Princeton/Newport Partners

Princeton/Newport Partners was a pioneering quantitative hedge fund co-founded by mathematician Edward Thorp (who had also pioneered card counting in blackjack) and operated from offices in Princeton, New Jersey and Newport Beach, California. The fund used mathematical models to identify and exploit pricing inefficiencies in financial markets. In August 1988, the firm and six principals were indicted on RICO charges for engaging in illegal tax-motivated stock parking transactions with Drexel Burnham Lambert trader Bruce Lee Newberg. All six defendants were convicted on over 60 counts in August 1989; the first RICO conviction arising from the Wall Street insider trading crackdown. They were sentenced in November 1989 to terms of 3-6 months in prison, with $1.6 million in forfeitures ordered. However, on June 29, 1991, ALL convictions were overturned on appeal when the court ruled the government had improperly applied RICO to what were essentially tax and regulatory disputes. By then the damage was done: the RICO indictment had forced Princeton/Newport Partners to liquidate, destroying the fund. The case remains one of the most controversial prosecutions in the history of white-collar criminal enforcement and a landmark example of how RICO can destroy an enterprise before trial even concludes.