U.S. Attorney's Office Northern District of New York

February 17, 2005

PRESS RELEASE

Glenn T. Suddaby, United States Attorney for the Northern District of New York and Anne Marie Coons, Special-Agent-in-Charge of the Buffalo Field Office of the Internal Revenue Service Criminal Investigation Division announced today that former Chief Financial Officer of Albany Molecular Research, Inc. ("Albany Molecular"), HAROLD M. ARMSTRONG, JR., age 49, of Guilderland, New York, pled guilty before United States District Judge David N. Hurd, in Albany, N.Y., to the charge of filing a false tax return in violation of Title 26, United States Code, Section 7206(1). He is scheduled for sentencing on June 24, 2005, in Albany, N.Y. As part of the guilty plea, the United States and HAROLD M. ARMSTRONG, JR. agreed that a sentence of twenty-seven (27) months incarceration and a $100,000 fine is appropriate.

As part of his guilty plea, HAROLD M. ARMSTRONG, JR., admitted that he failed to properly report his sale of Albany Molecular stock during tax years 1997, 1998, and 1999 saving himself approximately $1,164,164 in taxes. In addition, HAROLD M. ARMSTRONG, JR. admitted that he altered an Albany Molecular stock certificate before providing it to Internal Revenue Service Criminal Investigation to cover up the fact that he was not entitled to a deduction that he had taken.

HAROLD M. ARMSTRONG, JR., prepared his personal tax returns for tax years 1997, 1998, and 1999 (including the amended 1999 return filed on May 28, 2001). At the time, HAROLD M. ARMSTRONG, JR. was a certified public accountant licensed in the State of New York. After preparing the returns, he signed them in the Northern District of New York declaring, under penalty of perjury, that they were accurate.

Between August 1, 1992 and October 27, 1998, while serving as Albany Molecular's Chief Financial Officer, HAROLD M. ARMSTRONG, JR. acquired hundreds of thousands of shares of Albany Molecular stock through the employee stock option plan. In 1997, HAROLD M. ARMSTRONG, JR. sold a total of 46,100 shares of Albany Molecular stock for a total of $299,650. After deducting the basis price HAROLD M. ARMSTRONG, JR. paid for the shares, he earned a long term capital gain of $297,694. HAROLD M. ARMSTRONG, JR. did not report this capital gain on his 1997 tax return which saved him at least $59,539 in 1997 taxes.

On October 20, 1998, HAROLD M. ARMSTRONG, JR. left Albany Molecular pursuant to a severance agreement. As part of his severance package, HAROLD M. ARMSTRONG, JR. sold 30,000 shares of Albany Molecular stock for $600,000. Although HAROLD M. ARMSTRONG, JR. reported this $600,000 on his 1998 tax return, he improperly claimed a deduction for that sale. Specifically, HAROLD M. ARMSTRONG, JR. claimed a deduction pursuant to Section 1202 of Title 26 of the United States Code ("Section 1202"). Section 1202 allows taxpayers to halve their capital gains from the sale of qualified small business stock which is 1) acquired after August 10, 1993 and 2) held for more than five years. HAROLD M. ARMSTRONG, JR. was not entitled to the Section 1202 deduction because he acquired his stock on April 13, 1993 approximately four months before the August 10, 1993 date required for the exemption. The fraudulent Section 1202 deduction saved HAROLD M. ARMSTRONG, JR. approximately $299,362 in reported gains for the 1998 tax year.

Pursuant to the severance agreement, on October 28, 1998, Albany Molecular allowed HAROLD M. ARMSTRONG, JR. to exercise all of his remaining stock options and agreed to pay him a total of $6,919,440 as follows: $1,383,600 immediately and the remaining $5,535,840 in a five-year note. As promised, Albany Molecular paid HAROLD M. ARMSTRONG, JR. $1,383,600 on October 28, 1998. HAROLD M. ARMSTRONG, JR. did not properly report this income on his 1998 return.

On February 10, 1999, Albany Molecular paid off the balance of the note in a single payment of $5,535,840. HAROLD M. ARMSTRONG, JR. did not properly report this income on his 1999 return. In addition to those principal payments, Albany Molecular made two interest payments: $108,859 on January 29, 1999 and $14,105 on February 10, 1999. HAROLD M. ARMSTRONG, JR. reported the two interest payments on his 1999 return.

During calendar year 1999 HAROLD M. ARMSTRONG, JR. also sold Albany Molecular stock for a total of $25,420,19. HAROLD M. ARMSTRONG, JR. properly reported this sale on his 1999 return.

The Internal Revenue Service later audited HAROLD M. ARMSTRONG, JR.'s tax returns. On May 24, 2001, an agent asked HAROLD M. ARMSTRONG, JR. to produce, among other documents, proof of the date he acquired the Albany Molecular stock for which he had taken a Section 1202 deduction on his 1998 return. In response, HAROLD M. ARMSTRONG, JR. produced a copy of a fraudulent stock certificate with the inaccurate date of August 13, 1993. Albany Molecular's copy of that stock certificate is actually dated April 13, 1993. The altered stock certificate was also included in a June 8, 2002 package sent by to an Internal Revenue Service Criminal Investigation special agent.

On May 28, 2001, HAROLD M. ARMSTRONG, JR. filed an amended return for the 1999 tax year. In that return he reported the $5,535,840 that he received from Albany Molecular as part of his severance package. He nevertheless continued to claim the Section 1202 deduction despite the fact that his stock did not satisfy the date of acquisition requirements for that deduction.

As a result of HAROLD M. ARMSTRONG, JR.'s omissions from his tax returns and his inappropriate use of Section 1202, the total tax loss is approximately as follows: $59,539 from tax year 1997, $262,620 from tax year 1998, and $842,005 from tax year 1999. The total amount of taxes owed for all three years is $1,164,164.

The investigation was conducted by the Internal Revenue Service Criminal Investigation Division. The case is being prosecuted by the United States Attorney's Office for the Northern District of New York.

CONTACT: United States Attorney ELIZABETH C. COOMBE
518-431-0247