Paul Greenwood and Stephen Walsh, officers of the broker- dealer based in Greenwich, Connecticut, were among four suspects charged in Manhattan

Paul Greenwood and Stephen Walsh, officers of the broker- dealer based in Greenwich, Connecticut, were among four suspects charged yesterday in Manhattan. In a related lawsuit, securities regulators accused the two, former minority owners of the New York Islanders professional hockey team, of misappropriating $554 million in client money to live a lavish lifestyle that included the purchase of horses, horse farms, automobiles and collectible Steiff teddy bears.

Greenwood, 61, of North Salem, New York, and Walsh, 64, of Sands Point, New York, were accused of soliciting funds from institutional investors that included university foundations and charities. The alleged scam continued until Feb. 6, when the men obtained a $21 million investment from the University of Pittsburgh, according to the Securities and Exchange Commission, which sued the men for fraud.

The government accused them of misrepresenting their assets under management and where they had invested client money in a financial conspiracy that perpetrated “a fraud and deceit on the investing public,” according to the criminal complaint filed by the FBI.

One of the frauds was revealed after news of Bernard Madoff’s alleged $50 billion Ponzi scheme spurred customer redemptions, the government said. Greenwood and Walsh were released yesterday on $7 million bond each after appearing before U.S. Magistrate Judge Douglas Eaton in Manhattan. Walsh’s lawyer, Richard Weinberg, and Greenwood’s lawyer, Robert Jossen, declined to comment.

Two Universities
The University of Pittsburgh and Carnegie Mellon University, also located in Pittsburgh, sued the men Feb. 20, claiming they misrepresented their trading in commodity futures contracts, leading to $114 million in investment losses. A third man, James Nicholson, 42, founder of Westgate Capital Management, was also taken into custody by FBI agents. He was accused of directing a scheme dating back to 2004. Prosecutors alleged during a bail hearing yesterday that his fraud may have cost clients as much as $900 million. Nicholson founded at least seven funds with offices in Pearl River, New York, and Manhattan, beginning in 1999, prosecutors said. The funds included Westgate Alpha and Westgate Equity, the government said. Assistant U.S. Attorney Joshua Klein said yesterday in court at that Nicholson should be detained, saying investigators can’t account for “hundreds of millions of dollars” they believe he earned in the scheme from at least 372 investors and poses a risk of flight. Klein said from 24 to 30 investors had been interviewed who said they had placed about $100 million with Nicholson. The government believes there are more than 330 other investors, which will mean hundreds of millions of dollars in more losses as a result of the scheme. He charged that the U.S. believes Nicholson also siphoned off $30 million from funds and another $70 million in assets. “There are large amounts of money unaccounted for,” Klein said. “There are potentially hundreds of millions of dollars, and that we have no idea where the money is.” Klein added, “these factors lead to an acute risk the defendant will not appear.” Nicholson’s lawyer Ira Sorkin, who also represents Madoff, said the government had no evidence his client posed a risk of flight and said prosecutors were attempting to force his client to disclose where the assets were, in a violation of his rights. Eaton agreed to release Nicholson on $10 million bond secured by five co-signers. Nicholson would remain under house arrest with electronic monitoring. Eaton said Nicholson wouldn’t be released until he’d satisfied all the conditions.

Mark Bloom of New York, who once worked for Greenwood and Walsh and now heads his own firm, was also arrested, the Federal Bureau of Investigation said in a criminal complaint.

All four men are charged with securities fraud, which is punishable by as long as 20 years in prison. Bloom, 57, head of North Hills Fund, an investment partnership, was charged in what prosecutors said was a scheme that operated from July 2001 until this month. He allegedly told investors that North Hills Fund’s assets would be diversified among hedge funds, prosecutors said.
Starting in February 2004, the government said, Bloom concentrated at least 50 percent of the fund in a commodities trading pool known as the Philadelphia Alternative Asset Fund without telling investors. Bloom is accused of misappropriating “millions of dollars” which he allegedly used for personal expenses, including the purchase of a luxury Manhattan apartment. When Bloom formed North Hills, he was an employee of WG Trading, the government said. Bloom was scheduled to appear late yesterday in federal court in Manhattan. Nicholson’s alleged crimes were uncovered in December after news of Madoff’s purported scheme prompted investors to begin seeking redemptions, said FBI agent William McGrogan in the criminal complaint. Information about Greenwood and Walsh came to light after the universities contacted the U.S. Commodities Futures Trading Commission and the SEC, according to the complaint. The schools grew alarmed when the two men were suspended Feb. 12 by the National Futures Association, according to their civil complaint. The men failed to cooperate in an investigation into their businesses, the identities of their customers, and the amount and location of funds deposited by customers, according to the association. The men “defrauded their investors by misrepresenting and/or omitting the material amount and nature of the assets under investment,” according to the complaint. The University of Pittsburgh claims it lost $65 million, and Carnegie Mellon claimed losses of $49 million, according to the schools’ complaint in federal court in Pittsburgh. The SEC yesterday separately sued Greenwood, Walsh and their firms WG Trading Investors LP, WG Trading Co. LP and Westridge Capital Management Inc. Of $667 million invested in WG Trading Investors, Greenwood and Walsh misappropriated as much as $554 million, according to the SEC complaint. U.S. District Judge Terrence McVerry in Pittsburgh on Feb. 20 temporarily barred Greenwood, Walsh and the firms from accepting new customer funds or transferring funds, except for operating or payroll expenses. He will consider appointing a receiver and will hold an evidentiary hearing on March 5.