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More than two years after he was jailed for civil contempt, financier Martin Armstrong still cannot find a sympathetic ear at the 2nd U.S. Circuit Court of Appeals. Saying that Armstrong’s continued presence at the Metropolitan Correctional Center is due to his own maneuvering, the 2nd Circuit on Monday ruled that Judge Richard Owen of the Southern District of New York has the discretion to keep Armstrong behind bars until he produces millions of dollars in assets needed to help repay defrauded investors. Armstrong, who claims he does not have access to almost $15 million sought by temporary receiver Alan M. Cohen, had hoped to convince the circuit that Owen’s contempt order, the second of two orders issued since January 2000, had lost its coercive effect and had become a punitive sanction. But the 2nd Circuit, in Commodity Futures Trading Commission v. Armstrong, 01-6159, indicated that Armstrong should not bother pursuing a strategy of waiting out the judicial system until he is free to spend the money. “There is surely a limit to how long someone will choose to stay in jail, even for $14.9 million, but we see no basis for rejecting the district court’s finding that Armstrong’s incarceration continues to serve a coercive purpose,” the court said in a per curiam opinion. “The contempt therefore remains civil in nature and we lack jurisdiction over this appeal.” During oral arguments in the case in January, Judge Dennis G. Jacobs said that there was “no doubt that, at some point,” Armstrong’s confinement “morphs” into a criminal penalty, but Jacobs added that the court did not know “what that point is.” Cohen was appointed to protect the interests of Japanese corporate investors who lost hundreds of millions of dollars entrusted to Armstrong and his companies, Princeton Economics International and Princeton Global Management Ltd. Armstrong raised the money through the sale of what he called “Princeton Notes,” by allegedly promising to invest in conservative instruments such as bonds. Instead, the government and lawyers for plaintiffs in a civil case charge, Armstrong engaged in risky trading, making huge bets on currencies and derivatives. Cohen contends that Armstrong has secreted away rare coins, a bust of Julius Caesar worth about $1 million, 200 gold bars and other valuables that should be used to compensate investors. For his part, Armstrong denies the charge and says he has no idea where the assets might be located — an assertion Judge Owen found incredible. Lawyers for Cohen contended in their brief to the 2nd Circuit that in situations involving large amounts of assets, courts have routinely upheld indefinite periods of incarceration. But the longest period of civil incarceration to have been upheld by a federal appellate court in the cases cited by Cohen’s lawyers was 22 months in an 11th Circuit case that also involved the Commodity Futures Trading Commission. UNRESOLVED ISSUE Attorney Robert Morvillo of Morvillo, Abramowitz, Grand, Iason & Silberberg in New York, who has written on the limits of contempt, said the Armstrong case appears to be “a great case to take to the Supreme Court.” “It’s an issue that hasn’t been resolved — when does civil incarceration become punitive?” Morvillo said. Monday’s decision was the second time the 2nd Circuit has rejected a plea by Armstrong to strike down a contempt order by Judge Owen. Like the circuit’s first decision in March 2001, the issue facing the court this time was whether it had jurisdiction over the matter: a threshold question that nonetheless involves weighing the merits of the case. Had the court answered the jurisdictional question in the affirmative by finding that Owen was, in fact, punishing Armstrong, it would have entertained a full appeal. “In summary, just as we lacked jurisdiction over Armstrong’s first appeal, we lack jurisdiction over this appeal unless we find that his confinement has become punitive rather than coercive, thus effectively converting the district court’s order into a final, appealable order for criminal contempt,” the court said. Bernard Kleinman, attorney for Armstrong, said, “I’m kind of surprised by the decision because they said it was going to be dismissed on jurisdictional grounds but then they considered the merits.” The 2nd Circuit noted that Armstrong’s confinement has been lengthened by his own machinations. “True, Armstrong has been confined for more than two years, but the length of his confinement must be viewed in light of the value of the concealed property, which is unusually great,” the court said. “Furthermore, we agree with the district court that the coercive effect of Armstrong’s incarceration has likely been attenuated somewhat by the pendency of his various appeals.” And the court said there was an important distinction between Owen’s first order and his second one. “Significantly, while the coercive effect of the initial contempt order decreased as the expiration date drew near, the July 5, 2001, order contains no expiration date,” the court said. “With the dismissal of the instant appeal, Armstrong will for the first time be faced with the prospect of indefinite confinement.” The court also hinted that Armstrong should not expect that the circuit would take up the case any time soon. “A great prolongation of Armstrong’s incarceration will require a careful reassessment of its coercive potential,” the court said. Kleinman got the message. “It is clear they do not want me coming back to them filing another appeal,” he said. “And I don’t intend to do so. I haven’t talked to my client yet, but I’m thinking of appealing this to the Supreme Court. This certainly pushed the envelope as to how much time someone can spend in jail for contempt.” Judge Jacobs and Judges Fred I. Parker and Sonia Sotomayor decided the appeal. Martin Glenn of O’Melveny & Myers represented temporary receiver Alan M. Cohen. Deputy General Counsel Kirk Manhardt and Assistant General Counsel Nancy R. Page represented the Commodity Futures Trading Commission. Jacob H. Stillman, solicitor, and Leslie E. Smith, senior litigation counsel, represented the Securities and Exchange Commission.

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