Martin Armstrong's success always baffled his rivals. They knew him as a self-promoter with a mile-wide litigious streak and an endless supply of peculiar conspiracy theories about the price of silver and gold.

But to a handful of Japanese corporations, Armstrong was a market guru with a knack for predicting the direction of commodities and currencies, particularly the yen. And they eagerly handed him about $3 billion to invest through his New Jersey company, Princeton Economics International Ltd.

Now a search for much of that money is underway. A U.S. attorney and federal regulators have accused Armstrong of defrauding investors after a series of punishing losses in the commodities futures markets drained hundreds of millions from accounts he controlled through a New York bank. Just $46 million is left in those accounts, according to authorities.

The whereabouts of the rest of the money is a mystery, though most of it was apparently lost during a series of ill-timed bets on the direction of the prices of gold, crude oil and the yen over the past year and a half. To cover up those losses, Armstrong allegedly sent letters to his Japanese investors that falsely showed gains in their accounts.

On Monday, Armstrong surrendered to police after the U.S. attorney's office in Manhattan charged him with criminal fraud. He was released on a $5 million bond. Meanwhile, the Securities and Exchange Commission and the Commodity Futures Trading Commission have filed civil complaints and a temporary receiver has been appointed to run Princeton Economics.

Armstrong's attorney said yesterday that his client will fight the charges and is being turned into the fall guy by Republic New York Corp., a Manhattan bank that served as a custodian for Princeton Economics International's accounts.

"He believes that Republic is trying to make him a scapegoat for honest losses which primarily resulted from extreme currency fluctuations in the yen," said Marc Durant of Durant & Durant, a Philadelphia firm.

The case is raising new questions about commodities trading, considered one of the riskiest corners of the financial world--and one of the trickiest to regulate. And it has some in the business wondering why it took so long for others to figure out that Armstrong--who was routinely quoted as a market seer in national newspapers--was not the financial genius he claimed to be.

"He was a maniac," said one trader, who declined to be identified. "He threatened to sue people all the time. He constantly talked about all sorts of conspiracies to keep the price of gold up. And despite this obvious handicap, he managed to attract billions of dollars."

Armstrong appealed to more than just investors. He was often quoted as a maven in the pages of the New York Times and the Wall Street Journal, where he commented on topics such as the economies of Asia. In Japan, he was considered something of an oracle, having correctly predicted in 1995 that the yen would peak near 80 to the dollar.

Among traders, Armstrong was rumored to have routinely tried to provoke markets into upturns or downturns by quickly moving huge sums into or out of particular commodities. The practice, called "gunning the stops," is considered risky, and when a trader can't pull off the maneuver, heavy losses are all but inevitable. Once those losses start, it's difficult to resist the temptation to try to win them back by risking even more money.

"They just keep digging the hole deeper and deeper," said Dave Maher of Securities Corp. of Iowa, who said he is not familiar with Armstrong. "Meanwhile, the investors call over and say, 'How is it going over there?' "

Republic has not been charged in the case, but two weeks ago it fired two executives in its securities division who allegedly helped vouch for Armstrong's performance.

This isn't the first time Armstrong has run afoul of federal regulators. In 1995 the CFTC sanctioned him for failing to include mandated disclaimers in advertisements for Princeton Economics International in Barron's and Investor's Business Daily. Armstrong argued that the warnings--which advise investors that the hypothetical gains mentioned in the ad don't necessarily reflect actual returns--violated his First Amendment rights. An appeals court upheld the charge, and in 1996 the Supreme Court declined to hear the matter.

"They're not making a distinction between someone who's been in business as long as we have and someone who just started up," he told Bloomberg News at the time. "It's the consumer who loses."