BREAKING NEWS: IPERS Terminates Westridge Capital Management Contract; Says $339 Million May Be At Risk

Paul Greenwood

UPDATE 5:41 P.M. EST (U.S.A.) The Iowa Public Employees’ Retirement System (IPERS) has terminated its investment-management contract with Westridge Capital Management (WCM) of Santa Barbara, Calif.

IPERS’ move comes on the heels of a lawsuit filed Friday by two Pennsylvania universities that sued WCM amid concerns that they potentially had lost $114 million in an investment scheme.

Iowa public retirees have $339 million potentially at risk with WCM. The organization said the Securities and Exchange Commission and the Commodity Futures Trading Commission have opened investigations.

Documents filed in the case suggest as many as 16 universities or public-employee pension funds used WCM as investment advisers. WCM’s name is cited, for example, in publications put out by pension funds in Pennsylvania, Iowa, North Dakota and California.

WCM also was involved in litigation in Nebraska that ultimately made its way to the Nebraska Supreme Court. At issue in the Nebraska case was the prudence and legality of putting state assets at risk in highly speculative futures and commodities.

Litigants claimed WCM effectively had lost more than $40 million investing funds for state pensioners, but the state was made whole when the fund showed a profit and the matter largely disappeared.

WCM, its principals and various entities associated with the firm were named Friday in a federal lawsuit filed by Carnegie Mellon University and the University of Pittsburgh in Pennsylvania.

The National Futures Association suspended two WCM principals — Paul Greenwood and Stephen Walsh — for stonewalling during an audit earlier this month. Auditors said they found what amounts to personal IOUs from Greenwood and Walsh for loans taken from the fund and placed with an investment arm Greenwood and Walsh control in Connecticut.

Greenwood is the town supervisor of North Salem, N.Y., a Westchester County community on the Connecticut border.

NFA’s auditors said the “note[s] receivable” [are] actually comprised of several individual notes, executed by Greenwood and Walsh over the years, each totaling millions of dollars.

“These notes are almost identical in their terms and indicate that the respective ‘sum is representative of the general partner’s share of losses, withdrawals and payments,” NFA said.

Auditors also said “the financial record indicates $8.2 million of the assets [are] ’employee advances.'”

IPERS said WCM managed about 2 percent of the its portfolio. A spokesperson told the Des Moines Register that $339 million in pension funds — its entire WCM stake — had been frozen as a result of the federal probe. IPERS stressed that WCM held only a small part of the pension fund’s assets and that retirees payments are not at stake.

“The U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission . . .  are now investigating WG Trading,” IPERS said. “These agencies cannot release information during an active investigation. Their involvement provides IPERS added protection as the commissions have the authority to act in ways that will protect investors.”

Here’s what IPERS said it has done:

• Terminated Westridge Capital Management’s contract.
• Demanded the return of all IPERS’ assets, which had an estimated market value of $339 million on Jan. 31, 2009.
• Filed a claim with the NFA for a release from the trading ban so holdings can be liquidated and IPERS’ assets returned.
• Began aiding the Commodity Futures Trading Commission and the Securities and Exchange Commission in their investigations.

“The IPERS Investment Board and staff continue to follow developments and will take further action, including legal action, if necessary to protect IPERS’ assets,” IPERS said.  “The Investment Board’s policy is to vigorously seek recovery of losses through legal action should losses occur because of fraud. However, IPERS cautions investigations are still underway, and there have been no findings against the company previously under contract to IPERS.”

See this post from Saturday, which includes a link to the CMU/Pitt lawsuit. And see this post from Sunday.