University Money Managers Charged With $550 Million Fraud

Two men who managed investments for Carnegie Mellon University and other institutions have been arrested and charged with orchestrating a decades-long investment scam which netted $550 million.

Paul Greenwood and Stephen Walsh, who were managing general partners of the Greenwich, Connecticut-based WG Trading Co., stand charged with conspiracy, wire fraud, and securities fraud in a civil complaint filed by the U.S. Securities and Exchange Commission. The men also owned WG Trading Investors LP and Westridge Capital Management Inc. in Santa Barbara, California.

Greenwood, of North Salem, New York, and Walsh, of Sands Point, New York, are accused of misusing client funds to pay for lavish lifestyles for themselves. Prosecutors said the men used investment funds from clients as “their personal piggy-bank.”

Greenwood and Walsh appeared in a Manhattan magistrate’s court and were allowed to remain free on $7 million bail. On February 12, 2009, they were suspended by the National Futures Association for failing to disclose financial records and refusing to answer questions about promissory notes “totaling hundreds of millions of dollars.”

Clients Funds Went to Homes, Cars, Payments to Ex-Wives

According to authorities, Greenwood and Walsh siphoned millions of client investment funds beginning in 1996. Of the roughly $667 million their clients invested, they are accused of misusing up to $554 million to buy expensive homes, sports cars, horses, and in the case of Walsh, to make alimony payments to an ex-wife, according to the SEC.

The money managers are accused of targeting universities and public pension plans to invest in their companies’ strategy, dubbed the “enhanced equity index.” But instead of investing the money in the index as promised, the men stole the money for their own personal use, authorities said.

The University of Pittsburgh also had millions of dollars invested in Greenwood and Walsh ventures. On February 6, 2009, the men received a $21 million investment from the university, which had been a client since 2002 and currently has about $65 million invested with the accused money managers, officials said.

Former Employee Also Charged

Former WG Trading Co. employee Mark Bloom also was charged by the SEC for his part in the alleged fraud during his stint at his New York-based financial firm, North Hills Management LLC. Bloom left WG Trading in 2001, but not before he pilfered more than $13 million from customer funds, according to prosecutors.

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