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.”
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.
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.
