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

July 17, 2001

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



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

OPINION & ORDER

This Opinion and Order serves to supplement my prior oral findings and order of July 6, 2001 that the previously-imposed confinement of Martin A. Armstrong in the Metropolitan Correctional Center on an order of civil contempt still serves coercive purposes; it might yet yield its intended result and should therefore be continued in order to coerce compliance with this Court's Contempt Order of August 25, 2000. The estimated value of the missing corporate assets, as documented by the Temporary Receiver,*fn1 is approximately $14.9 million and Armstrong has come forward with not a scintilla of evidence to suggest good faith efforts to comply with the Contempt Order, or that he is either unable to comply or that the contempt has lost all of its coercive effect.

I reached this conclusion at the hearing on July 6, 2001 and, upon receipt of opposition papers from Armstrong's CJA counsel, I reexamined the issue and remain of the opinion, based on my "individualized assessment" of Armstrong and the circumstances of the contempt, see In Re Grand Jury Subpoena (John Doe), 150 F.3d 170, 172 (2d Cir. 1998), that there is a "realistic possibility" that extending the term of Armstrong's confinement will eventually compel compliance with the Contempt Order. See Simkin v. United States, 715 F.2d 34, 37 (2d Cir. 1983); United States v. Salerno, 632 F. Supp. 529, 531 (S.D.N.Y. 1986) (citing In the Matter of Milton Parrish, 782 F.2d 325 (2d Cir. 1986)). The authority for such continuation is derived from the District Court's general and inherent equitable powers to coerce compliance with its lawful orders.*fn2 See Chambers v. NASCO, be., 501 U.S. 32, 44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Shillitani v. United States, 384 U.S. 364, 86 S.Ct. 1531, 16 L.Ed.2d 622 (1966); Sigety v. Abrams, 632 F.2d 969, 976 (2d Cir. 1980).

The burden is on Armstrong to prove impossibility of compliance or that confinement has become punitive and not coercive. See In re Marc Rich & Co., A.G., 736 F.2d 864, 866 (2d Cir. 1984); Simkin, 715 F.2d at 36-37. Armstrong has net produced the missing black Compaq computer (Contempt Order, ¶ 1(1)), the missing gray Dell computer hard drive (Contempt Order, ¶ 1(2)) or any additional corporate assets since January 14, 2000, all of which are specifically identified in the Contempt Order of August 25, 2000.*fn3 Further, Armstrong has communicated no information whatsoever about the present disposition of those items to the Temporary Receiver, despite no fewer than fourteen letters from April 2000 through June 2001 from the Temporary Receiver to Armstrong personally and his attorneys; all of this correspondence, the latest of which, representative thereof, is attached hereto as Appendix A, offers the Receiver's assistance in retrieving items identified in the Contempt Order and purging Armstrong's contempt. Nevertheless, Armstrong has not come forward with any evidence regarding the whereabouts, much less produced, the 102 gold bars (Contempt Order, ¶ IV(2)), the 699 gold bullion coins (Contempt Order, ¶ IV(1)), the ancient coins purchased pre-September 1998 (Contempt Order, ¶ IV(4)) and the $750,000 bust of Julius Caesar (Contempt Order, ¶ IV(3)), all detailed, again, in this Court's Contempt Order at pages 9-18 and, once more, in the declaration of Tancred V. Schiavoni, Esq., Special Counsel to the Temporary Receiver, executed on July 6, 2001, at ¶¶ 2-3, 6-12.

The burden of producing such evidence is on Armstrong. "It is well-settled that if a court finds that a defendant could at some time in the past have complied with a court order, the court should presume a present ability to comply . . . ." See Thom, 760 F.2d at 739-740 (quoting United States v. Rylander, 460 U.S. 752, 757, 103 S.Ct. 1548, 75 L.Ed.2d 521 (1983)). The record is clear that Armstrong remains in possession, custody and control of the corporate assets identified in the Contempt Order and, most recently reidentified in the Stamoulis and Schiavoni Declarations. For example, Armstrong testified at the contempt hearing on January 14, 2000 that he took the gold bars from the office at Carnegie Center in 1998, brought them home and subsequently gave them to Akira Setogawa after Setogawa showed up in a limousine at Armstrong's home. However, the limousine driver, Michael Faulkner, whom Armstrong testified at the contempt hearing witnessed Setogawa take the missing gold bars, denied during a deposition that he ever saw Armstrong give any gold or gold bars to Setogawa. The Temporary Receiver also submitted a signed*fn4 transcript of the examination of Nigel Kirwan, in a proceeding to which the Receiver was not party, on which Armstrong relies to support his assertion that Kirwan is holding the assets in trust and Armstrong has no control over Kirman. Armstrong's counsel argued:

And if I could, your Honor, the only thing is to comment on the Kirwan deposition, which [is] one of the documents of the receiver relies upon — part of the deposition that the receiver cites is that part that talks about the assets being held in trust, that Kirwan's holding certain assets in trust, in Australia, and I don't see, even if Mr. Armstrong is released, he's not traveling to Australia to recover those assets and I don't think that Mr. Kirwan would follow any particular order of Mr. Armstrong to release those assets even if he had the power to ask him to do so.

(Tr. at 30.) Kirwan's answers in this deposition, however, are some of the strangest, most unbelievable, statements this Court has ever encountered. Kirwan claims to be the trustee of two trusts with the same name. (Kirwan Dep. at 89., attached as Ex.18 to Schiavoni Decl.) He testified that one trust has a bank account in Switzerland, (Kirwan Dep. at 91), but he does not know the name of the bank (id.) and does not have any documents in Australia that show the identity of the bank (Id.) despite his position as trustee. If such statements were not enough to warrant dismissal of Kirwan's assertions in this examination, I observe that Kirwan never acknowledges actually having the assets anywhere in the transcript.

Put simply, there is no new evidence before me. Armstrong has provided me, but mostly the Court of Appeals, nothing but self-serving and conclusory statements that he does not have possession, custody or control over the assets sought by the Temporary Receiver, but has come forward with no hard evidence to substantiate this assertion. See Rylander; 460 U.S. at 757-758, 103 S.Ct. 1548 (holding defendant does not meet burden of production with an ex parte affidavit denying ability to comply). Thus, he has not satisfied his burden of production.

Armstrong's remaining assertion is that he cannot comply, and cannot be ordered to comply, with the Contempt Order because he is under indictment in a parallel criminal proceeding. Armstrong argues that, even assuming he had possession, custody or control of the missing corporate assets, compliance with the Contempt Order violates his Fifth Amendment privilege. This assertion must be disregarded on two grounds. First, Armstrong has undeniably waived his Fifth Amendment privilege. He did so on January 14, 2000 at the Contempt Hearing when he testified regarding the factual circumstances surrounding the gold bars, the coins, antiquities and bust of Julius Ceasar and, moreover, that he no longer had possession of these items — all testimony I did not credit. Regardless of my credibility determination on these issues, had he wished to remain silent for fear of self-incrimination at that time, he could have done so by asserting the Fifth Amendment. His failure to do so operates as a waiver of the privilege.*fn5 Second, Armstrong's mountain of papers do not support any assertion of the Fifth Amendment. His current position, documented in an affidavit attached to his counsel's papers of July 11, 2001, is that he does not have possession, custody or control of the missing corporate assets. If this is the case, the Fifth Amendment cannot be asserted in good faith. In my effort to truly make an "individualized determination" about the Contemnor and the circumstances surrounding his contempt. I have reviewed the submissions and proceedings in the Second Circuit. Even the Court of Appeals expressed disbelief regarding his Fifth Amendment claim.*fn6 The following was the colloquy on the issue when the Circuit reviewed the Contempt Order:

The Court:*fn7

How does the Fifth Amendment issue arise — um, if, um, if Mr. Armstrong's position is that he doesn't have it? If he doesn't have any of these things, well, isn't it idle to talk about whether hypothetically it would be a violation of his Fifth Amendment rights to turn them over? To assert a Fifth Amendment right, wouldn't Mr. Armstrong have to say, "I have it" and "I won't give it to you because of my Fifth Amendment right?"

SEC:

Well, arguably, he has testified that he has had the assets and that he had given them to somebody else, an argument that the ...

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