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Two Investment Managers Indicted on Fraud Charges
LEV L. DASSIN, the Acting United States Attorney for
the Southern District of New York, announced today that PAUL
GREENWOOD, 62, of North Salem, New York, and STEPHEN WALSH, 65,
of Sands Point, New York, were charged today in a six-count
Indictment with running a fraudulent commodities trading and
investment advisory scheme. GREENWOOD and WALSH, principles of
WG Trading Company and WG Trading Investors, were arrested on
February 25, 2009, pursuant to a criminal Complaint, and released
on bail.
According to the Indictment filed today in Manhattan
federal court and the criminal Complaint:
As part of the fraudulent scheme, which lasted from at
least 1996 through February 2009, GREENWOOD and WALSH, through
various marketers, solicited investments in a program called
"enhanced stock indexing," a supposedly conservative trading
strategy that had outperformed the results of the S&P 500 Index
for more than 10 years. Several institutions -- including
charitable and university foundations, retirement and pension
plans, and others -- invested more than $7.6 billion and thus
either became limited partners in WG Trading Company, LP, or
received promissory notes issued by WG Trading Investors that
GREENWOOD and WALSH represented would pay interest at a rate
equal to the investment returns earned by a limited partner of WG
Trading Company.
Contrary to their representations to the investors in
the WG Trading vehicles, GREENWOOD and WALSH misappropriated at
least $80 and $51 million, respectively, in investor funds.
Among other things, GREENWOOD used the funds to purchase horses
and expensive collectible items and for other personal
expenditures. WALSH used investor funds for himself and to make
large cash payments to his ex-wife. GREENWOOD and WALSH also diverted investor funds to satisfy obligations that were
unrelated to the "enhanced stock indexing" investment program.
Further, to conceal losses in the "enhanced stock
indexing" program and with respect to the funds they
misappropriated, both GREENWOOD and WALSH executed promissory
notes in favor of WG Investors that totaled approximately $554
million.
On July 21, 2009, in connection with the same scheme,
DEBORAH DUFFY, the former Chief Compliance Officer of WG Trading
Company, pleaded guilty to conspiracy, securities fraud, and
money laundering.
GREENWOOD and WALSH are each charged with one count of
conspiracy to commit securities fraud and wire fraud, one count
of securities fraud, one count of commodities fraud, two counts
of wire fraud, and one count of money laundering. These charges
carry the following potential penalties:
Count |
Charge |
Maximum Prison Term |
Maximum Fine |
| One |
Conspiracy |
5 years |
$250,000, or twice the gross gain or loss from the crime |
| Two |
Securities Fraud |
20 years |
$5 million, or twice the gross gain or loss from the crime |
| Three |
Commodities Fraud |
10 years |
$1 million, or twice the gross gain or loss from the crime |
| Four and Five |
Wire Fraud |
20 years on each count |
$250,000, or twice the gross gain or loss from the crime |
| Six |
Money Laundering |
10 years |
$250,000, or twice the gross gain or loss from the crime, or twice the amount of criminally
derived property involved in the transaction |
The Indictment also seeks forfeiture of at least the
$131 million misappropriated by GREENWOOD and WALSH, as well as forfeiture of all criminally derived property involved in their
money laundering. The case has been assigned to United States
District Judge MIRIAM GOLDMAN CEDARBAUM. An arraignment is
expected to be held during the week of July 27, 2009.
Mr. DASSIN praised the work of the Federal Bureau of
Investigation, and thanked the United States Securities and
Exchange Commission, United States Commodity Futures Trading
Commission, and National Futures Association, for their
assistance. He added that the investigation is continuing.
Assistant United States Attorneys JOHN J. O'DONNELL,
JESSICA A. ROTH, and AMY LESTER are in charge of the prosecution.
The charges contained in the Indictment are merely
accusations, and the defendants are presumed innocent unless and
until proven guilty.
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