US- The Federal Bureau of Investigation has arrested four investment managers in three separate cases that allege the managers defrauded investors out of a combined US$680m.
In separate announcements, the FBI and the New York Attorney General's office said the FBI yesterday it arrested Paul Greenwood and Stephen Walsh - principals of both WG Trading and Westridge Capital Management (WCM) - on charges of conspiracy, securities fraud and wire fraud charges. The two are accused of allegedly scamming $554m from investors.
In a separate case, the FBI arrested Mark Bloom, owner of New York-based hedge fund of fund operation North Hills Management LLC, and charged him with using $13.2m of investors' money to fund luxury purchases. According to documents from the US Attorney's Office, Bloom is a former WG Trading Co. employee.
Separately, James Nicholson, head of investment firm Westgate Capital Management, was arrested on charges of securities and bank fraud and for allegedly scheming about $100m from clients.
According to an FBI statement, investors allocated US$681m with the Greenwood and Walsh in the belief the money would be invested in an enhanced indexing strategy, of which some $554 was actually used for other purposes.
In return, investors received promissory notes that's Greenwood and Walsh claimed would pay interest equal to the returns earned by the enhanced stock indexing strategy, the FBI said.
Three investors have already taken action against Westridge.
The $22.4bn Iowa Public Employees Retirement said earlier this week that it terminated a $339m mandate with WCM. The Carnegie Mellon University and the University of Pittsburgh have filed a suit against Westridge Capital, WG Trading and other firms demanding a combined $114m worth of investments back. (Global Pensions, February 24 2009)
The FBI and the SEC claim Greenwood and Walsh used the money siphoned from clients to fund lavish lifestyles.
According to an SEC report released yesterday, "Greenwood and Walsh have used client money invested in WGTI as their personal piggy-bank to furnish lavish and luxurious lifestyles, which include the purchase of multi-million dollar homes, a horse farm, cars, horses, and rare collectibles such as Steiff teddy bears."
Bloom also allegedly used his wares to keep up luxurious habits.
According to a US Attorney's office report, "Bloom misappropriated millions of dollars from NHF, which he used for personal expenditures, including the purchase of a luxury apartment in Manhattan. In November 2008,BLOOM admitted to certain North Hills Fund investors demanding to know what had happened to their investments that he had borrowed approximately $10 million from the fund, which he had used to buy the apartment, among other things."
Meanwhile Nicholson, a New York hedge fund manager, was arrested yesterday for allegedly defrauding investors out of US$100m by creating a fictitious accounting firm and providing false information about the state of his hedge funds.
According to the New York US Attorney's Office, the FBI arrested Nicholson, head of investment firm Westgate Capital Management, on charges of securities and bank fraud.
Nicholson allegedly tricked investors into investing with his firm by overstating investment returns and total assets under management, according to documents filed by both the SEC and the Attorney's office.
The SEC yesterday filed a complaint against Westgate alleging he went as far as to create a fake accounting firm and providing investors with "bogus audited financial statements."
The SEC said: "The funds had sustained such losses that Nicholson and Westgate could no longer honour redemption requests. They hid the losses from investors with misrepresentations and false sales brochures."
The complaint continues: "Nicholson further attempted to hide losses in the Westgate fund family by other devices. He closed one fund that was heavily invested in the bankrupt Lehman Brothers and folded its assets into another Westgate fund. He issued bad checks to some investors seeking to cash out, and ultimately suspended all investor redemptions due to what he called investors' 'irrational behaviour.'"
The SEC is also investigating Westridge and North Hills.
Messages left at WG Trading were not returned and a person reached at Greenwood's home declined to comment. A woman reached at Bloom's home also declined to comment. Ira Sorkin, Nicholson's attorney, did not return a call for comment.
This week's edition of Professional Pensions is out now.
The government is in talks with the UK and Irish pensions regulators over how to protect members of cross-border schemes in the event of a no-deal Brexit.
The equalisation of guaranteed minimum pensions (GMPs) is at least two years away from being completed, and could take longer than four years for some schemes, a poll has found.
The Pensions Regulator will consider if schemes should be required to have professional trustees and assess the case for greater regulation of administrators and system providers, PP can reveal.