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Two money managers accused of fraud

Two money managers at a Connecticut-based company have been charged with criminal fraud for allegedly misappropriating investor funds.
/ Source: news services

The owners of an investment firm that managed hundreds of millions of dollars for universities and charities were arrested Wednesday by the FBI in the latest white-collar scandal to rock Wall Street.

Paul Greenwood, also a horse breeder and elected official in suburban New York, and Stephen Walsh were awaiting an appearance in federal court in Manhattan to face securities and wire fraud charges alleging they raided funds to buy horses and cover other personal expenses. The names of their attorneys were not immediately available.

Court papers identified Greenwood and Walsh as the owners of Greenwich, Conn.-based WG Trading Company LP and of Westridge Capital Management Inc., based in Santa Barbara, Calif. Their operation also had offices in Manhattan and Jersey City, N.J.

The firms' clients included "charitable and university foundations, retirement and pension plans and other institutions," a criminal complaint said.

The complaint alleges that since the summer of 2007, $1.3 billion in illegal wire transfers were made to bank accounts held by Greenwood and Walsh's wife.

It also cites an interview with an unidentified WG Trading employee who described being instructed to transfer funds to personal bank accounts.

The employee claimed the money was used for "the purchase of expensive collectible items by Greenwood, the purchase of horses by Greenwood, transfer of cash to Walsh's then-wife and ... the purchase of an apartment for Walsh's ex-wife pursuant to a divorce settlement."

The arrests add to a growing list of white-collar defendants facing charges in U.S. District Court in Manhattan, topped by the case of Bernard Madoff, who has pleaded not guilty to masterminding a $50 billion Ponzi scheme.

Other cases include that of Florida hedge fund Arthur Nadel, accused of bilking investors of up to $350 million, and Mark Dreier, a prominent lawyer charged with stealing $400 million in a hedge fund scam. They also have pleaded not guilty.

The criminal investigation of Greenwood and Walsh sprang from an audit launched earlier this month by the National Futures Association, a Chicago-based regulatory agency for the U.S. futures industry.

The group suspended the pair after they refused to answer questions about a dubious series of loans between their various entities that involved more $500 million in transfers, NFA spokesman Larry Dyekman said Tuesday.

"They wouldn't cooperate at all so we had to take action," Dyekman said.

Last week, University of Pittsburgh and Carnegie Mellon University sued Westridge, Greenwood and Walsh, seeking the immediate return of more than $114 million they invested.

Greenwood was elected last year as a supervisor in North Salem, N.Y., where press accounts say he raises horses on a 300-acre farm. He once owned Old Salem Farm, a 54-acre riding school and horse farm bought from Paul Newman and Joanne Woodward.

The FBI made two more arrests Wednesday in separate investigations of securities fraud.

James Nicholson, president and general partner of Westgate Capital, a New York City investment fund, and a trader, Mark Bloom, were awaiting appearances in federal court.