George S. May Business Blog

WG Trading, Westgate Capital under fraud investigation

WG Trading is the next to step into the firing line as four men were charged this morning with conspiracy in what authorities called a $550 million securities- fraud scheme. Westgate Capital, a Greenwich Connecticut based broker-dealer, is said by the FBI to have fraudulent activities that date back to 1996.

Paul Greenwood and Stephen Walsh, the two Westgate Capital officers, were arrested by the FBI after three securities-fraud complaints were unsealed in U.S. District Court in New York, said Jim Margolin, an FBI spokesman.

Both residents of New York and in their sixties, (Walsh – 64, North Salem, and Greenwood – 61, Sands Point) were accused of soliciting funds from institutional investors that included university foundations and charities, namely the University of Pittsburgh.

James Nicholson, 42, founder of Westgate Capital Management, was taken into custody by FBI agents, however for a differnet matter. He was accused of conducting a scheme dating back to 2004, in which he lied to investors about the total assets of his funds.

The forth arrested was former employee of Paul Greenwood and Stephen Walsh, Mark Bloom. Bloom now heads his own firm. He is being charged with what prosecutors said was a scheme that operated from July 2001 until this month. Allegedly Bloom, on behalf of WG Trading/Westgate Capital, misappropriated millions of dollars by concentrating investors’ assets in a commodities trading pool without telling them, as well as using the funds for his own personal expenses, including a luxury Manhattan apartment.

So how did this scheme all come uncovered? WG Trading and Westgate Capital can thank our good old friend Bernie Madoff. Although their charges are far different than those of Madoff, basically, when the whole Madoff scheme surfaced, investors, in realizing they were about to be out a lot of cash, began seeking redemptions on their other investments. In conjunction, the SEC began to investigate 1,000 of trading companies in hopes to prevent further fraudulent activities in the market. Westgate Capital resisted the investigation by not providing information such as their customers’ identities and the amount and location of the finds deposited by them. As a result, Greenwood and Walsh were suspended. Naturally, when the University of Pittsburgh became aware of this they grew alarmed and filed their own suit, drawing all the more attention to the firm. University of Pittsburgh claims that it lost $65 million.

But today it was the SEC that separately sued Greenwood, Walsh and their firms WG Trading Investors LP, WG Trading Company Limited Partnership and Westridge Capital Management Inc. They claim that of the $667 million invested, they are likely to have misappropriated as much $554 million.

The four men are scheduled to appear later today in federal court in Manhattan, prosecutors said. All are charged with securities fraud, which is punishable by as much as 20 years in prison.

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