The fraud allegedly perpetrated by Paul Greenwood and Stephen Walsh, co-operators of a commodities trading pool that was supposed to provide the alpha in an enhanced index equity strategy, was the first of the recent round of investment scandals to exclusively affect institutional investors.
In all, 26 institutional investors 10 with separate accounts and 16 in commingled funds had a total of $667 million invested in an enhanced index strategy marketed by Westridge Capital Management Inc., Santa Barbara, Calif. Those assets were supposed to be managed by Messrs. Greenwood and Walsh in an affiliated company, a commodities trading pool operator, WG Trading Co. LP, after it passed through a second affiliate, WG Trading Investors LP. Both WG Trading entities are based in Greenwich, Conn. Messrs. Greenwood and Walsh also are shareholders of Westridge Capital Management.
Federal regulatory agencies and the U.S. Attorney allege in multiple civil and criminal cases filed in U.S. District Court in New York on Feb. 25 that Messrs. Greenwood and Walsh instead have been siphoning off most of the institutional investors capital since at least 1996.
According to the civil complaint filed by the U.S. Securities and Exchange Commission, Washington, Messrs. Greenwood and Walsh have misappropriated as much as $554 million and have provided some of the investors money to their spouse and ex-spouse, respectively. Messrs. Greenwood and Walsh face federal counts of conspiracy, securities fraud and wire fraud, according to a news release from the U.S. Attorneys office in New York, and were arrested and released on bail on Feb. 25.
The U.S. Attorneys office said Messrs. Greenwood and Walsh ran a fraudulent commodities trading and investment advisory scheme through WG Trading Investors in which institutional assets that were to be managed in an enhanced index strategy were misappropriated.