage and a residential block in Moscow. A security guard at the building says the company never operated from the address. A state-owned firm located in the building says that dozens of companies had registered at the address, and that tax police had visited frequently looking for them. Torfinex's efforts to get a license never bore fruit, meaning that it apparently operated a wire-transfer service illegally -- a hook that prosecutors say could help them to assemble a broader racketeering case involving Torfinex, Benex and other companies related to Mr. Berlin. That could prove especially important because a money-laundering case, based on the evidence uncovered to date, could be hard to make. U.S. law requires that prosecutors prove that the funds laundered stem from a specific illegal activity. That would probably not include transferring funds to evade Russian taxes. People who know both Mr. Berlin and Mr. Volkov say they believe neither is the mastermind of any money-moving operation. One person who had contact with the operation says, "The brains are in Moscow." Russian tax and customs officials say they believe importers in Russia were the principal users of the Benex-related system. But investigators still believe that Russian mob money, particularly from Mr. Mogilevitch's allegedly criminal activities, was laundered through Benex accounts. One thing that has complicated investigators' probe into any links between Mr. Mogilevitch and Benex: According to one person familiar with the matter, police were unable to realize their hopes of turning Mr. Berlin and Ms. Edwards into confidential informants before word of the money laundering probe hit the news. Wall Street Journal, Sept. 15, 1999 Princeton Notes Vision of Business Glory Collapses in Securities Fraud Indictment "The old fundamentals must be thrown out the window." For decades, Martin A. Armstrong sold himself to investors as expert on anything of precious value, from coins minted by the Egyptian pharaohs to turn-of-the-century U.S. stamps, not to mention current-day markets for stocks, bonds, commodities and currencies. Now, Mr. Armstrong, arrested in New York on Monday, stands accused in a federal indictment of using this market-wizard image to conduct one of the most common frauds in the history of finance: making big promises to investors that he couldn't deliver. Mr. Armstrong, out on $5 million bail, finds himself accused of securities fraud after allegedly trying to cover up millions of dollars in bets on the yen and other markets that went horribly wrong. It is certainly not the outcome that the 49-year-old Mr. Armstrong envisioned when he fell in love with business as a boy. It was a love that turned him into an active stamp dealer at just 13 years old, only to be kicked out of the stamp world's most elite fraternity as a young man in 1972 amid accusations of selling extremely rare stamps that he didn't own and couldn't deliver. Undaunted, he fought back and became a stamps authority -- and eventually an authority on the far-more-sophisticated financial markets on which he was widely quoted. The self-confident forecasting style made him a hit in Japan, where Mr. Armstrong is now accused of bilking investors out of $950 million. U.S. authorities accuse Mr. Armstrong of using his two companies, advisory firm Princeton Economics International Ltd. -- which has nothing to do with Princeton University but merely is based, like the university, in Princeton, N.J. -- and brokerage firm Cresvale International Ltd. of Asia, to sell Japanese investors securities with the promise of hefty returns. Documents he used to sell his investments show that he promised buyers of his securities that a yield of 4% was guaranteed on the fixed-rate instrument, a strong selling point in a country where interest rates on government bonds are less than half that. Moreover, the securities were designed to offer further returns as high as 25%, depending on market conditions. But one of the most controversial products he offered, according to officials in Tokyo, promised corporations that they could earn back the paper losses that have been sitting on their books since the crash in Japanese asset values earlier this decade. Mr. Armstrong held repeated conferences over the past four years at the Imperial Hotel in Tokyo, in which hundreds of Japanese corporate chieftans heard his market views; the talks whipped up interest in his products. As proof of his acumen, he showed investors the returns he had delivered to earlier investors in his securities. He had delivered these returns, he told investors, by moving money around the world in a series of investments in stocks, bonds, currencies and commodities. What he didn't tell investors, federal prosecutors say, was that in recent months, the performance he boasted of was false. Mr. Armstrong's bets on the markets increasingly began turning against him. The Securities and Exchange Commission says that from late 1997, Mr. Armstrong began to rack up increasingly big losses on large investments he made in currencies and options. Between November 1997 and August 1999, for example, SEC officials say Mr. Armstrong lost $295 million in trading the yen alone -- all money that belonged to clients. "In the wake of the discovery of the fraud," the SEC said in its civil complaint filed Monday, "Armstrong has transferred millions of dollars from Princeton Global accounts into foreign-bank accounts he controls." SEC officials declined Tuesday to disclose how much money Mr. Armstrong allegedly transferred overseas, or to what countries. Officials at the Commodity Futures Trading Commission, which brought their own civil action against Mr. Armstrong, along with the SEC's, say Mr. Armstrong was trading in yen, crude-oil and precious-metals futures from a trading account segregated from various customer subaccounts. In August, he pulled money from the individual accounts to cover losses in the trading pool, says Daniel Nathan, CFTC deputy enforcement director. "To the extent that the trading losses were passed along, the value of the individual collateral accounts was vastly overstated," says Mr. Nathan. Yet all during the time when his alleged misdeeds took place, Mr. Armstrong continued to confidently sell himself as a forecaster of market trends, often in language in which he mocked others' mistakes. "The hedge-fund community has suffered huge losses this year in their futile attempt to sell the dollar against the Japanese yen," Mr. Armstrong wrote on his Web site (www.pei-intl.com) on May 13, 1999. "The old fundamentals must simply be thrown out the window." The Japanese ate it up -- to their later regret. More than 80 Japanese companies are owed money by Mr. Armstrong, and whether they will ever be repaid is now in doubt. "He was very famous and his investment theory was coherent," said Kohichi Kiuchi, head of the accounting division at Amada Co., which invested in Princeton products. "But now, my impression on him is totally different." What gave these investments added cachet was the fact that an official at the securities unit of Republic New York Corp., serving as custodian for Mr. Armstrong's trading accounts, issued letters that appeared to confirm huge profits on earlier investments. Mr. Armstrong, in turn, passed those letters on to Japanese clients as evidence of the huge returns on his products. Attorneys for Republic told investigators that the head of the securities unit's futures division, William Rogers, based his confirmation of net asset values simply on Mr. Armstrong's instructions. Mr. Rogers "did not generally confirm the accuracy of the confirmation letters" by checking the accounts, according to the criminal complaint filed by federal prosecutors in New York. Mr. Rogers, one of two Republic employees suspended over the matter, couldn't be reached for comment. The SEC is now trying to determine who else at Republic was aware of the scheme, according to a person familiar with the investigation. Meanwhile, law-enforcement authorities accuse Mr. Armstrong of running what is known as a Ponzi scheme: He "fraudulently used monies obtained from more recent" securities to "pay principal and interest due on older" securities, according to the complaint. Mr. Armstrong's lawyer, Marc Durant, won't comment on specifics, but says Mr. Armstrong is being made a "scapegoat" for wrongdoing at Republic's securities unit. Officials at Republic declined to comment. Britain's HSBC Holding PLC said its plans to acquire Republic, announced earlier this year, may be delayed because of the affair with Mr. Armstrong. Mr. Armstrong's reams of investing treatises, many posted on his Web site, range from the monetary history of Persia to the "panic cycle in global capital flows." The historical database maintained by Princeton Economic International has been used by many media outlets. The "first and most important rule about investing is to 'Know what you are buying and why!' " he warned in a July 1997 report headlined, "What the Press Doesn't Tell You About This Bull Market in Stocks." But several analysts say they were hesitant to follow Mr. Armstrong's analysis because of his heavy trading in the markets he covered. (Among other things, he is one of the biggest silver traders on the New York Mercantile Exchange's Comex division.) "I basically would ignore him because I knew he had an inherent conflict of interest," says Gil Atzmon, portfolio manager for U.S. Global Investors. In January 1998, when silver was rising sharply, Mr. Armstrong told the media he was contacted by a plaintiffs' lawyer pursuing a civil price-manipulation lawsuit involving that market. The rumors of the lawsuit slammed silver prices for a 3% one-day loss. At the time, Mr. Armstrong said his firm had a trading position that would rise in value as the price of the metal declined. Silver prices bounced back, and the lawsuit was eventually filed by silver-market investors and dismissed. "We were asked our opinion if the market was being manipulated or not and is there probable cause to go ahead" with a suit, Mr. Armstrong told Dow Jones Newswires at the time. "Based on the evidence I have seen and research that we have done, the answer is yes." The CFTC investigated the silver-price spike in general but didn't bring a case. On two previous instances, Mr. Armstrong did face CFTC scrutiny. In 1985, the agency lodged a complaint against him for allegedly not registering and maintaining proper investment records. Then in June 1987, the agency fined Mr. Armstrong $10,000 and suspended his trading privileges for a year for improper risk disclosure and misrepresentation of his trading returns; part of the complaint was related to advertising in a Princeton newsletter. Geoffrey F. Aronow, a former CFTC enforcement chief, says the substance of the latest charges against Mr. Armstrong aren't unusual at the CFTC. Only the amount of money is. Unlike other market participants Tuesday, Mr. Aronow wasn't shocked that such a small firm was allegedly involved in manipulating so much money. "If people are holding onto their positions in [a fund like Princeton], then it becomes like a bank and there's no event to call attention to fraud," Mr. Aronow says. "In that case, I'd almost reverse the question. How could anyone know?" Mr. Armstrong's current troubles were foreshadowed 30 years ago. Barely out of his teens, the avid stamp collector in 1969 published an ad in a stamp journal claiming he had rare and valuable stamps for sale, including two 1904 stamps. "These were extremely rare stamps," Ken Lawrence, an authority on stamp collecting, says now. A few months later, another stamp collector ran his own ad saying he had those same stamps in his collection, not Mr. Armstrong. The case remained a mystery for years until the second collector's stamps came on the market in 1996, revealing that the second collector had the stamps and not Mr. Armstrong. "One of the strangest episodes in the history of the stamp hobby may finally be put to rest," said an article in the January 1997 edition American Philatelist, a stamp-collectors' journal. Mr. Armstrong's attorney declined to comment on the matter Tuesday. Despite the problem, and his eventual dismissal from the American Philatelic Society in 1972, Mr. Armstrong in subsequent years wrote and published three books on stamp collecting that would become authoritative texts for collectors. Now out of print, those three editions are themselves sold as collectors' items at stamp auctions. Over the years, Mr. Armstrong has had his accurate calls on more-conventional investments. Until 1995, his prediction about the movement in various Japanese financial indexes proved fairly accurate, which helped fuel sales by his staff of eight employees at the Cresvale brokerage branch in Tokyo. He wasn't shy about promotion, jumping at the chance to have his picture taken with heavyweights in any market in which he was playing. Princeton Economics' Web site, which is filled with Mr. Armstrong's essays on the markets, shows a photo of Mr. Armstrong with former United Kingdom Prime Minister Margaret Thatcher at one of the firm's conferences in 1996. Meanwhile, on the investment-lecture circuit, there apparently had been little inkling of Mr. Armstrong's impending arrest. Mr. Armstrong is scheduled to be one of the two keynote speakers at the Canadian Society of Technical Analysts conference Oct. 16-19. Larry Berman, president of the society and head of fixed-income research for CIBC World Markets, says he never has met Mr. Armstrong but has sometimes seen the Princeton Economics research. "I've been told he is an excellent speaker, and he certainly has a wealth of knowledge," Mr. Berman said Tuesday. Mr. Armstrong will probably withdraw from the conference now, but if he decides to go through with it, Mr. Berman said, "That's great. If he comes, in my mind these are all allegations. Nothing has been proven." The Wall Street Journal, Sept. 15, 1999 US Current Account US Current Account Deficit Breaks Record How long will foreign suckers continue to loan America money? The dollar sank sharply yesterday as a record current account deficit and strong retail sales data threatened a shortage of capital flows into the US. Stocks and bond prices fell in the US after the data were released, raising the prospect of international investors fleeing the US for other markets. This drove the dollar down to a fresh three-year low against the yen of �105.1. The current account deficit soared to an all-time high of $80.7bn (�49.7bn) in the second quarter, a 17.5 per cent increase from the revised $68.7bn deficit in the first quarter and a record both in dollar terms and as a share of gross domestic product. Although the deficit was only slightly higher than market expectations, it increased analysts' concerns that there is little end in sight to the trend. Yesterday the Dow Jones Industrial Average closed 1.09 per cent down, while the benchmark long bond fell nearly 1 point to 100 1/8, sending the yield up to 6.115 per cent. The US currency's strength has been sustained for several years by foreign investment in US assets. This has compensated for the deficits on the current account, which mainly comprises trade in goods and services and income from investments abroad. But recently Japanese investors - the largest foreign holders of US Treasuries - are reported to have been deserting US assets and repatriating capital to Japan, helping the yen to rise. Yesterday the Bank of Japan intervened in the foreign exchange markets for the second time in a week to slow the yen's appreciation against the dollar, but their estimated $1bn-$2bn sales of yen had little effect. The US has said it supports the principle of a strong dollar but has indicated it is not prepared to intervene in the currency markets at this stage. Analysts said that with the dollar weakening, there was increasing doubt in the markets whether foreign investors would continue to prop up the current account deficit by buying US assets. "Foreign investors are asking themselves why they should keep funding the US to consume itself silly," said Tony Norfield, global head of treasury research at investment bank ABN-Amro. The Commerce department also reported yesterday that retail sales rose by 1.2 per cent in August to $252.4bn, up 10.6 per cent from the same period a year ago. The rise between June and July was also revised up from 0.7 to 1 per cent. The largest increase came in sales of durable goods, which rose by 1.8 per cent on the month and were 14.1 per cent up on last year. Mr Norfield said the retail sales data contributed to a fear that the Federal Reserve was "behind the curve" on restraining US growth and would have to raise interest rates. The biggest culprit in the current account deficit was a continuing imbalance in goods and services, as a hoped-for increase in exports to recovering Asian economies failed to materialise. The Financial Times, Sept. 15, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html http:[EMAIL PROTECTED]/ ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
