Hedge Fund Fraud Case Nets Money Managers Paul Greenwood, Stephen Walsh
In what appears to be a page right out of the Bernie Madoff book on hedge fund fraud, money managers Paul Greenwood and Stephen Walsh are charged with bilking $550 million out of investors, state and city pension funds and higher education institutions in order to fund elaborate personal purchases that included multimillion-dollar mansions, rare books and 1,350 Steiff teddy bears.
Like Madoff, Greenwood and Walsh had been revered on Wall Street - their supposed investment prowess legendary among clients and colleagues across the country. For years, the two men succeeded in living up to the hype with claims of outperforming the Standard & Poor’s 500 Index. Their bragging came to an abrupt halt on Feb. 25, however, when FBI agents arrested them on conspiracy, securities and wire fraud charges.
The Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission brought separate civil charges against Greenwood and Walsh. In its 22-page complaint, the CFTC charged the two men of fraudulently soliciting some $1.3 billion from investors over the past decade.
Greenwood, 61, and Walsh, 64, are principals of the Greenwich, Conn.-based hedge fund WG Trading Co. LP and Westridge Capital Management in Santa Barbara, Calif. According to SEC documents, the duo conned investors with an elaborate hedge fund investing strategy that involved buying and selling equity futures and enhanced equity index arbitrage trading.
As part of the scam, investors were told that their money was going toward “conservative” investments. Instead, court documents say the funds were used as a personal piggy bank by Greenwood and Walsh. Included in their buys: $160 million for personal expenses, $80,000 for a Steiff teddy bear (Greenwood is said to own the world’s largest collection), a $10 million property in North Salem, a $4 million home on Long Island’s Gold Coast and a 54-acre riding school and horse farm once belonging to the now-deceased actor Paul Newman.
A number of pension funds and universities are included among those who lost money to Greenwood and Walsh. The Sacramento County Employees’ Retirement System in California reportedly invested nearly $90 million with Westridge Capital Management. The Iowa Public Employee’s Retirement System invested nearly $340 million, and the University of Pittsburgh and Carnegie Mellon University collectively invested $114 million.
According to court documents, there may be as many as 16 universities or public-employee pension funds that used Westridge Capital Management as their investment advisor.
Federal authorities believe the swindle by Greenwood and Walsh could date as far back as 1996. The two men were caught only this month during a routine audit investigation by the National Futures Association. The association found $812 million in assets on the balance sheets of the pair’s hedge fund, with $794 million in promissory notes due from Greenwood and Walsh.
If convicted, Greenwood and Walsh could spend up to 20 years in prison on each of the fraud counts and five years for conspiracy. They currently remain out of jail on a $7 million bond.
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