U.S. Complaint Against Paul Greenwood and Stephen Walsh

8/14/2019 U.S. Complaint Against Paul Greenwood and Stephen Walsh

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Approved:

Before:Attorneys

HONORABLE DOUGLAS F. EATONUnited Sta te s Magis t ra t e JudgeSouthern Di s t r i c t of New York

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-------------------------------x SEALED COMPLAINTUNITED STATES OF AMERICA- v . -

PAUL GREENWOOD, andSTEPHEN WALSH,

Defendants .-------------------------------xSOUTHERN DISTRICT OF NEW YORK, s s . :

Viola t ion o f15 U.S.C. 78j (b) ,78 f f i 17 C.F.R. 240.10b-5i 18 U.S.C. 371, 1343, 1346, and2.COUNTY OF OFFENSE:NEW YORK

JAMES C. BARNACLE, JR. , being duly sworn, deposes and saystha t he i s a Spec i a l Agent with th e Federa l Bureau o fInves t iga t ion (UFBI") and charges as fo l lows:

COUNT ONE(Conspiracy To Commit Secur i t i e s Fraud and Wire Fraud)

1. From a t l e a s t in o r about 1996 through in o r aboutFebruary 2009, in th e Southern Dis t r i c t of New York and elsewhere ,PAUL GREENWOOD and STEPHEN WALSH, th e defendan t s , and others knownand unknown, unlawfu l ly , wi l l f u l l y , and knowingly d id combine,conspi re , con fede ra t e , and agree t oge the r and wi th each o the r tocommit offenses aga i n s t the United S ta te s , to wi t , (1) to commitsecur i t i e s f raud , in v io la tio n of Ti t l e 15, United Sta t e s Code,S ec tio ns 7 8j (b ) and 78f f and Ti t l e 17, Code o f Federa lRegula t ions , Sec t ion 240.10b-5i and (2 ) to commit w ire fraud , invio la t ion of Ti t l e 18, United Sta t e s Code, Sect ions 1343 and 1346.

2. It was a pa r t and objec t of the consp i racy t h a t PAULGREENWOOD and STEPHEN WALSH, the defendants , and o the r s known andunknown, unlawfu l ly , wil l fUl ly , and knowingly, d i r ec t l y andi nd i rec t ly , by use of th e means and i n s t rumen t a l i t i e s ofi n t e r s t a t e commerce, th e mails and the f a c i l i t i e s o f nat iona l


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secu r i t i e s exchanges , would and d id use and employ manipulat iveand decep t ive devices and con t r ivances in co nn ectio n w ith th epurchase and sa le of secu r i t i e s , in v io la tio n of Ti t l e 17, Code ofF e de ra l R e gula ti on s , Sect ion 240.10b-5, by (1 ) employing devices ,schemes an d a r t i f i c e s to defraud; (2 ) making unt rue s ta tem en ts o fmate r i a l f ac t s and omi t t ing to s t a t e mate r i a l fac t s necessary inorder to make th e s ta temen ts made, in l i g h t o f the ci rcumstancesunder which they were made, no t misleading; and (3 ) engaging inac t s , p r ac t i c e s , and courses o f business which opera ted and wouldopera te as a f raud and dece i t upon th e inves t ing publ ic and otherpersons and en t i t i e s , in v io la t ion o f Ti t l e 15 r United Sta tesCode, Sect ions 78j (b ) and 78ff .

3. It was fu r t he r a pa r t and ob j ec t of th e conspi racy t h a tPAUL GREENWOOD and STEPHEN WALSH, the defendan t s , and others knownand unknown, unlawfu l ly , wi l l f u l l y , and knowingly, having devisedand in tend ing to dev ise a scheme and a r t i f i c e to defraud and fo robta in ing money and proper ty by means of f a l s e and f raudu len tp re t enses , rep re sen ta t ions , and promises r namely, a scheme todefraud i nves to r s and enr ich themselves a t the expense ofinves to rs , would and d id t r an smi t and cause to be t ransmi t t ed bymeans of wire communication in i n t e r s t a t e and fo re ign commerce,wri t ings , s igns , s ig n als , p ic tu re s, and sounds fo r the purpose ofexecut ing such scheme and a r t i f i c e r in v io l a t i on of Ti t l e 18,United Sta te s Code, Sec t ions 1343 and 1346.

Overt A cts4. In fu r therance of the conspi racy and to e f fe c t i t si l l ega l objec t s , PAUL GREENWOOD and STEPHEN WALSH, th e defendants ,committed the fol lowing over t ac t s , among othe rs , in th e SouthernDis t r i c t of New York and elsewhere :

a. On o r about Ju ly 6, 2007, a wire t r an s f e r wasef fec ted in th e amount of $500,000 to a bank account in New York,New York, t h a t was in th e name of STEPHEN WALSH's wife .

b. On o r about November 13, 2007, a wire t r an s f e rwas e f fec t ed in th e amount of $300,000 to a bank account in NewYork, New York, t h a t was in the name of PAUL GREENWOOD.C. On o r about January 8, 2008, a wire t r ans fe r

was e f f ec t ed in th e amount of $500,000 to a bank account in NewYork, New York r t h a t was in the name of STEPHEN WALSH's wife.(T i t l e 18, United Sta t e s Code} Sect ion 371.)

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COUNT TWO(Secu r i t i e s Fraud)

5. From a t l e a s t in o r about 1996 through a t l e a s t in o ra bo ut F eb ru ar y 2009, in the Southern Dis t r i c t of New York andelsewhere , PAUL GREENWOOD and STEPHEN WALSH, the defendants ,unlawful ly , wi l l f u l l y , and knowingly, by use of th e means andi n s t rumenta l i t i e s of i n t e r s t a t e commerce and of th e m ails ,d i r ec t l y and i nd i r e c t l y , would and d id use and employ manipula t iveand decept ive devices and. contr ivances in v i o l a t i on of Ti t l e 17,Code of Federa l Regula t ions , Sec t ion 240.10b-5, by (a ) employingdevices , schem es, and a r t i f i c e s to def raud; (b ) making untruesta tements o f mate r i a l f ac t s and omi t t ing to s t a t e mate r i a l fac t snecessary in o rde r to make th e s ta tements made, in the l i g h t ofthe circumstances under which they were made, not mis lead ing ; and(c) engaging in a cts , p ra ct ic es , and courses o f bu sin ess whichoperated and would opera te as a f raud and dece i t upon persons inconnect ion w ith th e purchase and sa l e of s ecu r i t i e s , to wit ,GREENWOOD and WALSH made o r caused to be made f a l ser ep re se nta tio ns to in ve sto rs regarding t h e i r inves tments , omit tedto d isc lose ma te ria l fa cts to in ve sto rs regarding t h e i r use andmi sapprop r ia ti on o f i nves to r funds, and enr iched themselves a t theinves to rs ' expense.

(T i t l e 15, uni ted S t a t e s Code, Sec t ions 78j (b ) & 78f f ;Ti t l e 17, Code of Feder al Regu la ti on s , Sec t ion 240.10b-5;and Ti t l e 18, United Sta t e s Code, Sec t ion 2 .)COUNT THREE(Wire Fraud)

6. From a t l e a s t in o r about 1996 up th rough and inc ludingin o r about February 2009, in the Southern Di s t r i c t of New Yorkand elsewhere , PAUL GREENWOOD and STEPHEN WALSH, the defendants ,having devised and i n t end ing to devise a scheme and a r t i f i c e todefraud , and fo r obta in ing money and proper ty by means of f a l seand f raudulen t p re te n se s, r ep re s en ta ti on s , and promises ,un lawful ly , wi l l f u l l y , and knowing ly , would and d id tra nsmit andcause to be t ransmi t t ed by means of wire , rad io , and t e l ev i s ioncommunication in i n t e r s t a t e and fo re ign commerce, wri t i ngs , s igns ,s ignals , pic tu re s and sounds, to wi t , GREENWOOD and WALSH causednumerous t r an s f e r s of funds v ia wire from bank and s ecu r i t i e saccounts t h a t they con t ro l l ed in New York, New York, to o the rpersons and en t i t i e s fo r the purpose of d ive r t i ng i nves to r fundsto t h e i r own pe r sona l use , a l l in fu r the rance of a scheme to

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defraud inves to rs and enr ich themselves a t th e expense of thei nves to rs .

(Ti t le 18, United Sta te s Code, Sect ions 1343, 1346, and 2.)The bases fo r my know ledge and th e foregoing chargesa re , in par t , as fol lows:

7. I have been a Specia l Agent with th e FBI fo rapproximate ly 3 years . I am cur ren t ly ass igned to a squadresponsib le fo r i n v es ti g at in g v i o la ti o n s of the federa l secur i t i e slaws and r e l a t ed o f fenses . I have pa r t i c ipa t ed in numerousi nves t iga t ions of th es e o ff en se s, and I have made and par t i c ipa tedi n making a r r e s t s of numerous ind iv idua l s fo r p a rt ic ip a ti ng i nsuch offenses .

8. The in fo rmat ion conta ined in t h i s a f f i d av i t i s basedupon my personal knowledge, as wel l as i nfo rma ti on ob ta in ed duringt h i s inves t iga t ion , d i r ec t l y o r ind i rec t ly , from othe r sources andagen t s , inc lud ing documents and informat ion provided to me byrep re sen ta t ive s of the Secur i t i e s and Exchange Commission ("SEC")and the Commodity Futures Trading Commission ("CFTC"), documentsprovided by inves tors , a review of bank and t rading records , areview of documents crea ted and maintained by en t i t i e s con t ro l l edby PAUL GREENWOOD and STEPHEN WALSH, the defendants , andinformat ion provided to me by witnesses who pa r t i c ipa t ed inconversa t ions and wri t t en communications with defendants GREENWOODand WALSH. Because t h i s a f f i dav i t i s prepared fo r lim itedpurposes , I have no t s e t fo r th each and every f ac t I have learnedi n connec ti on w i th t h i s i nves t iga t ion . Where conversat ions andeven ts are re fe rred to here in , they are r e l a t ed in substance andi n pa r t . Where dates , f igures , and ca lcula t ions a re se t for thhere in , they a re approximate .

Relevant En t i t i e s and Ind iv idua l s9. Based upon my review of publ ic ly a v ai la b le documents andmy conversat ions with representa t ives of the SEC and th e CFTC, Iknow t h a t WG Trading Company Limited Par tnersh ip ("WG Trading") i sa Delaware l im i te d pa rt n er sh i p o pe ra tin g a s a commodity pool , i s ar eg i s te red broker -dea le r under the Secur i t i e s Exchange Act of1934, and i s a member o f the New York Stock Exchange, Inc . WGT ra din g h as of f ices in Greenwich, Connect icut , Je r sey City, New

Jersey , and North Hi l l s , New York, and executes secur i t i e s t radesthrough the New York Stock Exchange in New York, New York. Themanaging genera l pa r tne rs of WG Trading a re PAUL GREENWOOD andSTEPHEN WALSH, th e defendants , both of whom are r eg i s te red withth e CFTC as opera to rs o f a commodity pool and with the SEC aspr inc ipa l s of a r eg i s te red broker -dea le r .

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10. Based upon my review of publ ic ly ava i lable documents andmy conversa t ions with representa t ives of the SEC and the CFTC, Iknow tha t WG Trading Inves to rs , LP ( ~ W G Inves to r s" ) , i s a Delawarel imi ted par tnership , having i t s pr inc ipa l place of business inGreenwich, Connect icut . WG Inves to rs mainta ins an account andexecutes t r ansac t ions , i nc lud ing va ri ous paYments by wiret r ans fe r , through a broker -dea le r headquar tered in New York, NewYork. WG Inves to rs i s a l imi ted pa r tne r in WG Trading. Themanaging genera l pa r tne rs of WG Inves to rs a re PAUL GREENWOOD andSTEPHEN WALSH, th e defendants . WG Inves to rs i s not reg i s t e red withth e SEC or the CFTC.

11. Based upon my review of pUbl ic ly ava i lable documents andmy conve rs at ion s w i th r ep re sen t a t i ves of the SEC and the CFTC, Iknow tha t Westr idge Capi ta l Management, Inc . ( ~ W e s t r i d g e " ) , i s aDelaware corpora t ion with i t s pr inc ipa l place of business in SantaBarbara, CA. Westr idge i s r ~ g i s t e r e d with th e SEC as a regis te redinves tment adv i se r and i s an inves tment adv i ser to th e WCM Fund( ~ W C M Fund") , a l i s t ed commodity pool organized under th e laws ofthe Br i t i s h Virg in I s l ands , and o th er in v es to rs . Based upon myreview of documents obta ined by th e CFTC, th e WCM Fund hasapproximately 16 par t i c ipan t s , including cha r i t ab le and univers i tyfoundat ions, r e t i r emen t and pension plans , and o the r i n s t i tu t ions .Westridge i s owned by PAUL GREENWOOD and STEPHEN WALSH, thedefendants , and anothe r ind iv idua l ( ~ t h e Marketer") .

The Investment Scheme12. Based upon my review of documents provided to inves to rs ,and my conversa t ions with represen ta t ives o f the SEC and the CFTCabout t he i r in te rv iews with inves to rs , I have l earned t ha t , froma t l e a s t in o r about 1996, through and including in o r aboutFebruary 2009, PAUL GREENWOOD and STEPHEN WALSH, the defendants ,and others known and unknown, so l i c i t ed funds from i n s t i t u t i ona l

inves to rs , inc lud ing cha r i t ab le and unive rs i ty foundat ions,pension and re t i rement plans , and other i n s t i t u t i on s . I havel earned t h a t i nves to r s were to ld by Westridge, and others , bothora l ly and in wri t ing , the fol lowing:

a. Westridge and WG Trading opera te as one group withcommon ownership fo r the management of inves to rfunds.b . Inves to rs were offered the oppor tun i ty to inves tthrough d i f f e r en t mechanisms. F i r s t , an inves to rc ou ld purc ha se a l im i te d p a rt ne r sh ip i n t e r e s t in WGTrading. Second, an i nves to r could i nves t through

WG Inves to rs by del iver ing funds to WG Inves to rs inexchange fo r a promissory note from WG Inves to rs toth e inves to r , which note would pay in te re st a t a

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r a t e s imi l a r to the ra t e of re tu rn r ea l i zed by al imi ted par tne r sh ip i n t e r e s t in WG Trading . Theinves to rs were to ld th at the major i ty of t h e i rfunds would be passed th rough to WG Trading fo rinves tment pursuant to the s t ra t egy descr ibed belowin subparagraph 12(c) . Third, an inves to r couldpurchase an i n t e r e s t in the WCM Fund, which in t u rnwould i nves t the fund th rough WG Inves to rs inexchange fo r a promissory note i s sued by WGInves to r s to the WCM Fund.

c . For a l l of the foregoing types of inves tments , thei nves to r funds would be inves ted by WG Trading andWestr idge pur suan t to a s tr ate g y c al le d nequityindex a rb i t rage , " which i s a form of nenhancedindexing." Equity in de x a rb i t r age i s the buyingand s imul taneous ly se l l i ng through fu tu res of anequ i ty index (such as the S&P 500). The market ingmater ia l s represen ted t h a t nthe market exposure oft h i s a rb i t r age i s zero."

d. The enhanced indexing s t r a t egy proposed byWestr idge and WG T rad in g ha s cons i s t en t l youtperformed the S&P 500 Index. For example, inmarket ing mate r i a l s t h a t Westridge sen t to a s t a t epUblic employees ' pens ion fund on o r about November9, 2006, wes t r idge represen ted t h a t the enhancedindexing t rad ing s t r a t egy h ad ove rp er fo rmed the S&P500 index fo r the pa s t 10 yea r s . In addi t ion ,Westr idge made the fo l lowing r ep resen ta t i onsconcerning i t s annua l ized percentage performancer e t u rn s :

S&P 500 Westridge3 years ending 6/30/06 11.21% 11.75%5 years ending 6/30/06 2.49% 3.09%10 yea r s ending 6/30/06 8.39% 9.94%

13. I have reviewed the fo l lowing mate r i a l s concerning aninvestment by a pUblic s t a t e - sponsored un ive r s i t y (nInves tor 1") :(a ) an inves tment management agreement dated November 1, 2002between Inves to r 1 a nd Westr id ge (nManagement Agreement") ; (b) as ide l e t t e r between Inves to r 1 and Westridge, WG Trading , WGInvestors , and PAUL GREENWOOD and STEPHEN WALSH, th e defendants( ~ S i d e Let t e r " ) ; and (c) a Senior Promissory Note dated November22, 2002 executed by WG Inves to rs fo r the bene f i t of Inves to r 1( ~ I n v e s t o r 1 Note") , pur suan t to which WG Inves to r s has agreed topay $28,222,000 plus i n t e r e s t as s pe cif ie d in th e In ve sto r 1 Note.

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Based upon my rev iew, I have le arn ed th e fo l lowing:a . In o r about November 2002, Inves to r 1 made ani n i t i a l inves tment of approximate ly $28 mil l ion

wit h we st rid ge by t ransmi t t ing cash to WG Inves to rsand by execu tion o f the Management Agreement.Pursuan t to th e In ve sto r 1 Note, th e i n t e r e s tacc ru ing and payable on the note " sha l l be theperformance of a hypothe t ica l inves tment equal inamount to the pr inc ipa l amount of t h i s Notei nves t ed in a l im i te d p a rt ne r sh ip i n t e r e s t of [WGTrad ing] . " The Inves to r 1 Note was s igned by PAULGREENWOOD, the defendant , on beha lf o f WGInves to rs .

b . In th e Side Le t t e r , GREENWOOD (who s ignedind iv idua l ly and fo r WG Trading and WG Investors)and WALSH represen ted t h a t " the only business of WGt rad ing i s index a rb i t rage and t h a t WG t rad ing doesno t employ any o the r inves tment s t r a t eg i e s . Inadd i t i on , the WG p ar t ie s s ha ll s t r i v e to ensuret h a t th e Unive r s i t y ' s aggrega te inves tment wi l lalways mainta in prec i se ly one hundred percen t (100%exposure) to the S&P 500."

c . I have l earned from documents obta ined byr ep re sen t a t i ves of the CFTC and o the r pUbl iclyf i l ed documents , t h a t Inves to r 1 has i nves ted inexcess of $65 mil l ion with WG Inves to r s , inc ludingan inves tment of approximate ly $21 mil l ion on o rabout February 6, 2009.

14. I have reviewed a Senior Promissory Note d ated Ap ri l 1,2004, i s sued by WG Inves to r s fo r the bene f i t of a corpora tepens ion p la n (" Investo r 2" ) , which r e l a t e s to an inves tment ofapproximate ly $10,000,000 by Inves to r 2 (" Inves to r 2 Note") .Pursuant to th e In ve sto r 2 Note, which was executed by PAULGREENWOOD, th e defendant , on behal f of WG Inves to rs , " [ f ] o rpurposes of de te rmin ing the i n t e r e s t accruing and payable on theNote, the index s h a l l be the performance of a hypothe t ica linves tment equal in amount to the pr inc ipa l of t h i s Note investedi n a l im i t ed p a rt n er s hi p i n t e r e s t of. . WG Trading." TheInves to r 2 Note inc luded a s ide l e t t e r , a l so s igned by GREENWOOD,which s ta te d th at WG Trading " represen ts t h a t i t s only bus iness i sindex a rb i t rage and does no t employ any o the r inves tments t ra t eg ie s" and t h a t "pe rmiss ib le inves tments i nc lude only thepurchase o r s a le of index s tocks versus the fu tu res fo r t h a t indexso long as th e f utu re s p ric e i s determined a t the exp i ra t ion byth e value of th e under lying as s e t purchased o r so ld ."

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15. According to documents obta ined by the CFTC and theNat iona l Futures Associa t ion ("NFA"), based upon in format ionprovided by WG Inves to rs , the NFA has i d en t i f i e d seve ra l i nves to rswho have i nves ted d i r ec t l y o r i nd i rec t ly with WG Inves to rs . Thesei nves to r s inc lude cha r i t ab l e and un ive r s i t y foundat ions ,re t i rement and pens ion plans , and o the r i n s t i t u t i o n a l inves to rs .The notes i s sued and payable by WG Inves to rs re f l ec t ing theseinves tments t o t a l a t le a s t approximately $668 mi l l i on .

Misappropr ia t ion Of Inves to r Funds16. On o r about February 5, 2009, the NFA commenced aud i t s

o f PAUL GREENWOOD and STEPHEN WALSH, the defendants , a s w ell as WGTrading, the WCM Fund, and o the r s . Based upon in format ionuncovered dur ing t hese aud i t s , the NFA i s sued a Not ice of MemberRespons ib i l i ty Act ion on February 12, 2009 ( the "MRA"), which, insubs tance: (a ) suspended GREENWOOD and WALSH from NFA membershipun t i l fu r t he r no t i ce ; (b ) p roh ib i t ed GREENWOOD and WALSH, and anyperson ac t ing on t h e i r beha l f , from so l i c i t i ng any customer o rpool pa r t i c i pan t funds, o r plac ing any t r ades in any pools o raccounts t h a t they con t ro l (o th er th an l i qu ida t i ng t r ades ) ; (c )proh ib i ted GREENWOOD and WALSH, and any person ac t ing on t h e i rbeha l f , from di sburs ing o r t r an s fe r r i ng any funds from anyaccounts (bank, t rad ing , o r o th e r accounts) t h a t e i t he r one ownso r con t ro l s , without p r i o r approval from NFAi and (d) requ i redGREENWOOD and WALSH to provide not ice of the MRA to a l l poolpa r t i c i pan t s in any commodit ies pool which GREENWOOD and WALSHopera te o r con t ro l .

17. I have reviewed the MRA and the accompanying declara t iono f a Direc to r in the NFA's Compliance Department , and have learnedth e fo l lowing:

a . The NFA's review of the books and r ecords of theWCM Fund i nd i ca t e t n a t as of December 31, 2008, theWCM Fund repor ted t o t a l a s se t s of approximately$400 mi l l i on and v i r t ua l l y no l i ab i l i t i e s . Of the$400 mi l l i on in a sse t s , $76 mi l l i on appeared to beheld in fu tu res pos i t i ons , cash , and t reasuryb i l l s , a t o the r NFA member fu tu res commissionmerchants . The remaining $324 mi l l i on was r e f l ec t edas a note rece ivab le from WG Inves to rs .

b. The NFA s t a f f reviewed seve ra l promissory notesi s sued to the WCM Fund by WG I nve s t o r s t h a t werepurpor ted ly s igned by a person i d en t i f i e d as aDirec to r of WG Inves to rs ( the "Direc to r" ) . Then ote s, in clu din g a note dated December 31, 2008 inthe amount of approximately $325 mi l l i on (which Ihave rev iewed) , purpor t to pay i n t e r e s t a t a ra t e

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t h a t m i r r o r s t h e r a t e of r e t u r n t h a t would beearned by a l i m i t e d p a r t n e r i n WG Trading(excluding fees) . Although t h e n o t e s werep u r p o r t e d l y signed by t h e D i r e c t o r , he denied t ot h e NFA t h a t he executed t h e n o te s .

c . The NFA o b t a i n e d f i n a n c i a l r e c o r d s f o r WG I n v e s t o r sa s of December 31, 2008. Those r e c o r d s r e f l e c tt h a t WG I n v e s t o r s had approximate ly $812 m i l l i o n i na s s e t s . Based upon i t s review of t h e f i n a n c i a lr e c o r d s and c o n v e r s a t i o n s with an employee of WGTrading, t h e NFA found t h a t t h e a s s e t s of WGI n v e s t o r s included t h e fo l lowing: ( i ) a purpor tednote r e c e i v a b l e from GREENWOOD i n t h e amount ofapproximate ly $293 m i l l i o n ; ( i i ) a p u r p o r t e d noter e c e i v a b l e from WALSH i n t h e amount ofapproximate ly $261 m i l l i o n ; and ( i i i ) approximately$147 m i l l i o n t h a t was p u r p o r t e d l y i n v e s t e d i ne n t i t i e s owned o r c o n t r o l l e d by GREENWOOD andWALSH. WG I n v e s t o r s had on ly app rox ima te ly $93.8m i l l i o n h e l d with WG Trading. I n a d d i t i o n , t h ef i n a n c i a l records f o r WG I n v e s t o r s r e f l e c tapproximate ly $8.2 m i l l i o n i n p u r p o r t e d "employeeadvances. II

d. Because more than $794 m i l l i o n of t h e a s s e t s of WGI n v e s t o r s were r e c e i v a b l e s from GREENWOOD andWALSH, o r inves tments i n e n t i t i e s t h a t theyc o n t r o l l e d , t h e NFA sought t o q u e s t i o n GREENWOODand WALSH about t h e a c t i v i t i e s of WG Trading, WGI n v e s t o r s , and t h e o t h e r r e l a t e d commodity pools .Other t h a n b r i e f telephone c o n v e r s a t i o n s , n e i t h e rGREENWOOD nor WALSH has agreed t o speak t or e p r e s e n t a t i v e s of t h e NFA.

18. I have reviewed t h e fo l lowing documents: (a ) 12promissory n o t e s i s s u e d by PAUL GREENWOOD, t h edefendant , i n favor o f WG I n v e s t o r s , from January 1998through and i n c l u d i n g January 2008 ("GREENWOOD Notes")(b) 12 promissory notes i s s u e d by STEPHEN WALSH, thedefendant , i n favor o f WG I n v e s t o r s , from January 1998through and i n c l u d i n g January 2008 ("WALSH Notes") ; and(c ) a promissory note da ted March 1, 1996 i s s u e d j o i n t l yby WALSH and GREENWOOD i n t h e amount of approximately$23 m i l l i o n ("1996 Note") . Based on my review o f these

n o t e s , I have l e a r n e d t h e fo l lowing:a. The t o t a l amount of t h e GREENWOOD Notes, p l u s

o n e - h a l f o f t h e 1996 Note, i s approximately$293 m i l l i o n . The t o t a l amount of t h e WALSH

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Notes, plus o ne-h alf o f the 1996 Note, i sapproximate ly $261 mil l ion .b . A ll o f the GREENWOOD Notes and the WALSHNotes, except two, s t a t e t h a t th e amount of

th e note uis r ep re sen t a t i ve of genera lpa r tne r ' s share of l o sse s , withdrawals andpayments" during th e preceding yea r and t ha tthe note i s udue and p ay ab le u nd er 90 dayswr i t t en not ice from [WG Inves to r s ] " ( i . e . , theen t i t y t h a t GREENWOOD and WALSH, as managinggenera l pa r tne r s , con t ro l ) . l The 1996 Note,which appears to be made under the predecessornames of WG Trading and WG Inves to r s , s t a t e stha t it u is r ep re sen t a t i ve of th e 'n eg ativ ebalance ' on the cap i t a l account of [WGTrad ing ' s predecessor] crea ted by [WGTrad ing 's p r ed ece s so r 's ] share o f the economicl o s ses in [WG Inves to r ' s predecessor] .. "

19. I h ave spoken to an employee of WG Trading ( theuEmployee") and have l earned the fo l lowing:a . The Employee has been employed by WG Trading s incea t l e a s t in o r about 1991, and, during a l l r e l evan t

t imes, had s igna tu re au tho r i t y over an accountmain ta ined by WG Inves to rs a t a b roker -dea l e rheadquar tered in New York, New York ( theuAccount") .2

b . From t ime to t ime, PAUL GREENWOOD and STEPHENWALSH, the defendants , di rec t ed th e Employee towire funds from the Account to t h e i r own bankaccounts , bank accounts in the name of t h e i r familymembers, and bank accounts of o the r persons anden t i t i e s to pay fo r p e rs o na l e xp e nd it ur es ofGREENWOOD and WALSH t h a t were unre la ted to thebus iness of WG Inves to r s . The Employee r eca l l ede ff ec ti ng t ra n sf er s to pay fo r , among other th ings ,the fo l lowing: (a) the purchase of expensive

The May 31, 1999 GREENWOOD Note and May 31, 1999 WALSHNote each s t a t e t h a t th e note i s u re pr es en ta tiv e o f genera lpa r t ne r ' s sha re of defe r red i n t e r e s t r ece ivab le d urin g th eprevious yea r s . "

The i n format ion provided by the Employee has beencorrobora ted by i nf o rma t ion ob ta in ed from o the r sources ,inc luding docum ents and bank and brokerage r ec ord s o bta in ed inth i s i nves t i ga t i on .

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co l l ec t ib l e i tems by GREENWOOD; (b) th e purchase ofhorses by GREENWOOD; (c ) t r ans fe r s of cash toWALSH's then-wife ; and (d) t r ans fe r s of cash fo rthe purchase of an apartment fo r WALSH's ex-wifepursuan t to a divorce se t t l ement .

c . At th e beginning of each c ale nd ar y ea r, theEmployee added up th e t ra ns fe rs th a t GREENWOOD andWALSH had di rec ted fo r t he i r personal bene f i t andprepared a promissory note fo r GREENWOOD and WALSHto s ign t h a t inc luded the amounts o f money t h a tGREENWOOD and WALSH had taken from th e Account.

d. From t ime to t ime, GREENWOOD di rec t ed the Employeeto unders ta te the losses repor ted to inves to rs andinc lude a por t ion of the losses in th e promissorynotes executed by GREENWOOD and WALSH. Thus, theGREENWOOD Notes and the WALSH Notes inc lude amountsr e f l e c t i ng funds misappropr ia t ed fo r th e p er so na lbene f i t of GREENWOOD and WALSH and lossesf raudu len t ly hidden from i nves to r s .

20. I have reviewed the records fo r th e Account of WGInv esto rs c ov erin g th e t ime per iod o f a pp ro xima te ly February 1,2007 through approximately December 22, 2008. These recordsr e f lec t , among othe r th ings , outgoing wire t ra n sf er s t ot al i ngmill ions of do l l a r s to bank accounts in th e names o f PAULGREENWOOD and STEPHEN WALSH, the defendants , and members of t h e i rfamil ies .

WHEREFORE, th e deponent prays t h a t a r r e s t warrants be i s suedfo r PAUL GREENWOOD and STEPHEN WALSH, the defendants , and t h a tthey be imprisoned o r bai led as th e case may be .

JAMES C. BARNACLE, JR.SPECIAL AGENTFEDERAL BUREAU OF INVESTIGATION

Sworn to be fo re me t h i s24 th 'day of February 2009

TH HONORABLE EATONUNITED STATES MAGISTRATE JUDGESOUTHERN DISTRICT OF NEW YORK

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U.S. Complaint Against Paul Greenwood and Stephen Walsh

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Transcript of U.S. Complaint Against Paul Greenwood and Stephen Walsh