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Stephen Walsh, Paul Greenwood Lived Large On Investors’ Money

Hedge fund managers Paul Greenwood and Stephen Walsh lived the life of Riley – and they did it on investors’ money. Lavish mansions, horse farms, paintings, cars, even a rare collection of Steiff teddy bears were bought courtesy of a decade-long con game that has left investors, pension funds and universities out millions of dollars.

On Feb. 25, the swindle came to an end with the arrest of Greenwood and Walsh by federal agents for allegedly misappropriating $550 million from investors. The two men face charges of conspiracy, securities and wire fraud charges.

In addition, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission brought separate civil charges against the pair. In its complaint, the CFTC says that beginning in 1996, Greenwood and Walsh fraudulently solicited approximately $1.3 billion from individuals and entities through their Westridge Capital Management and WG Trading Investors, LP hedge funds.

The arrest of Greenwood and Walsh comes just days after the Iowa Public Employees’ Retirement System reported that nearly $340 million in Iowa pension funds had been frozen following the suspension of Greenwood and Walsh’s trading privileges by the National Futures Association (NFA). 

From at least 1996 through February 2009, federal authorities believe Greenwood and Walsh operated a fraudulent commodities trading and investment advisory scheme using WG Trading as their front. The two men reportedly enticed investors with promises of a conservative trading strategy called “enhanced stock indexing,” which they claimed had outperformed results of the S&P 500 Index for 10 years. 

A number of institutional investors, including the Sacramento County Employees’ Retirement System, the Iowa Public Employee’s Retirement System, the University of Pittsburgh and Carnegie Mellon University took the bait and invested more than $668 million. In exchange for their investment, investors received promissory notes that Greenwood and Walsh said would pay interest at a rate equal to the investment returns earned by their enhanced stock indexing strategy.

However, a February 2009 audit conducted by the National Futures Association shows approximately $812 million on the books of WG Investors, with more than $794 million claimed as receivables due from Greenwood and Walsh and investments in entities that they two men controlled.

Instead of investing money, Greenwood and Walsh are believed to have spent more than $161 million on “personal expenses,” including purchases of lavish mansions, rare books, horses and horse farms, a $3 million residence for Walsh’s ex-wife and Steiff teddy bears costing as much as $80,000.

Greenwood and Walsh remain out of jail on a $7 million bond. If convicted, both men face up to 20 years in prison on each of the fraud counts and five years for conspiracy. 

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