Perhaps he’ll be remembered best for his collection of Steiff teddy bears paid for by investors, but there now are other reasons to remember Paul Greenwood.
Greenwood has pleaded guilty to swindling institutional investors, universities and pension funds in a Ponzi-like scheme. He is believed to be cooperating with prosecutors in the ongoing probe of WG Trading Co. — and has agreed to forfeit “at least” $331 million.
Prosecutors called the sum “the amount of funds that Greenwood and others personally misappropriated and diverted . . .” Greenwood, who potentially faces decades in prison, pleaded guilty to a total of six charges: conspiracy, securities fraud, commodities fraud, wire fraud (two counts), and money-laundering.
His business partner, Stephen Walsh, also is charged in the criminal case, which was brought by the FBI. The SEC and the CFTC filed civil actions.
The CFTC described the case as a “$1.3 billion investment scam.”
“Greenwood and others caused companies that he ran to divert approximately $80 million to Greenwood for his benefit,” the agency said.
Greenwood, who claimed to own 1,350 collectible teddy bears, is the former town supervisor of North Salem, N.Y. The CFTC said he and Walsh “misappropriated at least $553 million from commodity pool participants.”
For its part, the SEC called the scheme “brazen.”
“[S]ince at least 1996, Greenwood and Walsh promised investors that their money would be invested in a stock index arbitrage strategy,” the SEC said. “Instead, Greenwood and Walsh essentially treated their clients’ investments as their personal piggy bank to purchase multi-million dollar homes, a horse farm and horses, luxury cars, and rare collectibles such as Steiff teddy bears.”
Federal prosecutors said Greenwood and others told investors they employed a strategy known as “equity index arbitrage,” defining it as “conservative trading strategy that had outperformed the results of the S&P 500 Index for more than 10 years.”
Westridge Capital Management (WCM) and affiliate WG Trading appear to have been trolling for cash to sustain the deception until the bitter end. Even as one public retirement system was pulling out and demanding a return of invested funds, another one was increasing its stake.
In January, just weeks before the firms were exposed as frauds, they asked the San Diego County Employees Retirement Association (SDCERA) to change its mind about pulling out, SDCERA said.
SDCERA said its fears were heightened in October 2008 when an analyst from Albourne Partners, an SDCERA consultant, “found [Paul] Greenwood to be uncooperative and evasive” during a due-diligence examination. The association had about $78 million in the fund, after having taken a $75 million redemption in October 2007.
Greenwood and Stephen Walsh, two principals in the firms, were arrested by the FBI last week. They are accused of orchestrating a fraud involving hundreds of millions of dollars.
“In addition to a general lack of operational transparency, Greenwood [in October 2008] refused to provide access to key references such as third party brokers,” SDCERA said. “SDCERA also followed up with WG Trading by requesting additional information, but was not provided with a sufficient response.”
The association ended its contract with WG Trading on Dec. 31, 2008. Within days, WG Trading asked it to reconsider — after its earlier refusal to disclose information.
“On January 8, 2009, WG Trading contacted SDCERA and requested their termination be reconsidered and offered to provide additional information, which SDCERA deemed insufficient,” SDCERA said. “On January 15, 2009, the SDCERA Board of Trustees rejected WG Trading’s request to be reinstated, and approved staff’s decision to terminate WG Trading and demand a return of all monies invested.”
SDCERA said it did not suspect fraud at the time, which might not be good news to the University of Pittsburgh. Only weeks after SDCERA’s termination, Pitt increased its stake in WCM by more than $21 million.
More WCM Fallout
More than $135 million in pension funds for North Dakota public retirees have been frozen as a result of the WCM fraud probe.
Last week, the Iowa Public Employees’ Retirement System ended its contract with WCM. Iowa public retirees have $339 million at risk in the fund. The University of Pittsburgh and Carnegie Mellon University, with a combined $114 million in the fund, also have exposure. So does the SDCERA, which may have $78 million in exposure. The Sacramento County Employees’ Retirement System also has exposure.
We feel for the residents of North Salem, N.Y., and the residents of Quincy, Fla. Fate has put them in the media glare. Talk at Westchester County lunch counters is not about how the Mets or Yankees or Red Sox will do this year. It’s about how Paul Greenwood, the town supervisor of North Salem, got arrested for fleecing universities and public-employee pension funds out of perhaps hundreds of millions of dollars.
Meanwhile, in Gadsden County, the talk in Quincy is less about how Florida State will perform on the football field this fall in nearby Tallahassee and more about how Andy Bowdoin was accused of running a $100 million Ponzi scheme.
Dozens of people in Quincy are out of work because of Bowdoin. Some of them weren’t even earning wages. They were being paid with what Bowdoin called “ad packs.” Prosecutors called them unregistered securities.
Greenwood and Bowdoin have embarrassed their communities, putting on a show before their fraud was exposed. Greenwood declined to take a salary for overseeing the town. Bowdoin, for his part, let the local Chamber of Commerce do his bidding — never telling local executives about a previous felony conviction for securities fraud.
Paul Greenwood.
Local merchants were stunned when prosecutors announced Bowdoin was the head of an international wire-fraud and money-laundering operation disguised as an advertising service. He’d secreted away money on the Caribbean island nation of Antigua — now in the news because of Allen Stanford — while at the same time paying $800,000 cash for the old Masonic Hall in town, prosecutors said.
Quincy viewed him as a savior; North Salem viewed Greenwood as a leader. Prosecutors now say he spent up to $80,000 on individual Steiff Teddy bears. Carnegie Mellon University, the University of Pittsburgh, the Iowa Public Employees Retirement System and pension funds in Sacramento and North Dakota now might have to insist that stuffed animals be sold to be made whole.
If “whole” is possible, that is.
Imagine what it’s like to have to rely on the sale of Teddy bears at auction to offset pension-fund losses. Such are the ugly incongruities of the times.
UPDATED 7:18 P.M. EST (U.S.A.) The FBI has made arrests in the Westridge Capital Management case.
Paul Greenwood and Stephen Walsh, principals in WCM and an arm known as WG Trading of Greenwich, Conn., both were arrested. WCM is headquartered in Santa Barbara, Calif.
Greenwood and Walsh were arraigned this afternoon in New York. Bail was set at $7 million each. They were freed pending a March 11 hearing before which they’ll need to demonstrate that they have at least $1 million in cash or property not connected to fraud.
Authorities said they ran a huge financial scheme, converting tens of millions of client dollars to their own use.
Included in the purchases were $80,000 Steiff Teddy bears at various auctions, including auctions at Sotheby’s, authorities said. A $3 million home also was purchased for Walsh’s ex-wife.
Greenwood is the town supervisor of North Salem, N.Y., on the Connecticut border. He did not attend the community’s regular council meeting last night and has ducked media and financial investigators for days.
Greenwood and Walsh were accused of securities fraud, wire fraud and conspiracy. They were sued last week by Carnegie Mellon University and the University of Pittsburgh amid fears that $114 million had been lost as a result of massive fraud.
The Iowa Public Employees Retirement System (IPERS) severed its contract with WCM earlier this week, on the heels of the action by CMU and Pitt and in the wake of the suspension of Greenwood and Walsh from the National Futures Association for stonewalling during an audit.
IPERS entrusted $339 million to WCM.
Below are snippets from the federal criminal complaint, which accuses Greenwood and Walsh of using clients’ money to make personal purchases and transferring clients’ money to family members. Walsh, according to the complaint, made at least two transfers of $500,000 each to a bank account in the name of his wife.
“From time to time, PAUL GREENWOOD and STEPHEN WALSH, the defendants, directed [an] Employee to wire funds from the Account to their own bank accounts, bank accounts in the name of their family members, and bank accounts of other persons and entities to pay for personal expenditures of GREENWOOD and WALSH that were unrelated to the business of WG Investors.
“The Employee recalled effecting transfers to pay for, among other things, the following: (a) the purchase of expensive collectible items by GREENWOOD; (b) the purchase of horses by GREENWOOD; (c) transfers of cash to WALSH’s then-wife; and (d) transfers of cash for the purchase of an apartment for WALSH’s ex-wife pursuant to a divorce settlement,” said FBI agent James C. Barnacle Jr., in the complaint.
Greenwood converted a farm once owned by the late actor Paul Newman into a horse-show center and was credited by North Salem residents as a responsible public steward.
In secret, according to the FBI, Greenwood and Walsh were running a criminal financial enterprise.
“At the beginning of each calendar year,” Barnacle said, “the Employee added up the transfers that GREENWOOD and WALSH had directed for their personal benefit and prepared a promissory note for GREENWOOD and WALSH to sign that included the amounts of money that GREENWOOD and WALSH had taken from the Account.
“From time to time,” Barnacle said, “GREENWOOD directed the Employee to understate the losses reported to investors and include a portion of the losses in the promissory notes executed by GREENWOOD and WALSH. 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.”
Hundreds of millions of dollars cannot be accounted for.
Invesigators called it a $1.3 billion scam. In a separate action, the Commodity Futures Trading Commission charged Greenwood, Walsh and others with fraud.
“[The] Defendants treated investor money — some of which came from a public pension fund — as their own piggy bank to lavish themselves with expensive gifts,” said Stephen J. Obie, CFTC’s acting director of enforcement.
UPDATE 5:23 P.M. EST (Feb. 25, U.S.A.) The story below is from Feb. 24, the day before Greenwood and Walsh were arrested. See our Feb. 25 story to read about the arrests.
Two principals of Westridge Capital Management (WCM) are mum about the controversy swirling around the firm and affiliated companies. Neither Paul Greenwood nor Stephen Walsh are responding to media inquiries about the whereabouts of hundreds of millions of dollars entrusted to WCM by universities and public-employee retirement funds.
Greenwood has a secondary problem: He is the town supervisor of North Salem, N.Y., a Westchester County community on the Connecticut border. A local newspaper, The Journal News, has tried unsuccessfully to contact Greenwood. The paper reports that an administrative assistant for the town of North Salem relayed a message from Greenwood that he could not comment on advice of counsel.
On its website, North Salem’s did not mention the firestorm surrounding its town manager.
WCM is based in Santa Barbara, Calif. Greenwood and Walsh control an arm of the company — WG Trading Investors — in Greenwich, Conn., according to court documents. Another arm known as Westridge Capital Management Enhanced Funds is registered in the British Virgin Islands and also was named a defendant in a lawsuit filed Friday by two Pennsylvania universities.
No attorneys have entered appearance notices for Walsh or Greenwood in a lawsuit filed in U.S. District Court for the Western District of Pennsylvania by Carnegie Mellon University and the University of Pittsburgh. The schools filed the lawsuit under emergency circumstances. They alleged that money was “converted” and that they were denied answers when they inquired about the whereabouts of their investments, which total a combined $114 million.
A federal judge placed severe restrictions on WCM’s ability to spend money as a result of the lawsuit.
Pitt directed a fresh $21.3 million to the company earlier this month, as an audit by the National Futures Association was getting under way. NFA suspended Greenwood and Walsh for stonewalling during the audit. Neither the company nor Greenwood and Walsh answered questions from the schools.
From the CMU/Pitt lawsuit filed Friday.
CMU, according to the lawsuit, sent an administrator to New York, New Jersey and Connecticut to make personal contact with the WCM and affiliated companies controlled by Greenwood and Walsh. The school got no answers, and joined with Pitt — which also reported stonewalling — in filing the lawsuit.
How much WCH and affiliates have under management is unclear. Documents suggest as many as 16 public pension funds have stakes in the company or affiliates.
A large fund for Pennsylvania educators recently approved up to $1 billion for investment with the firms, but the Pennsylvania School Employees Retirement System did not execute the contract, the Pittsburgh Post-Gazette reports.
Yesterday the Iowa Public Employees Retirement System (IPERS) canceled its contract with WCM and sought the return of $339 million.
Reporters in Iowa, Pennsylvania, Connecticut and New York are working on the WCM story now. It hasn’t gained national traction yet, but that may be coming. NFA’s documentation of its bid to audit Greenwood and Walsh raises troubling questions about the whereabouts of hundreds of millions of dollars, and there have been no answers so far.
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.”
We’ve previously pointed out that, in recent times, some of the actions filed against financiers and fund managers — and the findings of investigators — have read like works of fiction. On Friday, for example, Irving Picard, the trustee in the Bernard Madoff case, asserted that Madoff appears not to have purchased securities for customers in at least 13 years.
It’s an incredible assertion that suggests Madoff was running a virtually pure Ponzi: money in, money out, with no attempt even to try to make it work in a legitimate way.
Now comes incredible assertions by the National Futures Association against Paul Greenwood and Stephen Walsh, who’ve been suspended from NFA for stonewalling on an audit.
On Friday, Carnegie Mellon University and the University of Pittsburgh sued Greenwood, Walsh, Westridge Capital Management (WCM) and related entities for the return of $114 million feared lost in an investment swindle.
At least 16 public entities invested with WCM, including universities and retirement funds for educators, police officers and firefighters. It is possible than $2 billion or more is at risk.
CMU and Pitt sued in the aftermath of the NFA audit. NFA’s documentation of its attempts to audit Greenwood and Walsh — its recounting of the stonewalling and its partial findings based on what it what it was able to uncover despite the stonewalling — is yet another example of nonfiction that reads like fiction.
Big money is involved here, and the facts are not all known. But NFA’s document can only be described as jaw-dropping. It really makes one wonder how many other shoes will drop and how many more times the public will be asked to suspend its disbelief before these almost unbelievable financial tales come to an end.
UPDATE 10:55 P.M. EST (Feb. 22, U.S.A.) We’ve added to the bottom of this post some information about Westridge Capital’s website, which appears to consist of a single page and is amateur by any modern standard. We’ve also associated a second domain to the company. It, too, appears to consist of a single page — a page that appears to be just a holding page from the company’s hosting provider.
We’ve also added some links to public employee retirement funds that list Westridge Capital Management in their financial reports.
Here, below, our earlier post . . .
It could be the maximum case of brains getting drained by fraudulent investment advisers.
Two universities in Pennsylvania known for producing top thinkers in computer science and medicine fear they have lost at least $114 million in an investment swindle and have filed an emergency lawsuit to recover the money.
Because the investment fund in question has as many as 16 participants, including university foundations and retirement and pension plans — and perhaps $1.8 billion or more under management — the losses could be enormous.
Carnegie Mellon University and the University of Pittsburgh seek the immediate return of money they invested with Westridge Capital Management (WCM) of Santa Barbara, Calif. Also named in the complaint are company principals and various affiliates, including WG Trading Investors LP of Greenwich, Conn.
The universites said they contacted the Securities and Exchange Commission and the Commodity Futures Trading Commission this week and requested an emergency investigation. Attorneys for the universities filed a lawsuit in U.S. District Court for the Western District of Pennsylvania.
In an extraordinary assertion made after a panicked trip Monday by a university administrator to New York, New Jersey and Connecticut to speak with WCM executives, CMU and Pitt said the money might have been “converted” and IOUs left in its place.
“The Defendants named herein have converted investor funds to their own use,” the universities charged.
Lawsuit claims managers left IOUs for hundreds of millions of dollars.
Two of WCM’s principals — Paul Greenwood and Stephen Walsh — were suspended by the National Futures Association (NFA) last week in a little-publicized emergency action.
The universities, in their lawsuit, said “personal promissory notes” for “hundreds of millions of dollars” from Greenwood and Walsh made payable to WG Trading Investors were uncovered in an NFA audit last week.
Greenwood and Walsh control WG Trading Investors, also known as WGTI.
NFA said Greenwood and Walsh stonewalled and refused to participate in the audit in any material way. One of the excuses Walsh used, despite the obvious importance of the audit, was that he “would be in a meeting all day” and unavailable to speak with NFA, the universities said in the lawsuit.
Greenwood and Walsh are sole proprietor Commodity Pool Operator (CPO) Members of NFA in Greenwich, NFA said.
“Additionally,” NFA said, “Greenwood and Walsh have failed and refused to respond to NFA’s inquiries regarding numerous promissory notes totaling hundreds of millions of dollars executed by them individually in favor of an investment vehicle to which two NFA listed commodity pools have loaned a total of over half a billion dollars.”
Read the CMU/Pitt lawsuit against Westridge Capital Management, WG Trading Co. Limited Partnership,Westridge Capital Management Enhanced Funds Inc., WG Trading Investors LP, Paul Greenwood, Stephen Walsh, Jack Eldred Reynolds, James Carder and Deborah Duffy.
Updates: We typed Westridge Capital Management’s street address as listed in the lawsuit into Google. Several businesses are listed at the same address — 222 E Carrillo St, Santa Barbara, Calif. 93101. The busineses list “suite” numbers. Westridge Capital’s suite number is 300.
Its site basically is a blue page that lists only Westridge Capital’s name, Santa Barbara street address, phone and fax numbers, and an email address. There is no content on the landing page beyond that.
We associated a second domain using registration data for the westridgecap.com domain. Here is the second domain:
The wgtrading.com domain resolves to a holding page that says:
“Welcome wgi6 to Your New Virtual Private Server !
“We would like to welcome you to your new Virtual Private Server. We are committed to bringing you the best service and finest Internet hosting solutions available. To help you get acquainted with your Virtual Private Server we have prepared “Getting Started” pages on our Web site. We encourage you to visit these pages and add them to your list of bookmarks.
“Best wishes in using your new Virtual Private Server!”
The wgtrading.com domain has been registered since July 12, 2000, when Bill Clinton was president. Meanwhile, the westridgecap.com domain has been registered since Oct. 22, 2003.
Perhaps he’ll be remembered best for his collection of Steiff teddy bears paid for by investors, but there now are other reasons to remember Paul Greenwood.
