Four arrested on investment funds looting charges

NEW YORK | The owners of a company that managed hundreds of millions of dollars for universities and charities were arrested Wednesday on charges of looting their investment funds for more than a decade to buy horses, collectibles and other personal items.

Paul Greenwood, 61, of North Salem, N.Y., and Stephen Walsh, 64, of Sands Point, N.Y., appeared in U.S. District Court in Manhattan on charges of conspiracy, securities fraud and wire fraud. Mr. Greenwood is also a horse breeder and elected official in suburban North Salem.

Bail was set at $7 million each. Richard D. Weinberg, a lawyer for Mr. Walsh, and Robert J. Jossen, a lawyer for Mr. Greenwood, declined to comment.

The charges were disclosed the same day authorities announced an arrest in an unrelated investigation of James Nicholson, president and general partner of Westgate Capital, a New York City investment fund.

Authorities said Mr. Nicholson, 42, of Saddle River, N.J., defrauded investors who had put at least $100 million into his funds since 2004. They said the fraud came to light after several investors sought to redeem their money after hearing about a $50 billion fraud blamed on former Nasdaq Stock Market Chairman Bernard Madoff.

The FBI made another arrest Wednesday in a third case of securities fraud. Trader Mark Bloom, who had once worked with Mr. Greenwood and Mr. Walsh, was charged with securities fraud and was awaiting an appearance in federal court. He was accused of misappropriating millions of dollars, including to purchase a luxury Manhattan apartment.

The charges were just the latest in a series of high-profile scandals to rock Wall Street.

Mr. Madoff is under house arrest. Authorities said he confessed to his sons in early December that he ran a $50 billion Ponzi scheme, which involves illegally using investor money to reward earlier investors.

Other cases include that of Florida hedge fund Arthur Nadel, accused of bilking investors of up to $350 million, and Mark Dreier, a prominent lawyer charged with stealing $400 million in a hedge fund scam. Mr. Dreier has pleaded not guilty.

Mr. Greenwood and Mr. Walsh were identified in court papers as the owners of Greenwich, Conn.-based WG Trading Co. LP and of Westridge Capital Management Inc., based in Santa Barbara, Calif. Their operation also had offices in Manhattan and Jersey City, N.J.

The firms’ clients included “charitable and university foundations, retirement and pension plans and other institutions,” according to the criminal complaint.

Prosecutors contend that $1.3 billion in illegal wire transfers were made to bank accounts held by Mr. Greenwood and Mr. Walsh’s wife since the summer of 2007.

The criminal investigation of Mr. Greenwood and Mr. Walsh sprang from an audit begun earlier this month by the National Futures Association, a Chicago-based regulatory agency for the U.S. futures industry.

The group suspended the two men after they refused to answer questions about a dubious series of loans between their various entities that involved more than $500 million in transfers, NFA spokesman Larry Dyekman said Tuesday.

“They wouldn’t cooperate at all, so we had to take action,” Mr. Dyekman said.