Hedge fund manager Paul Greenwood, the general partner of WG Trading Co., pleaded guilty to six charges including conspiracy and securities fraud and is cooperating with the U.S. against co-defendant 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 scheme stretched from 1996 until their arrest in February 2009. A prosecutor said today that Greenwood will testify against Walsh at trial.
Greenwood said today he entered into the conspiracy with Walsh and that the two claimed they had an “index arbitrage fund” which promised institutional investors high returns. Greenwood said he and Walsh took out money 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 hearing.
“Correct,” said Greenwood, who said he and Walsh often paid investors back 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 U.S. Attorney John O’Donnell in Manhattan said in court that Greenwood was cooperating with the U.S. and would be a witness against Walsh.
Walsh has pleaded not guilty to the charges. Cedarbaum has scheduled a hearing in the case for July 30. No trial date has been set.
Cedarbaum said Greenwood may face as long as 85 years in prison and hundreds of millions of dollars in fines. She set a Dec. 1 sentencing date.
According to the plea agreement, released by prosecutors after today’s proceeding, Greenwood will have to forfeit at least $331 million to the government, representing the money he and Walsh allegedly obtained as a result of their securities and wire fraud.
Greenwood also agreed to pay the U.S. an $83.5 million judgment, the proceeds he “personally obtained” as a result of the fraud.
Homes, Cars, Horses
If Greenwood continues to cooperate with the government and testifies at Walsh’s trial, the U.S. will write a letter to the judge describing his assistance, prosecutors said.
“Steven Walsh looks forward to his day in court,” his lawyer, Glenn Colton, said today in a telephone interview after Greenwood’s plea.
The two defendants were arrested in February 2009 and accused of 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 accused 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.
‘Public Pension Funds’
Greenwood and Walsh defrauded “large institutional investors, including several public pension funds and educational institutions and endowments,” the SEC said in its 2009 civil complaint.
The U.S. Commodity 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 used money from new participants to cover prior losses and personal expenses, the CFTC said in the complaint filed in federal court in Manhattan.
Greenwood told Cedarbaum today that he has surrendered his assets to the government, saying they would be auctioned off.
“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.
The case is U.S. v. Greenwood, 09-cr-722, U.S. District Court, Southern District of New York (Manhattan).