United States District Court, Southern District of New York
February 2, 2000
SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
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.
The Receiver has put before the Court documentation showing
that the Institute
and PGM Holdings hold the deed and the tax title to the beach
house. Armstrong does not dispute this. Thus, if these subsidiary
entities are corporate assets, the beach house is a corporate
asset and subject to the receivership. The first entity, the
Institute, is dealt with easily. In a previous ruling on October
14, 1999, I concluded that the Institute is a corporate asset and
subject to the receivership. The second entity, PGM Holdings,
requires some tracing.
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 Kirwan was "free in [his] sole capacity
to decide to rent the house or sell it at [his] discretion."
(Id. Ex. B). This "year" was up September 7, 1999, five months
ago (of which more later).
Annexed to the opposing declaration of Armstrong's attorney,
Martin P. Unger, are photocopies of a document headed "BILL OF
SALE" dated September 8, 1998, a letter to Kirwan from (and
signed by) Armstrong on behalf of PEI to relating to this
transaction,*fn3 a shareholders resolution for PEI approving
this transaction, and, still only in photocopy, a "declaration"
from Kirwan. (Id. Exs. A-D). Further in opposition, at oral
argument, Armstrong's counsel handed the Court photocopies of
three sheets of paper purporting to be stock certificates of PGMA
and PGMB issued to the Trust and a stock transfer of PGMB stock
from PEI to the Trust. (Tr. of Jan. 24, 2000 at 17). Significant
is the fact that I (the Court) was never furnished the originals
of any of these documents including the Kirwan declaration and
Armstrong did not furnish an affidavit giving sponsorship as to
any of them, so they are all sheer hearsay coming in on
Armstrong's attorney's opposing declaration.
By reason of the above — and more hereafter — I do not give
credit to any of the documents produced in opposition and treat
them as nullities. They are all photostats and not competently
sponsored by anyone with knowledge of their authenticity. See
Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 643 (2d Cir.
to the stock certificates and stock transfer, Kirwan's
"declaration" recited that they were attached. They were not
attached to the copy Unger annexed to his declaration, and I have
never received the original of Kirwan's declaration, though two
weeks have passed. Moreover, not only were the typed-on sheets of
paper purporting to be the stock certificates, according to Unger
given him by Armstrong a few days before the argument,*fn4 but
they bear incorrect certificate numbers, being "1001" in each
case, whereas the prior undisputedly valid certificates are each
numbered "3 to 2000." I also observe that it is significant as to
why, as of September 7, 1998, Armstrong would not have had the
standard printed form of stock certificates issued to Kirwan by
Princeton Global's transfer agent for this $2 million house.
(See Schiavoni Decl. Exs. 18, 20). Viewing these circumstances
in light of the fact that the current company records show that
PEI owns PGMA and PGMB, and that the only formal stock
certificates produced are those offered by the Receiver, which
show that PEI owns the shares of PGMA and PGMB, I accept this
showing of ownership.
I am reinforced in this view by the fact that even were
Kirwan's "declaration" credited, and the supporting documents
Exhibits A, B, and C to Unger's declaration credited, they are
completely undercut by buyer Kirwan's conduct in the days before
and the five months since September 7, 1999, the date upon which,
according to the purported bill of sale, he was free to sell or
rent the beach house, for Kirwan has never exhibited any interest
at all in the house, either as owner or as trustee of the owner.
Indeed, I explored this at length at oral argument, excerpted as
THE COURT: [T]he question is . . . September 13 of
'99, that Mr. Kirwan*fn5 has picked up the stroke
with regard to paying any expenses? According to the
position here, he owns the house, right? He owns the
house, and, therefore . . ., assuming that it is
credited that these documents give him the house
since the beginning to September, one would expect
that there were a lot of things, that he would try to
rent it, he would try to sell it, he would try to use
it, he would be writing people he has got a $2
million asset that I gather can be rented for some
profit, and do you have any evidence whatever, any
document, any letter Nigel to Martin: Martin, the
year is up and I want to take over the house and I
want to rent it; I want to sell it, or I want to do
this, or I want to do that? Anything at all?
MR. KALARIA: Your Honor, I do not.
THE COURT: You see, the [Receiver] is making a case
based on documentation that this whole transaction
[with GNPK Trust and Kirwan] is a sham. And these
documents, they suggest to me, are a fabrication. . ..
Let me ask you this: Do we have any documentation?
Let me ask the front table: Did we have any
documentation of — it's sort of public knowledge,
isn't it, because the temporary receiver has been
going in and out of that house looking at things and
taking things out,
no question about that, right? Starting when?
THE COURT: What I'm looking at is this: If this is
Mr. Kirwan's house, he is saying to himself, "this
guy Cohen and his minions are going in and out of
that house of mine. What the heck are they doing
there, okay?" And what I want to know is: when was
that first entrance, so to speak, so that he is on
notice that this is happening? And then I gather
there isn't a scintilla of evidence that he makes one
peep about anything going on in that house, not even
to today, which is January 24?
THE COURT: Well, in any event, [Kirwan] did not
feel sufficiently moved to complain about this
ravaging of his house, right?
MR. KALARIA: For whom to complain, Your Honor?
THE COURT: Mr. Kirwan or anybody else saying: what
is this temporary receiver doing in my house? That's
my house. I own it. I bought it. I have a letter. I
have a bill of sale. . . . They started going in the
MR. SCHIAVONI: November.
THE COURT: November. They have been going in since
November. . . .
THE COURT: Since September of '99, there is no
letter to anybody saying I own the house and you
people are trespassers and you temporary receivers
with all your high-priced lawyers going down there. .
. . There are no complaints [to] the police
department . . . [p]eople are going in my house. I
want a patrol over there to keep them out. Nothing
like that. If he owned a two million dollar house,
all of those things would have happened. (Id. at
To explain Kirwan's silence, when it was raised during the
argument, Armstrong whispered to his lawyer, who then said to me
that Armstrong had just told him that since he had an agreement
with Kirwan to buy back certain coins up to December 31, 1999,
(Unger Decl. Ex. B), Kirwan held off doing anything with the
house. (Tr. of Jan. 24, 2000 at 44). I simply give no credence to
this unsworn hearsay statement, Armstrong to Kalaria to me.
In summary, giving no weight or credence to the documents and
evidence offered by the defendants to show that PEI has not owned
PGMA and PGMB since September 7, 1998, and finding that PGM
Holdings, which owns the beach house, is, in turn, owned by PGMA
and PGMB, which are, in turn, owned by PEI, accordingly, the
house is a Princeton defendant corporate asset subject to the
receivership as set forth in the TRO and PI Order. It is further
ordered that forthwith Armstrong and anyone else not acting
under the direction of the Receiver are enjoined from entering
the grounds of interior of the beach house. The Receiver is also
authorized to rent the beach house, and to explore the possible
sale of the beach house. Lastly, Armstrong or a designee is
ordered to turn over within five days any and all keys or access
devices to the beach house property in his possession to the