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SECURITIES AND EXCHANGE COMM. v. PRINCETON ECON. INTL.

April 22, 2002

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



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

OPINION AND ORDER

Defendant Martin A. Armstrong*fn1 has moved under date of March 21, 2002 to recuse me as the Judge presiding over this civil action. He alleges various grounds. The first is the Court allegedly "authorizing a secret judicial inquisition of past conduct further ordering the withholding of all evidence gathered thereby, the use of the ancillary power of the Court constitut[ing] a non-judicial act that violates Article III." (Armstrong Moving Papers, p. 27.) Mr. Armstrong bases this claim on ¶ 13(b) of a certain eight page Memorandum of Agreement ("MOA") dated October 7, 1999*fn2 entered into and signed by the Temporary Receiver of Mr. Armstrong's companies and the off-shore Joint Provisional Liquidators ("JPLs") of Mr. Armstrong's properties, which MOA was the subject of discussion with Mr. Armstrong's counsel Martin Unger, Esq., in open court on October 14, 1999, and a copy furnished to him. ¶ 13(b) of the MOA reads:

The Receiver and the JPLs acknowledge and agree that they shall not and they shall direct their respective agents and representatives not to provide any nonpublic information regarding Group[*fn3] or its Assets to Martin Armstrong, Martin Armstrong, Jr., Victoria Armstrong, any person or entity known to be under their direct or indirect control or acting in concert with any of them, any other former officer, director or employee of PEL or PGM, unless the provision of such information is either (a) agreed to by the Receiver and the JPLs, (b) required by applicable law, or (c) required by order of Either Court.

This "secret judicial inquisition" claim as well as the other claims can be properly assessed in the context*fn4 of this very action against Mr. Armstrong*fn5 which started on September 13, 1999, when the Securities and Exchange Commission and the Commodities Futures Trading Commission (hereafter collectively "SEC") came in with an application for an order freezing the assets of Mr. Armstrong and his Princeton companies, appointing a Temporary Receiver therefor and other relief The case was assigned to me from the wheel, but happening to be out of the Courthouse that afternoon, the application for immediate relief went to Judge Lewis A. Kaplan in Part I, who that afternoon made a number of findings including:

It appears that Defendants, directly and indirectly, have obtained billions of dollars from investors by making materially false and misleading statements in the offer or sale, and in connection with the purchase or sale, of securities.

It appears that Defendants may attempt to destroy, alter or conceal documents.[*fn6]

(TRO, Sept. 13, 1999, pp. 2-3.)

That same first afternoon, Judge Kaplan, from a list of three names submitted by the SEC, appointed Alan M. Cohen, Esq.*fn7 as the Temporary Receiver of Martin A. Armstrong's companies, which authorized Cohen to take possession and control of all assets and to operate the businesses with the view towards preserving assets for potential recompense for any injury found to have been inflicted on public investors.*fn8

Within days of the said September 13, 1999 takeover by the Temporary Receiver, under circumstances of relevance to the issues now before the Court — such as the different directions from which the two parties to the MOA had come,*fn9 the Temporary Receiver and subsequently appointed JPLs entered into that agreement providing for how the two groups were going to conduct their various duties vis-a-vis each other to identify, recover, preserve and protect any recovered Princeton and Armstrong assets in an efficient and cost-effective manner, to maximize the recoveries of anticipated creditors in respect thereof, including any appropriate recovery from Mr. Armstrong personally. (MOA ¶¶ 1-5.)

It is against this background, including Judge Kaplan's finding of a sufficient preliminary showing that Mr. Armstrong and his companies had obtained at least many, many millions of dollars from false statements in connection with the sale of Princeton notes and Judge Kaplan's further conclusion that a showing had been made of the risk of the destruction of evidence, that it is obvious that the Temporary Receiver, now having established some arrangement with the JPLs, doubtless pressed for the agreement with them in part 13(b) that neither party would reveal to Mr. Armstrong, whom Judge Kaplan had determined to be the arguable architect of this debacle, or any Armstrong family member, et al., any non-public information that they obtained in the performance of their various asset-collecting duties unless required by Order of this Court or the Supreme Court of the Turks and Caicos Islands.

The MOA, as observed, was not negotiated with Mr. Armstrong, but was presented to me for consideration during a hearing on October 14, 1999 as to the Preliminary Injunction. Mr. Armstrong had three lawyers present including Martin A. Unger, Esq. When the MOA was brought up, Mr. Unger stated that he had not seen it and said, "If your Honor considers it appropriate, since apparently this order affects Mr. Armstrong, I would like to have a chance to review it and maybe even oppose it." (10/14/99 Tr. 11.) The SEC provided the logical explanation why Mr. linger had not seen it, and the Court facing time pressures involving the order for the Preliminary Injunction presented for signature (which contained the proposed approval of the MOA), the transcript reads: "THE COURT: [Addressing Mr. linger]. I am going to sign it. It will be up to you to move to vacate [the MOA] if you find there is something in here that is improper." (Id. at 11-12.)

Mr. linger was thereupon furnished with a copy of the MOA and one would assume he showed it to his client Mr. Armstrong, but in any event nothing further was ever heard from either Mr. Armstrong or Mr. Unger with regard to the MOA until February 22, 2002 — twenty-eight months later — when Mr. Armstrong, now pro se, first raised the present claim that by ¶ 13(b) of the MOA the Court was "authorizing a secret judicial inquisition . . ." (2/22/02 Tr. 43-47.) The above examination establishes this as contrary to fact and the conclusion is rejected.

Mr. Armstrong next asserts that having sought to take Temporary Receiver Cohen's deposition as to alleged ex parte contacts Mr. Armstrong claims Mr. Cohen had with the Court, that "this court retaliated by closing the court and ordering the press to get out." (Armstrong Moving Papers, pp. 31-32; emphasis supplied.) What the connection is between Mr. Armstrong's deposition application and the closing of the courtroom as a claimed retaliation thereto is not explained, but at that hearing, April 24, 2000, everybody was in the courtroom including Mr. Armstrong and his six lawyers,*fn10 four from the firm of Tenzer Greenblatt,*fn11 and his two criminal defense lawyers.

The background of the closing of the courtroom that day was that Mr. Armstrong had earlier caused to be delivered to the Court two handwritten unsworn letters.*fn12 In one he charged his civil lawyers. Tenzer Greenblatt, with abandoning him by failing to contact him in the Metropolitan Correction Center ("MCC") for the prior two months,*fn13 and in the other letter, he made the statement that Receiver Cohen and the Court had engaged in the impropriety of "numerous ex parte meetings and telephone conferences . . . ."

Because Mr. Armstrong's basically hearsay accusations were quite derogatory to lawyers in several directions, not to mention the Court, the Court determined to explore them in a "robing room" — type setting, although using the courtroom itself because of the substantial number of persons involved. The courtroom deputy put a sign on the courtroom door that the courtroom was closed. One reporter appeared, Noelle Knox, from the Associated Press, who inquired as to this and was advised it was a closed session. The Court is not aware she protested, and she, Ms. Knox, obviously received full access to the transcript of the session, for three days later she reported the proceedings that day having also interviewed Mr. Armstrong. (Exh. J to Armstrong Moving Papers).

As to the-proceeding that day itself, the transcript at the beginning in relevant part reads as follows:

THE COURT: [W]e are here because of two handwritten letters of Mr. Armstrong's to me. . . . Mr. Armstrong has, by his criminal counsel, Mr. Siegel,*fn14 had delivered to me a letter dated April 13, 2000. . . . Now, Mr. Armstrong . . . I don't believe that I am required to deal with your letter at all, unless it is before me in competent form, and by that I mean that either you have put it in an affidavit form, which you did not, or you take the witness stand here under oath and testify to the accuracy of the contents. If you do that, I then have it competently before me. Without that, I merely have a letter, which is unsworn and in my opinion not competent to raise the issues that you seek to raise.
THE COURT: Mr. Armstrong, do you want to — you do not have to, I observe to you this, you do not have to take an oath and swear to the truth of the contents. I would observe to you that if you don't, I am going to treat it as a nullity before me, and then on the record that I have, I will go from there.
MR. ARMSTRONG: Your Honor, if I'm taking an oath and you want to question me on the limited issue of this particular letter, that is fine.*fn15

(4/24/00 Tr. 3-5.)

Prior to that day, having received Mr. Armstrong's letters and being concerned with regard to the claim of client abandonment against Tenzer Greenblatt, the Court, as the transcript reads at p. 13, obtained from officials at the MCC a list of visits by lawyers to Mr. Armstrong in the period in question. According to the list, Mr. Armstrong in the prior six weeks had received 28 attorney visits. Mr. Armstrong, when shown the said MCC report at the hearing, did not accept the total number of visits, but did acknowledge that "[t]here are a number of attorneys that have come to visit me," including his criminal defense lawyer Martin Siegel and Mr. Siegel's assistant Mr. Legon. (Id. at 13.) He also in his testimony — notwithstanding his letter in which he stated he had had no contact with Tenzer Greenblatt for nearly two months (Id. at 6), acknowledged there were three visits by Tenzer Greenblatt lawyers and possibly one more in that period. (Id. at 8.) Mr. Armstrong at no time in his testimony before me set forth any matter that any lawyer on his behalf had failed to do anything about except problems with a workable tape player and earphones in the MCC so that he could listen to some tapes, and as to this, it was acknowledged that his criminal attorney Mr. Siegel was dealing with this problem and that the Court had also intervened to help solve it. (Id. at 19-20.) Accordingly, the transcript sets forth the Court's conclusion that day that there was no basis for his claim of abandonment by Tenzer Greenblatt. (Id. at 23.)*fn16

Finally, Mr. Armstrong in his second letter, which the Court considered that day, had renewed his assertion that ". . . you [the Court] have engaged in numerous ex party meetings and/or telephone conferences with your former law clerk, Mr. Alan Cohen." (Id. at 27.) This was explored with Mr. Armstrong by the Court on the stand under oath. At this point, the transcript needs to be extensively quoted to show the vacuity of this claim.

THE COURT: Let me hear you address yourself to something specific. Your letter starts off, "It has been brought to my attention that you" — that means me, the Court — "have engaged in numerous ex parte meetings and/or telephone conferences with your former law clerk, Mr. Alan Cohen." Now, where did you get that?
MR. ARMSTRONG: In part from the record itself, your Honor, that —
THE COURT: What ...

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