Securities Regulation Daily Wrap Up, ENFORCEMENT—S.D.N.Y.: CFTC, SEC successfully conclude receivership in $1.3B Ponzi scheme, (Oct 18, 2022)

By Lene Powell, J.D.

The CFTC and SEC brought charges back in 2009 in a massive fraud scheme that ensnared large institutional investors, and obtained 100 percent return for approved claims.

The CFTC announced the successful conclusion of the receivership in a $1.3 billion Ponzi scheme, resulting in 100 percent recovery of all approved investor claims. Over $1 billion was returned to investors as a result of clawback actions that included cash, a $14 million horse farm, and a collection of antique teddy bears sold at Christie’s for $3.7 million (CFTC v. Walsh , September 19, 2022, Daniels, G.).

“The cooperative enforcement effort in this case, resulting in restitution to all customers of over 100% of their initial investment totaling over $1 billion, demonstrates the high degree of success that comes from working with fellow regulators, self-regulatory organizations, and criminal authorities,” said Acting Director of Enforcement Gretchen Lowe.

$1.3 billion Ponzi scheme. In 2009, the CFTC charged defendants Stephen Walsh and Paul Greenwood with operating a Ponzi scheme that misappropriated at least $553 million from commodity pool participants in connection with entities they owned and controlled, including Westridge Capital Management, Inc., WG Trading Investors, LP, and WGIA, LLC. The SEC also filed a civil action against the defendants in a related matter. Greenwood and Walsh agreed to consent orders of permanent injunction that enjoined any ongoing violations and imposed permanent trading and registration bans.

In parallel criminal proceedings, Greenwood and Walsh pleaded guilty to criminal violations, agreed to consent forfeiture judgments of approximately $85 million and $50 million, respectively, and served approximately five years and four years in federal prison, respectively.

Clawbacks and distribution. The court appointed Robb Evans & Associates LLC as receiver. Under a pro rata plan recommended by both the CFTC and SEC and approved by the court, the receiver made an initial distribution of approximately $792 million to investors, which were mostly institutions including state and county pension funds, private pension funds, and university foundations. Three subsequent partial distributions took place, and a final distribution completed the process. Victims of the fraudulent scheme obtained a return of all of their approved claims.

“As this long-standing litigation demonstrates, where customers are egregiously harmed by greedy fraudsters who misappropriate funds entrusted to them, the CFTC is resolute in its commitment to protecting customers and achieving justice,” said Lowe.

This is case No. 09-CV-1749 (GBD).

Attorneys: A. Daniel Ullman for the CFTC. Christopher Patrick O'Connell (Parker, Milliken, Clark, O'Hara & Samuelian, APC) for Westridge Capital Management, Inc.

Companies: Westridge Capital Management, Inc.; WG Trading Investors, LP; WGIA, LLC

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