Hedge fund manager Paul Greenwood, general partner of WG Trading, pleaded guilty to six charges, including conspiracy and securities fraud, and is cooperating with the U.S. against co-defendant Steven Walsh.
Mr. Walsh was Mr. Greenwood’s fellow manager at WG Trading and WG Trading Investors. The two were indicted in July 2009 on charges that they conspired to defraud investors of $554 million. The U.S. said the pair schemed to defraud investors from 1996 until their arrest in February 2009.
Assistant Manhattan U.S. Attorney John O’Donnell said in court that Mr. Greenwood was cooperating with the U.S and would be a witness against Mr. Walsh. No trial date has been set.
Mr. Greenwood on Wednesday said he entered into the conspiracy with Mr. Walsh and that the two claimed to investors they had an “index arbitrage fund” that promised institutional investors high returns. Mr. Greenwood said he and Mr. Walsh took out funds for their own personal use, which a federal prosecutor said cost investors between $800 million and $900 million.
“You treated these investments as your own personal bank accounts?” U.S. District Court Judge Miriam Cedarbaum asked Mr. Greenwood during his plea.
“Correct,” said Mr. Greenwood, who said that the defendants often paid out investors’ money if they sought a redemption, using funds from other investors.
“So this was a Ponzi scheme?” Ms. Cedarbaum asked.
“Sort of,” said Mr. Greenwood who told the judge that he took out “in excess of $75 million,” spending the money on “a house, a horse farm and antiques.”
Ms. Cedarbaum said Mr. Greenwood could face as long as 85 years in prison and hundreds of millions of dollars in fines. She set a Dec. 1 sentencing date.
Mr. Walsh has pleaded not guilty to the charges. His lawyer, Glenn Colton, didn’t immediately return a voice-mail message left at his office seeking comment about Greenwood’s plea.
The men were first arrested in February 2009, accused with using the company as a “personal piggy bank” to buy homes, cars, horses and collectible Steiff teddy bears. Messrs. Greenwood and Walsh were accused of defrauding “large institutional investors, including several public pension funds and educational institutions and endowments,” the SEC said in a 2009 civil complaint.
The Commodities Futures Trading Commission also sued Messrs. Greenwood and Walsh, saying they misappropriated $553 million of $1.3 billion in funds from commodity pool investors. The two men used funds from new participants to cover prior losses, while spending $160 million on personal expenses, the CFTC said in the complaint filed in federal court in Manhattan.
Mr. Greenwood told Ms. Cedarbaum on Wednesday that he has surrendered his assets to the government as part of his cooperation, saying they would be auctioned off by the U.S.