A dispute over who is entitled to $815 million recovered from an alleged investment fraud scheme orchestrated by money managers Steven Walsh and Paul Greenwood is pitting institutional investors against each other.
At least nine institutional investors, most of them pension funds, have asked the 2nd U.S. Circuit Court of Appeals to overturn a distribution plan that gives several dozen institutional investors equal shares of the $815 million recovered from the accounts of Westridge Capital Management, Santa Barbara, Calif., and its subsidiaries, WG Trading Co. LP and WG Trading Investors LP.
The recovered funds amount to nearly 85% of the aggregate losses suffered by some two dozen investors in Westridge and its subsidiaries.
Messrs. Greenwood and Walsh were indicted by a federal grand jury in July 2009 on charges they defrauded investors of $554 million in a Ponzi scheme.
They were charged with using their companies as a “personal piggy bank,” diverting more than $180 million for their personal use to buy homes, cars, a horse farm and collectibles, including 1,348 Steiff teddy bears.
Mr. Greenwood pleaded guilty last July 28 in federal court in New York City and has agreed to testify against Mr. Walsh. Legal briefs by the dissenting investors are expected to be filed next month, and the legal fallout over the alleged fraud shows no signs of abating.
On May 31, the Kern County Employees Retirement Association, Bakersfield, Calif., sued its consultant, Wilshire Associates, claiming the firm did not do its due diligence in properly monitoring its investment. Wilshire officials have denied the allegations.
Meanwhile, an investigation by the inspector general for the Securities and Exchange Commission details that the Los Angeles office of the SEC “missed a significant opportunity to uncover the Ponzi scheme during a scheduled examination of Westridge Capital Management” in 2005. The October 2010 report, obtained by Pensions & Investments, said that exam found questionable trading practices that allowed Westridge to circumvent SEC regulations aimed at limiting clients' investment leverage.
“The examiners who conducted the 2005 Westridge examination acknowledged to the (Office of Inspector General) that Westridge's investment structure was a red flag in and of itself, and unusual,” the report said.