U.S. Money Managers Accused of Fraud (yet another, new)

Discussion in 'Wall St. News' started by crgarcia, Feb 27, 2009.

  1. U.S. Money Managers Accused of Fraud (Updated Story)
    By Reuters
    Wednesday, February 25, 2009 Email this story | News Tracker | Reprints | Printable Version

    Editor's note: This version of the story recasts the first sentence and adds details from court complaints and other background.

    NEW YORK (Reuters)—Two money managers who oversaw investments for Carnegie-Mellon University and other institutions were arrested on Wednesday [Feb. 25] on charges of running an estimated $550 million, decade-long swindle, the latest in a wave of big financial fraud cases.

    Paul Greenwood, 61, and Stephen Walsh, 64, managing general partners of WG Trading Co., with its main offices in Greenwich, Conn., were charged by federal prosecutors with conspiracy, securities fraud and wire fraud.

    The two, both former part-owners of the New York Islanders National Hockey League team, are accused of using client money as "their personal piggy-bank" to fund lavish lifestyles, according to the Securities and Exchange Commission.

    The SEC and the Commodity Futures Trading Commission brought civil charges against the men, WG Trading and an affiliated firm, investment adviser Westridge Capital Management Inc. of Santa Barbara, Calif.

    The SEC obtained a court-imposed asset freeze against the men and their affiliated entities.

    The two men appeared in U.S. Magistrate's Court in Manhattan where a judge set bail at $7 million to be secured by $1 million in cash or property not from proceeds of the purported fraud. The judge imposed travel restrictions.

    The two men did not enter pleas and were freed, but were ordered to meet the bail conditions by March 11. Their lawyers declined to comment.

    The charges, filed in U.S. District Court in Manhattan, come amid a wave of fraud cases involving money managers. The biggest case involves former Nasdaq chairman Bernard Madoff, arrested in December and charged with fraud after authorities said he confessed to running a Ponzi scheme with losses of up to $50 billion over many years Previous Reuters Story.

    Messrs. Greenwood and Walsh were arrested by the FBI on Wednesday morning, two weeks after their suspension by the National Futures Association for not complying with an audit. Attorneys for the two men were not immediately available. A woman who answered the phone at a WG Trading office in North Hills, N.Y., declined to comment. There was no answer at the firm's main office in Greenwich.

    Horses, Collectibles

    The authorities contend the scheme began in 1996 and operated through this month, according to authorities. Of the $667 million that clients invested, Messrs. Greenwood and Walsh misused as much as $554 million, the SEC said.

    Mr. Greenwood, of North Salem, N.Y., was accused of using investor funds to buy items including horses and expensive collectibles, while Mr. Walsh, of Sands Point, N.Y., was accused of using client money for himself and to make large payments to his ex-wife. In its complaint the SEC complaint said other spending included multimillion-dollar homes, cars and collectibles, all part of a scheme to use client money "as their personal piggy-bank to furnish lavish and luxurious lifestyles."

    The SEC said the men solicited numerous institutional investors, including educational institutions and public pension and retirement plans, by promising to invest their money in an "enhanced equity index" strategy. Instead of investing the money as promised, they stole investor funds for their personal use, the commission said.

    Messrs. Greenwood and Walsh had been suspended by the National Futures Association on Feb. 12 for not disclosing financial records and for failing to answer questions on numerous promissory notes "totaling hundreds of millions of dollars" that they executed, the association said.

    The SEC said that as recently as Feb. 6, Messrs. Greenwood and Walsh had gotten a $21 million investment from the University of Pittsburgh, which had been a client of Westridge since 2002 and has about $65 million invested with the money managers.

    Another person, former WG Trading employee Mark Bloom, was arrested on Wednesday and charged separately in U.S. District Court in Manhattan with fraud related to his activities at his North Hills Management LLC financial firm in New York. Mr. Bloom stopped working for WG Trading in 2001, according to the court papers.

    The SEC also brought civil charges against Mr. Bloom, saying he misused more than $13.2 million of investor funds in part to support a lavish lifestyle. His lawyer could not immediately be reached for comment.

    By Martha Graybow


  2. "Madoff Lite" :cool: