Source: New York Daily News, Feb 25, 2009


Paul Greenwood and Stephen Walsh’s 13-year Ponzi scheme collapsed in Feb 2009 when the NFA conducted the first visit by a regulator since the SEC’s 1995 examination. WG Trading’s equity index arbitrage program successfully raised over a billion dollars from prominent institutional investors while Greenwood and Walsh used WG Trading as their own piggy bank.

Case Profile

Fund Name WG Trading Investors, L.P., et al
Investment Managers Westgate Capital Management, Inc. 
WG Trading Company Limited Parntership
Portfolio Managers Paul Greenwood, Stephen Walsh
Other Notable Parties Deborah Duffy, COO
Investment Strategy Enhanced equity index strategy
Founded 1996
Estimated AUM $1.3 billion
Estimated Losses $554 million
Fraud Causal Factors – Theft and Misappropriation
– Misvaluation of Fund Assets
– Concealment of Trading Losses
– Strategy Misrepresentation
– Conflict of Interest
– Marketing Misrepresentation


In 1996, Paul Greenwood and Stephen Walsh began soliciting through Westridge Capital Management, Inc. (“Westridge”), a registered investment adviser. They targeted a number of institutional investors, including several educational institutions and public pension and retirement plans, by promising to invest their money in an “enhanced equity index” strategy, which involved purchasing and selling equity index futures and engaging in equity index arbitrage trading.

Westridge advised its investors to hold approximately 15-20% of their cash investment to support a leveraged futures position. About 10% of the cash provided the required margin for the investment in the futures position and the remaining 5-10% of the cash provided an additional margin reserve. The remaining 80-85% of the investor’s cash investment was used for the enhanced index arbitrage program. Westridge’s investment goal was to generate 75 to 125 basis points in excess of whichever index is selected by the client after 0.25% annual management and 30% incentive fees (Exhibit 6.1: Westridge’s Investment Program).

In order to execute its equity index arbitrage program, Greenwood and Walsh established a broker-dealer called WG Trading Company LP (“WGTC”), while Westridge managed the leverage futures portfolio. Because WGTC is a broker-dealer, it could take up to 20 times leverage to generate higher returns (Exhibit 6.2: Dual Structure). 

What was unique about this investment program was that investors were offered three different options:

  1. An investor could directly purchase a limited partnership interest in WGTC;
  2. An investor could purchase a promissory note from WG Trading Investors, L.P. (“WGTI”), another Westridge entity and a limited partner of WGTC, that paid interest at a rate tied to the performance of WGTC; or
  3. An investor could purchase shares in a “feeder” fund, which in turn would purchase a promissory note from WGTI.

Exhibit 6.3: Three Options to Participate

Source: created by the author based on NFA’s Notice of Member Responsibility Action
Under NFA Compliance Rule 3-15. NFA Case No. 09-MRA-002

Through January 2009, Greenwood and Walsh raised over billion dollars from large institutional clients, including pension and endowment funds. Westridge’s AUM subsequently reached $1.8 billion. (Exhibit 6.4: Asset Under Management on Form ADV, January 29, 2009)

Westridge’s success was not surprising as they continued to deliver promised returns with low volatility. From 1997 through June 2008, Westridge’s investors generated a 19.1% excess return (or 153 bps annually). (Exhibit 6.5: Westridge’s Track Record)

Exhibit 6.5 (cont’): Westgate’s Track Record – Enhanced Return…

Source: CFTC & SEC v. WG Trading, et al (2009)

Both Walsh and Greenwood enjoyed a luxurious, if not eccentric lifestyle. They became minority owners of the New York Islanders, a professional hockey team, in 1990s. Walsh served as a member of the Board of Governors of the National Hockey League from 1991 to 1998. In 1994, Greenwood bought Old Salem Farm, a 54-acre riding school and horse farm, from Paul Newman and his wife, and amassed a world class collection of more than 1,300 stuffed animals. 



In February 2009, the National Futures Association, an independent self-regulatory organization, commenced an audit of WG Trading. It was the first audit since 1995, when the Securities and Exchange Commission conducted a broker-dealer examination. During the audit, NFA obtained financial information on the feeder fund, which had $325 million of promissory notes from WGTI as of December 31, 2008. NFA requested additional financial records on WGTI, which had approximately $812 million and invested only $93.8 million in WGTC. 

Exhibit 6.6: Missing $718 million

Source: created by the author based on NFA’s Notice of Member Responsibility Action
Under NFA Compliance Rule 3-15. NFA Case No. 09-MRA-002

Deborah Duffy (“Duffy”), CCO of WGTC, told NFA auditors that WGTI’s assets included a $292.8 million “note receivable” from Greenwood and a $260.7 million “note receivable” from Walsh. Duffy also represented that another $147 million of the assets were investments in two entities owned by Walsh and Greenwood.

On February 25, 2009, the Commodity Futures Trading Commission and SEC announced that they were charging Walsh and Greenwood with misappropriating at least $553 million, utilizing entities that they owned and controlled, including Westridge, WGTI, and WGTC. According to the investigation, both Walsh and Greenwood used the scheme as bank accounts to pay for their personal expenses. They also made several unauthorized investments in companies, such as Signal Apparel Company, through the entities controlled by them. Deborah Duffy, 54, who worked for 18 years under Walsh and Greenwood, was also charged as Duffy took $292,000 of investors’ money for herself and approved the money being transferred “to my bosses’ benefit as loans”, all the while supplying investors with false information, which she knew was “against the law.”

Robb Evans & Associates, LLC was appointed receiver by the court as all assets held by Westridge, WGTI, WGTC and other entities were liquidated. In March 2011, the first distribution of $815 million was approved and another distribution of $40 million was made in 2012. For the total net investments of $960 million of all victims, the expected returns were -15.06%. 

Deborah Duffy (“Duffy”), CCO of WGTC, told NFA auditors that WGTI’s assets included a $292.8 million “note receivable” from Greenwood and a $260.7 million “note receivable” from Walsh. Duffy also represented that another $147 million of the assets are investments in two entities owned by Walsh and Greenwood. (Exhibit 6.7: Net Investments and Distributions and Exhibit 6.8: List of WG Trading Victims)



Stringent review of valuation process is required especially if the investment strategy is involved with a promissory note.

  • While promissory notes can be legitimate investments, those marketed broadly to investors often turn out to be scams. Since they are privately negotiated instruments, it can be extremely difficult to verify its value for investors.
  • WG Trading’s scheme to use promissory notes instead of direct purchases of partnership interests is unusual and unjustifiable for hedge funds. (Exhibit 6.9: Promissory Note Issued for the University of Pittsburgh)
Avoid investing in a scheme not monitored by a third-party agent
  • There is no evidence showing that any administrators were hired for WG Trading’s scheme.
  • The usage of a promissory note as a way to participate in the program probably helped Westridge avoid the use of an administrator

 Always confirm that an annual audit by a reputable audit firm has been conducted on the entity in which you are invested

  • There is no evidence showing that any annual audit was conducted for WGTI or other feeder funds. WGTC, a broker-dealer, was the only entity with an actual audit record by Deloitte.
  • There were certain issues with the annual audit conducted by Deloitte, but investors should have avoided investing or lending money to the entities, which do not provide verifiable financial information. Some investors in WGTI agreed to purchase the promissory notes relying on the audit on WGTC.

Fully understand the implication shown on financial statements

  • As a broker-dealer, WGTC was required to file its financial information. Annual reports are available on EDGAR from 2001 to 2007.
  • WGTC’s financial statements show extremely high leverage, which should have been regarded as a yellow flag for potential investors.(Exhibit 6.10: Historical Leverage of WGTC)
  • As a regular customer of a brokerage firm, an investor should be subject to Regulation T, which restricts the amount of leverage that the brokerage firm can extend to 50% (See  WGTC effectively allowed its customers to bypass this regulation as the customers became limited partners of the firm.
  • A SEC examiner testified that “The registrant has clients invest directly in an affiliated broker-dealer as limited partners which is one of the oddest arrangements I’ve ever seen. They do this to avoid Reg. T, also very odd.” (Source: SEC Report of Investigation. Case No. OIG-533)

Do not underestimate “red flag” findings

  • Wilshire Associates, Inc., a well-known consulting firm for institutional investors, conducted due diligence on WG Trading for its client Kern County Employees’ Retirement Association.
  • On or about October 29, 1997, after a “due diligence visit” at WG Trading’s offices, Wilshire identified areas of concerns, including:

“The firm does not possess the same substance as the other investment advisors;”
“The firm has limited staff and the spread out nature of the offices is difficult to understand;”
“The firm is low key and managed in a lean manner which may be interpreted as a lack of professionalism;”
“WG Trading has been reluctant to disclose the names of the organization that provide capital to the firm;”
“Lack of monthly reporting from the custodian;”



“Ex-North Salem Supervisor Paul Greenwood indicted in $554M investment fraud”, The Journal News, July 25, 2009,

“Ex-WG Compliance Chief Duffy Pleads Guilty in Fraud”, Bloomberg, July 21, 2009,

“BUSINESS PEOPLE; Outsider Is Brought In To Run Signal Apparel”, New York Times, May 2, 1990,

“Deloitte & Touche Sued in New York Over WG Trading Fraud”, Bloomberg, Mar 23, 2012,

“Ex-WG Trading employee pleads guilty in NY court”, Reuters, Jul 21, 2009,

“Scrum over $815 million grows more intense”, Pensions & Investments, Jun 27, 2011,

Robb Evans & Associates LLC, “Report of Temporary Receiver’s Activities February 25, 2009 Through May 22, 2009”, May 27, 2009,

Robb Evans & Associates LLC, “Report of Receiver’s Activities May 25, 2009 Through May 28, 2010”, June 3, 2010,

National Futures Association, Notice of Member Responsibility Action Under NFA Compliance Rule 3-15, NFA Case No. 09-MRA-002.

U.S. Securities and Exchange Commission v. WG Trading Investors, L.P., WG Trading Company, Limited Partnership, Westridge Capital Management, Inc., Paul Greenwood and Stephen Walsh (2009). U.S. District Court for the Southern District of New York

Commodity Futures Trading Commission v. Stephen Walsh, Paul Greenwood, Westridge Capital Management, Inc., WG Trading Investors, LP, WGIA, LLC (2009). U.S. District Court for the Southern District of New York

Iowa Public Employees’ Retirement System v. Deloitte & Touche LLP (2012), U.S. District Court for the Southern District of New York


[1] Westridge Capital Management, Inc. was formed as a Delaware corporation in October 1983 by Greenwood, Walsh and James Carder (“Carder”). Stock ownership was distributed 51% to Greenwood and Walsh and 49% to Carder. In January 2000, Greenwood and Walsh resigned as directors of the company, although the ownership percentages did not change.

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