On Friday, April 25, 2014, Stephen Walsh, former minority owner of the New York Islanders, and former chief executive officer of WG Trading Co., pled guilty to engaging in a massive fraudulent investment scam that spanned for over a decade.
Prosecutors allege that from 1996 to 2009, Walsh and Paul Greenwood, the former chief operating and chief financial officer of WG Trading Co., utilized their commodities trading and investment advisory firm (WG Trading) to solicit universities, retirement plans, pension funds and other large institutions to invest hundreds of millions of dollars in “equity index arbitrage...a conservative trading strategy that had outperformed the results of the SandP 500 Index for more than 10 years.” According to prosecutors, Walsh and Greenwood made illegal wire transfers from investor accounts, swindled millions of dollars from WG Trading Co., and misrepresented the company’s losses. In order to conceal the misappropriation of investor funds and WG Trading Co.’s unprofitability, Walsh admits to issuing promissory notes to investors, totaling $554 million that “fraudulently stated I owed and would pay tens of millions of dollars.” The massive securities fraud scheme financed both Walsh and Greenwood’s extravagant lifestyles and allowed them to purchase horse farms, cars, and collectable teddy bears.
“Stephen Walsh and his partner Paul Greenwood ran an investment operation that was a veritable money-making machine – for them,” said U.S. Attorney Preet Bhara in a statement after the plea. “Their purported investing strategy wasn’t nearly as effective as their fraudulent sales pitch to investors.”
Walsh pled guilty to one count of securities fraud in front of U.S. Magistrate Judge Kevin Nathaniel Fox in Manhattan and faces up to twenty years in prison at his July 2014 sentencing. As part of the plea agreement, Walsh agreed to forfeit more than $50.7 million, the amount prosecutors allege he profited from the investment scheme. In 2010, Greenwood also pled guilty to charges of conspiracy, securities fraud, commodities fraud, wire fraud and money laundering. In 2009, Deborah Duffy, WG Trading Co.’s former chief compliance officer, pled guilty to similar charges, and explicitly admitted to illegally transferring more than $100 million to Greenwood and Walsh in connection with the scheme to defraud investors.
Since the U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission sought an asset freeze in 2009, WG Trading Co. and a related entity, WG Trading Investors, have been under the exclusive control of a court-appointed receiver. “The receiver, Robb Evans, has to date distributed about $854.3 million to investors” stated Brick Kane, a deputy to the court-appointed receiver. According to court filings, total claims by investors are approximately $958.8 million.
Obviously when all officers of upper management are participants in a scheme to defraud, it is difficult, if not impossible, for shareholders and investors to protect themselves from fraud unless the companies they invest in are fully audited by reputable and experienced independent accounting firms.