US: Universities face loss of millions

Two American universities are trying to recuperate tens of millions of dollars they invested with a firm accused of defrauding investors, according to legal documents obtained by University World News. The University of Pittsburgh and Carnegie Mellon University, also in Pittsburgh, both invested money with Westridge Capital Management Inc and associated companies that have been accused by the US Security and Exchange Commission of misappropriating and dissipating investments.

In court documents, the SEC claimed Westridge's general partners, Stephen Walsh and Paul Greenwood, used their clients' money invested in WGTI [associated company WG Trading Investors] "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".

Legal documents filed by the University of Pittsburgh to the District Court of Western Pennsylvania show that, between 2002 and 2009, the university invested US$52.3 million with the investment firm, which is currently controlled by temporary receiver Robb Evans & Associates LLC. Meanwhile, a Carnegie Mellon spokesman told University World News his university had invested a total of US$78 million with the company since April 2008.

"We do not expect that Westridge will have an immediate impact on the university's operating budget," said Ken Walters, a media relations officer for Carnegie Mellon. "At this point, we are aggressively pursuing return of our investment with various legal filings."

After the National Futures Association conducted an audit of the company whose primary office is in Greenwich, Connecticut, the industry organisation suspended Walsh and Greenwood from its membership.

Both universities have filed a joint civil action lawsuit at the western Pennsylvania district court against Westridge, in an attempt to get back their investments. Their statement of claim says that "immediately after [Carnegie Mellon University and the University of Pittsburgh] became aware of the NFA Suspension Notice, they both demanded the return of all proceeds that they had invested with the Westridge Group".

The document alleges "[both] Plaintiffs have been damaged and continue to be damaged in an amount to be determined at trial, but believed to be in excess of US$114 million".

A third American university, Ohio Northern University, told University World News it had also invested US$10 million funds with Westridge Capital Management. At the time of going to press, University World News had not been told whether Ohio planned to launch its own legal action.

Meanwhile, the Security and Exchange Commission has filed an emergency order with the New York Southern District Court to freeze the assets of Westridge Capital, Walsh and Greenwood to prevent further trading.

"From at least 1996, to the present, Greenwood and Walsh have used their affiliated entities to engage in an egregious investment fraud," say court documents filed by the SEC in the district court.

The Federal Bureau of Investigation arrested Greenwood and Walsh in February and each was charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, and one count of wire fraud.

According to the FBI, "the securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offence. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offence".

A report filed by the receiver to the New York district court said that of the $1.5 billion invested in the firm by all investors, a shortfall of $600 million was expected.

"The receiver's forensic accounting revealed a long history of WGTC's and WGTI's (WG Trading Investors, LP), practice of comingling funds, operating with utter disregard for corporate governance, and employing fraudulent accounting practices in an apparent attempt to conceal the true financial condition of the entities from investors, potential investors and, in the case of WGTC, its regulators," said the report.

It claimed that, between 1 January 1999 and 25 February 2009, the company paid out $311.2 million of money it had not made. According to the receiver's forensic investigation, WGTI had an income of $70.3 million but paid interest, distributions, operating expenses, and other payments totalling $381.5 million during that same time period. The receiver's report says that during this time Greenwood and Walsh made payments to "or for the benefit of" themselves, their affiliates and their family members totalling $130.5 million.

After other operating expenses were calculated, the report concludes that, "WGTI had a cash shortfall, at minimum, of approximately $311.5 million... It is obvious that WGTI's cash shortfall during this period was financed by either WGTC's or WGTI's current investors."

The report noted that Paul Greenwood, Stephen Walsh and James Carder founded the investment firm in 1984. The three men sat as the sole directors and shareholders for Westridge, with Greenwood and Walsh sharing 51% of the stock ownership, while Carder - who has not been subject to FBI and SEC legal action - was left with the remaining 49%.

With the firm entering into receivership in February 2009, Greenwood has been faced with the task of appraising his property and liquidating his possessions of extravagant jewellery, furniture, rugs, sculptures, paintings, rare books, and a collection of 1,348 teddy bears. According to the receiver's report, at least one of the bears is worth $100,000.

Walsh has also had his personal property appraised by the receiver and despite his lack of expensive collectables he owns an expensive waterfront estate in New York, estimated in 2007 to be worth $8 million.

The receiver will continue to help liquate the two men's properties and last week filed a motion that will address the redistribution of investors' money. The University of Pittsburgh did not respond to requests for a comment.

keith.nuthall@uw-news.com