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S.E.C. v. PRINCETON ECONOMIC INTERN. LTD.

February 2, 2000

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
V.
PRINCETON ECONOMIC INTERNATIONAL LTD., PRINCETON GLOBAL MANAGEMENT LTD. AND MARTIN A. ARMSTRONG, DEFENDANTS. COMMODITIES FUTURES TRADING COMMISSION, PLAINTIFF, V. PRINCETON ECONOMIC INTERNATIONAL LTD., PRINCETON GLOBAL MANAGEMENT LTD. AND MARTIN A. ARMSTRONG, DEFENDANTS.



The opinion of the court was delivered by: Owen, District Judge.

OPINION AND ORDER

On September 13, 1999, Judge Kaplan of this Court entered a Temporary Restraining Order upon application of the SEC and CFTC restraining defendants from further violating securities laws, freezing defendants' assets, appointing a Temporary Receiver to collect the assets and report, and granting other relief. As part of this TRO, the Receiver, attorney Alan M. Cohen, was authorized to "take and retain immediate possession, custody, and control of all assets and property" of corporate defendants Princeton Economics International Ltd. ("PEI") and Princeton Global Management Ltd., and "to manage, control, operate, and maintain their businesses." (TRO ¶¶ X.A, X.D). The Preliminary Injunction entered on October 28, 1999 ("PI Order") continued the receivership on terms identical to those of the TRO. (PI Order at 6-7). Both the TRO and the PI Order required Armstrong and his agents to provide the Receiver with "all assets of the corporate defendants which they have in their current possession, custody, or control." (TRO, ¶ XV.C; PI Order at 6-7).

At the inception of a now extensive investigation to locate and obtain such assets of the corporate defendants, and various related entities, the Receiver conducted a computer database search for real property owned by the defendants. This search identified a beach house located at 91D Long Beach Boulevard, in Loveladies, New Jersey, as a potential asset of the corporate defendants, the property being recorded by county tax authorities in the name of Princeton Economic Institute (the "Institute"). (Decl. of Tancred Schiavoni dated Jan. 5, 2000 ¶ 10).

From further investigation it appears:

1) The beach house and an adjoining lot were sold to Princeton Global Management Holdings, Inc. ("PGM Holdings") on October 8, 1993 for $1,565,379. (Id. ¶ 19, Exs. 4, 5).
2) The 1997 and 1998 tax returns of PGM Holdings identifies the beach house as its principal, if not its only, asset. (Id. ¶ 11, Ex. 6).
3) The 1997 property tax bill was issued to PGM Holdings. (Id. Ex. 3).
4) The 1998 and 1999 property tax bills were issued to the Institute. (Id. Exs. 1, 2).
5) From 1996 to 1999, all operational and maintenance expenses for the beach house were paid for from PGM Holding's account at Summit Bank. (Id. ¶¶ 24-25).
6) In May 1996, the PGM Holdings Summit Bank account received a credit from Caldwell Banker Real Estate Co. in the amount of $398,121.59, which represented the entire proceeds of the sale of the lot adjoining the house. In June 1996, $398,121.59 was transferred to the account of PEI at Republic New York Securities. (Id. ¶¶ 34, 35, Ex. 7).

In light of foregoing, the Receiver, contending that the beach house is an asset of the corporate defendants subject to the receivership, moved for an order (1) putting the beach house in his possession and control; (2) enjoining Armstrong or anyone else not acting under the direction of the Receiver from entering upon the property; (3) authorizing him to rent the house; and (3) authorizing him to explore the sale of the house. Armstrong opposes the motion by claiming that the beach house had been sold on September 7, 1998, and therefore it is not a corporate asset.

From the documentation presented, PGM Holdings (owner of the house) is wholly owned by two limited liability companies organized in the Turks and Caicos Islands, Princeton Global Management A Ltd. ("PGMA") and Princeton Global Management B Ltd. ("PGMB"). (Id. ¶ 47, Exs. 15, 16). The Articles of Association of both these companies authorize each to issue 2000 shares of stock. Stock certificates obtained from PEI's office in Princeton, New Jersey confirm that all these shares, 2000 shares of PGMA and 2000 shares of PGMB, were issued to PEI. (Id. ¶¶ 50-55, Exs. 18, 19). From this, it appears that the beach house is owned by PEI through the said subsidiaries, and as such it is an asset subject to the receivership.

Armstrong, however, contends that on September 7, 1998, in effect, PEI "swapped"*fn1 its ownership in the house by transferring ownership of PGMA and PGMB, among other assets, to a GNPK Family Trust (the "Trust"), an Australian entity with one Nigel Kirwan as trustee, in payment for the Trust's 50% interest in a public Australian fund known as Princeton Metals and Capital Market Fund ("PMCM").*fn2 (Decl. of Martin P. Unger dated Jan. 12, 2000 ¶ 2). Under a contemporaneous side letter, the bill of sale for the house was amended to delay for a year the turnover as to the house with PEI continuing to maintain the house and pay all expenses — which were significant, running several thousands a month — at which point ...


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