Two New York residents charged for misappropriating USD554m
The Securities and Exchange Commission has obtained an asset freeze against two New York residents and their three affiliated entities, who orchestrated an investment fraud involving the misappropriation of USD554m in investor assets.
The SEC alleges that Paul Greenwood and Stephen Walsh promised investors that their money would be invested in a stock index arbitrage strategy.
Instead, Greenwood and Walsh essentially treated their clients' investments as their personal piggy bank to purchase multi-million dollar homes, a horse farm and horses, luxury cars, and rare collectibles such as Steiff teddy bears.
The SEC has obtained an emergency court order freezing the assets of Greenwood and Walsh as well as their companies: WG Trading Investors, which is an unregistered investment vehicle; WG Trading Company, a registered broker-dealer located in Greenwich, Connecticut; and Westridge Capital Management, a registered investment adviser located in Santa Barbara, California.
Scott Friestad, deputy director of the SEC's division of enforcement, says: "Today's emergency action shows that the Commission will act decisively to put a stop to ongoing fraudulent investment schemes and preserve assets for investors."
According to the SEC's complaint, filed in federal court in Manhattan, the SEC alleges that Greenwood and Walsh have been orchestrating the fraudulent investment scheme through their affiliated entities since at least 1996.
The SEC alleges that they solicited a number of institutional investors, including educational institutions and public pension and retirement plans, by promising to invest their money in an "enhanced equity index" strategy that involves purchasing and selling equity index futures and engaging in equity index arbitrage trading.
However, Greenwood and Walsh have been misappropriating hundreds of millions of dollars of investor funds for their personal use instead of investing the money in the enhanced equity index strategy.
Judge George B. Daniels of the US District Court for the Southern District of New York entered an order temporarily restraining the defendants, freezing their assets, and ordering accountings and approving the appointment of a receiver over WGTI, WGTC and Westridge.
The SEC's complaint also seeks a final judgment permanently enjoining the defendants from future violations of the federal securities laws and ordering them to pay financial penalties and disgorge ill-gotten gains with prejudgment interest.
The US Attorney's Office for the Southern District of New York has announced parallel criminal charges against Greenwood and Walsh, and the US Commodity Futures Trading Commission filed related charges against Greenwood, Walsh and their affiliated entities.
CFTC acting director of enforcement Stephen J. Obie says: 'The coordinated efforts of multiple federal regulators resulted in uncovering and ending this egregious fraud. Defendants treated investor money - some of which came from a public pension fund - as their own piggy bank to lavish themselves with expensive gifts. The public can rest assured that their nation's commodity futures regulator is pursuing every avenue to locate and eliminate crooked commodity professionals.'
The CFTC's complaint charges Walsh and Greenwood with futures fraud and misappropriation of pool funds.
In the continuing litigation, the CFTC seeks restitution, disgorgement, civil monetary penalties, and permanent injunctions against further violations of the federal commodities laws and against further trading.
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