Wednesday, April 11, 2007
Former currency trader Martin Armstrong received the maximum five-year sentence for his plea to one count of conspiracy to commit securities and commodities fraud. Armstrong could not receive a longer sentence because the conspiracy statute at the time of the offense limited the prison term to five years. Armstrong was accused of defrauding a number of clients of his firm, Princeton Economics International, of hundreds of millions of dollars through the sale of so-called "Princeton Notes," promissory notes that the government described as a Ponzi scheme. Many of the clients were Japanese corporations, and along with the five year sentence, U.S. District Judge John Keenan ordered Armstrong to pay $80 million in restitution. A press release from the U.S. Attorney's Office for the Southern District of New York discusses the case (here).
Armstrong has been in jail since 2000 under a civil contempt order for failure to deliver the firm's assets to a receiver appointed in the SEC and CFTC civil cases. His stay in the Manhattan Correctional Center is the longest ever endured by a civil contemnor. Among the missing assets are 100 gold bars and a bust of Julius Caesar -- not the types of things one would bury in the backyard. The civil contempt has been appealed four times to the Second Circuit, and each time that court refused to order Armstrong's release. The most recent decision, Armstrong v. Guccione, 470 F.3d 89 (2d Cir. 2006), the court summarized the issue: "It has been said that a civil contemnor who is incarcerated to compel compliance with a court order holds the key to his prison cell: Where defiance leads to the contemnor's incarceration, compliance is his salvation. In this case, petitioner-appellant Martin A. Armstrong principally argues that the key to his freedom comes at the cost of his Fifth Amendment right against compelled self-incrimination." The court rejected Armstrong's claim that the civil contempt infringed his Fifth Amendment right, although the court did order that the case be reassigned from U.S. District Judge Richard Owen, who had originally jailed him for civil contempt. The Second Circuit stated, "[W]hile we emphasize that we have never found any fault in Judge Owen skillful handling of this case, we believe that on the seventh anniversary of Armstrong's confinement, his case deserves a fresh look by a different pair of eyes."
That different pair of eyes didn't see things all that much differently. Judge Keenan ordered that Armstrong's sentence begin after he completes the civil contempt, for which there is apparently no cap on the amount of time he can be held in jail. The distinction between civil contempt and a criminal sentence is that the former is termed "coercive" but not punitive, while the sentence after a conviction is punishment subject to the Eighth Amendment and other constitutional limitations. To the person inside the jail cell, there's not much difference between the two. Armstrong is likely to appeal the district court's refusal to give him credit for the time served on the civil contempt, but given his track record in the Second Circuit I would not place any bets on him succeeding with that argument. Then again, the gold bars and Julius are still out there somewhere, perhaps awaiting his eventual release. (ph)