Ex-NY Islander owner cops to hedge fund fraud

Hedge fund manager Paul Greenwood, the general partner of WG Trading Co., plead guilty to six charges including conspiracy and securities fraud and is cooperating with the U.S. against his codefendant, Steven Walsh.

Greenwood and Walsh, his fellow manager of WG Trading and WG Investors, were indicted last July 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. A prosecutor said today that Greenwood will testify against Walsh at trial.

He said today he entered into the conspiracy with Walsh and that the two claimed to investors they had an “index arbitrage fund” which promised institutional investors high returns. Greenwood said he and 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 Judge Miriam Cedarbaum in Manhattan asked Greenwood today during his plea.

“Correct,” said 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?” Cedarbaum asked.

“Sort of,” said 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.”

Assistant Manhattan U.S. Attorney John O’Donnell said in court that Greenwood was cooperating with the U.S and would be a witness against Walsh. No trial date has been set.

Cedarbaum said Greenwood could face as long as 85 years in prison and hundreds and millions of dollars in fines. She set a Dec. 1 sentencing date.

Walsh has pleaded not guilty to the charges. His lawyer, Glenn Colton, didn’t immediately return a voicemail 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. The U.S. Securities and Exchange Commission sued the men, and described WG Trading Investors as an unregistered investment vehicle.

The criminal and civil complaints offered details on the lifestyles of two men long known for their wealth. They were minority owners of the New York Islanders professional hockey team in the 1990s. In 1984, Greenwood bought Old Salem Farm, a 54-acre riding school and horse farm, from actor Paul Newman and his wife, Joanne Woodward. Greenwood later sold the farm.

WG Trading had offices in Greenwich, Connecticut; Jersey City, New Jersey; and North Hills, New York.

Greenwood and Walsh were accused of defrauding “large institutional investors, including several public pension funds and educational institutions and endowments,” the SEC said in its 2009 civil complaint.

The Commodities Futures Trading Commission also sued 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.

The expenses included rare books bought at auctions, Steiff teddy bears bought for $80,000 at auctions, and a $3 million home for Walsh’s ex-wife Janet, according to the CFTC.

Greenwood told Cedarbaum today that he has surrendered his assets to the government as part of cooperation, saying they would be auctioned off by the U.S.

“Did you have any doubt that what you were doing was a crime?” Cedarbaum asked.

“No,” said Greenwood who remains free on bond. He declined to comment after court.

“Mr. Greenwood has decided to resolve this case with the government and his is cooperating with the U.S. in this case,” Fred Hafetz, his lawyer said after court.

Related Topics: Fraud Charge Tracker