July 29, 2010

CFTC and Defendant Paul Greenwood Agree to a Consent Order Finding that Greenwood Operated a Multi-Billion Dollar Investment Scam

Federal court enjoins Greenwood for his role in misappropriating more than $80 million of pool participants’ funds for his personal benefit.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that a federal court in New York entered a consent order of permanent injunction and equitable relief against Paul Greenwood of North Salem, N.Y. The CFTC charged Greenwood with operating a $1.3 billion investment scam in which he and co-defendant Stephen Walsh, of Sands Point, N.Y., misappropriated at least $553 million from commodity pool participants in connection with entities they owned and controlled, such as Westridge Capital Management, Inc., WG Trading Investors, LP and WGIA, LLC (see CFTC Press Release 5621-09, Feb. 25, 2009).

The consent order, entered on July 28, 2010, by the U.S. District Court for the Southern District of New York, permanently bars Greenwood from trading commodity futures and options contracts and CFTC-regulated foreign currency contracts. Greenwood also is permanently prohibited from soliciting funds for such trading, registering with the CFTC and acting as a principal, agent or employee of a CFTC registrant. The order also requires Greenwood to disgorge ill-gotten gains to defrauded pool participants and to pay a civil monetary penalty. The CFTC and Greenwood or the court will determine the specific amounts of disgorgement and the civil monetary penalty at a later date.

The order finds that, from at least 1996 to the present, Greenwood fraudulently solicited approximately $7.6 billion from various entities through Westridge Capital Management and WGIA, LLC. Defrauded pool participants include institutional investors such as pension and retirement plans and charitable and university foundations. According to the order, Greenwood defrauded victims by falsely representing that their funds would be traded by means of an investment strategy called equity index arbitrage, which involves buying and simultaneously selling through futures the stocks of a well-known equity index, such as the Standard and Poor’s 500 Index. Instead, the order finds, pool participants’ funds were transferred to another entity from which Greenwood siphoned funds.

The order holds Greenwood liable for futures fraud and misappropriation of pool participants’ funds

The consent order finds that, to cover-up the misappropriation of pool participants’ funds, Greenwood manufactured promissory notes to create the appearance that pool participants’ funds had been loaned to him. Greenwood and others caused companies that he ran to divert approximately $80 million to Greenwood for his benefit, according to the order.

Litigation is pending against other defendants and relief defendants in this action. Efforts to return funds to pool participants are ongoing.

Greenwood enters guilty plea in criminal action

On July 28, 2010, Greenwood entered a guilty plea in the U.S. District Court for the Southern District of New York in a companion criminal action. The Securities and Exchange Commission also filed an action against Greenwood, and the court entered a consent order there as well.

The CFTC appreciates the assistance of the National Futures Association, the office of the U.S. Attorney for the Southern District of New York, the Federal Bureau of Investigation and the Securities and Exchange Commission.

CFTC Division of Enforcement staff members responsible for this matter are: Patricia Gomersall, Kyong J. Koh, JonMarc P. Buffa, Joseph Rosenberg, Peter M. Haas, Paul G. Hayeck and Joan Manley.

Media Contacts
Scott Schneider
202-418-5174

Dennis Holden
202-418-5088

Last Updated: July 29, 2010