WG’s Greenwood, Walsh Boosted Lavish Life, U.S. Says (Update1)
By David Voreacos, Patricia Hurtado and David Scheer
bloomberg.com
Feb. 26 (Bloomberg) -- Money managers Paul Greenwood and Stephen Walsh said they outperformed the Standard & Poor’s 500 Index for a decade, while prosecutors and regulators claim they misappropriated $554 million from investors for luxury homes, cars, horses and collectible teddy bears.
Greenwood, 61, and Walsh, 64, were charged yesterday with using WG Trading Investors and related companies as a “personal piggy bank” from 1996 to this year. Investors who lost money include public pension funds in Iowa and California, and the University of Pittsburgh and Carnegie Mellon University.
The men, who touted a conservative “enhanced stock indexing” strategy, had the majority of investor funds sent to themselves, according to the Justice Department and Securities and Exchange Commission. Greenwood signed promissory notes promising to repay $291 million, while Walsh promised to repay $261 million, authorities said.
“This appears to be one of the largest cases of alleged looting or misappropriation from a U.S. hedge fund,” David Rosenfeld, an SEC enforcement attorney in New York, said today in an interview. The SEC also sued the men in a civil fraud lawsuit, getting an emergency court order to freeze their personal and company assets.
A U.S. judge yesterday appointed a temporary receiver, Robb Evans & Associates, to oversee assets of the firms.
Charges
Greenwood, of North Salem, New York, and Walsh, of Sands Point, New York, were charged yesterday with conspiracy, securities fraud and wire fraud. They face as long as 20 years in prison on each of the fraud counts and five years for conspiracy.
They were released yesterday on $7 million bond each after appearing before U.S. Magistrate Judge Douglas Eaton in Manhattan. Walsh’s lawyer, Richard Weinberg, and Greenwood’s lawyer, Robert Jossen, declined to comment.
The criminal and civil complaints offered fresh details on the lifestyles of two men long known for their wealth. They were minority owners of the New York Islanders professional hockey team in the 1990s. In 1984, Greenwood bought Old Salem Farm, a 54-acre riding school and horse farm, from actor Paul Newman and his wife, Joanne Woodward. Greenwood later sold the farm.
The investor fraud allowed the men to “furnish lavish and luxurious lifestyles, which include the purchase of multimillion dollars homes, a horse farm, cars, horses and rare collectibles such as Steiff teddy bears,” according to the SEC complaint.
CFTC Complaint
The Commodities Futures Trading Commission also sued Greenwood and Walsh yesterday, saying they misappropriated $553 million of $1.3 billion in funds from commodity pool investors. They used funds from new participants to cover prior losses, while spending $160 million on personal expenses, the CFTC said in the complaint filed in federal court in Manhattan.
The expenses included rare books bought at auctions, Steiff teddy bears bought for $80,000 at auctions, and a $3 million home for Walsh’s ex-wife Janet, according to the CFTC.
Greenwood and his wife, Robin, 57, live in a North Salem home on 9.1 acres valued in 2007 at $9.5 million, property records show. Greenwood is the town supervisor in North Salem, where 5,200 people live about 50 miles northeast of New York City.
Walsh, according to property records, lives in a home on one acre valued at $3.98 million on Long Island’s North Shore, nicknamed the “Gold Coast.” In 2005, he was elected president of the Sands Point Golf Club. Walsh was co-chairman of the Islanders and a member of the Board of Governors of the National Hockey League from 1991 to 1998, according to the CFTC.
Money to Wives
Greenwood caused investor funds to be transferred to an account controlled by his wife, according to the SEC. Walsh’s ex-wife Janet, 53, lives in Longboat Key, Florida, and also got investor funds, according to the SEC. Neither woman was accused of wrongdoing, as the SEC seeks to recover funds from them.
The men ran WG Trading Investors, an unregistered investment vehicle; WG Trading Co. LP, a registered broker- dealer in Greenwich, Connecticut; and Westridge Capital Management Inc., a registered investment adviser in Santa Barbara, California, according to the SEC. All are named as defendants in the SEC complaint.
They promoted an investment strategy that involved buying and selling equity futures and engaging in equity index arbitrage trading, according to the SEC.
The Iowa Public Employees’ Retirement System had about 2 percent of its portfolio with Westridge, or $339 million on Jan. 31. The Sacramento County Employees’ Retirement System in California had $52 million invested with Westridge.
The University of Pittsburgh claimed losses of $65 million, and Carnegie Mellon lost $49 million, according to a lawsuit they filed on Feb. 20 in federal court in Pittsburgh.
Alarm Bells
Both schools grew alarmed when the two men were suspended Feb. 12 by the National Futures Association, according to their civil complaint. The men failed to cooperate in an investigation into their businesses, the identities of their customers, and the amount and location of funds deposited, according to the NFA.
After Feb. 12, Carnegie Mellon’s chief investment officer, Edward Grefenstette, and Charles A. Kennedy, senior investment manager, made many calls to fund officials, according to the complaint by the two schools.
One Westridge Capital Management employee, James Carder, told Grefenstette and Kennedy on Feb. 15 that he was “devastated” by “the apparent actions of Greenwood and Walsh and their refusal to cooperate with the NFA.” Carder said he hadn’t spoken to them since the audit began, according to the complaint. Carder is named as a defendant by the schools, and not by the government.
Career Over
“Mr. Carder went on to say that ‘his career is over’ and further expressed shock at the conduct of his ‘partners of more than 20 years,’” according to the complaint.
A woman who answered the phone at Carder’s office yesterday said he had no comment.
The Federal Bureau of Investigation arrest complaint refers to an unidentified employee who worked at WG Trading since 1991 and was interviewed by FBI agent James C. Barnacle Jr.
Greenwood and Walsh directed the employee to transfer funds to pay for collectible items and horses for Greenwood, cash for Walsh’s then-wife, and cash for an apartment she got in her divorce settlement with Walsh, according to the complaint.
At the start of each year, the employee added up the transfers for the personal benefit of Walsh and Greenwood before preparing promissory notes for those amounts, according to the complaint.
At times, Greenwood would tell the employee to understate losses reported to investors and include those losses in the promissory notes, according to the complaint.
‘Misappropriated’
“Thus, the Greenwood notes and the Walsh notes include amounts reflecting funds misappropriated for the personal benefit of Greenwood and Walsh and losses fraudulently hidden from investors,” according to the complaint by Barnacle.
The SEC complaint also refers to an unidentified employee who prepared promissory notes for Greenwood and Walsh to sign.
“Greenwood and Walsh generally balked at signing the notes, but eventually did so after the employee insisted that they sign them,” according to the SEC complaint. “The employee insisted on the notes in order to keep a record of the hundreds of millions of dollars that Greenwood and Walsh were taking.”
Promissory Notes
The notes, which Greenwood and Walsh usually signed in March or later, were dated January or March for 1996 and for 1998 through 2008, according the SEC. They purported to reflect the “general partner’s share of losses, withdrawals and payments in the previous year,” according to the complaint.
“The notes do not reflect that any interest is payable on the principal, nor do they bear any terms and conditions one would expect to find in a bona fide promissory note,” the SEC said.
The criminal case is U.S. v. Greenwood, 09-MAG-502, U.S. District Court, Southern District of New York (Manhattan). The universities’ case is Carnegie Mellon University v. Westridge Capital Management Inc., 09-cv-00215, U.S. District Court, Western District of Pennsylvania (Pittsburgh).
The SEC case is Securities and Exchange Commission v. WG Trading Investors, LP, 09-01750, U.S. District Court, Southern District of New York (Manhattan). The CFTC case is Commodity Futures Trading Commission v. Stephen Walsh, 09-01749, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Patricia Hurtado in New York federal court at pathurtado@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.
Last Updated: February 26, 2009 16:16 EST |
