2 Money Managers Held in New Wall St. Fraud Case
I am spittin mad at the system right now.
For two decades, Paul Greenwood and Stephen Walsh looked like Wall Street wizards.
Their supposed investment prowess lured hundreds of millions of dollars from public pension funds and universities and earned the two lavish trappings of success: stately homes, a stake in the New York Islanders and, for Mr. Greenwood, a horse farm that once belonged to Paul Newman.
But on Wednesday morning, federal agents arrested the two money managers on accusations filed by the United States attorney for the Southern District of New York in what has become all too familiar on Wall Street: Their investment fund was in fact a $667 million fraud — a small-scale version of the $50 billion fraud that Bernard L. Madoff is suspected of orchestrating.
But unlike Mr. Madoff, who is accused of masterminding a global Ponzi scheme, Mr. Greenwood and Mr. Walsh simply stole their investors’ money, the authorities said. Their two firms, the WG Trading Company and Westridge Capital, misappropriated funds from a host of deep-pocketed investors, including state and city pension funds, Carnegie Mellon University and the University of Pittsburgh.
Theirs is the latest in a series of alleged Wall Street frauds that have come to light as the bear market has deepened, exposing wrongdoing that was hidden in good times, when so many were making money. Indeed, federal agents arrested two other money managers on Wednesday in separate fraud cases.
Mr. Greenwood and Mr. Walsh never developed the sort of wide following that Mr. Madoff had enjoyed. But their arrest is nonetheless a startling turn of events for the pair, who first rose to prominence on Wall Street in the 1980s. They had devised a computerized trading program called Shark, which enabled traders to spot investment opportunities in the stock, bond and futures markets.
Wang Laboratories bought Shark in 1986, giving the men enough money to buy a stake in the Islanders, which they later sold. In 1996, they began soliciting money from investors for a new investment fund.
It is unclear when their apparent scheme began. According to the F.B.I., things began to fall apart in December when, alarmed by the market plunge and Mr. Madoff’s exposure, investors asked for their money back.
It was too late. According to the F.B.I., Mr. Greenwood, 61, and Mr. Walsh, 64, over the years had siphoned off most of the money and used it to finance high lifestyles and cover the costs of recent divorces.
Mr. Greenwood’s extravagances included an $80,000 collection of Steiff teddy bears and Old Salem Farm, a 54-acre riding school and horse farm in the Westchester County town of North Salem that he had bought from Mr. Newman and Joanne Woodward. He has since sold Old Salem.
Those involved include the Iowa Public Employees’ Retirement System, which invested $339 million with the pair; the University of Pittsburgh, which had invested $65 million; and Carnegie Mellon, which had invested $49 million. It was the universities that first alerted the Securities and Exchange Commission that something was amiss.
WG Trading also received nearly $90 million from the Sacramento Employees’ Retirement System. The Pennsylvania Employees’ Retirement System was readying a $1 billion investment in WG Trading when it learned this month that the National Futures Association, which oversees futures brokers, was auditing the firm.
The audit revealed that Mr. Greenwood and Mr. Walsh had taken out loans from the funds totaling $554 million and had invested $147 million in entities controlled by them.
Bail was set at $7 million each, and they were ordered to post $1 million in cash or property that was not from the apparent fraud.
Also arrested by the F.B.I on Wednesday was Mark Bloom, 57, who worked for WG Trading until 2001, when he started his own investment vehicle, the North Hills Fund.
Prosecutors accused Mr. Bloom of taking personal loans from North Hills to buy a $5.2 million Manhattan apartment and of hiding huge trading losses.
Separately, authorities arrested James Nicholson, founder of Westgate Capital Management, at his home in Saddle River, N.J. He is charged with a securities fraud that may have cost investors as much as $100 million since 2004.
