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Stephen Walsh and Paul Greenwood of WG Trading Investors misappropriated about $553 million from $1.3 billion paid into commodity pool funds since about 1996.

02/26/09 - Newsday.com

Two former executives of the New York Islanders were charged yesterday by federal officials with misappropriating more than $500 million in client investments, including tens of millions allegedly taken for things like expensive stallions and pricey teddy bears.

Stephen Walsh, 64, of Sands Point and Paul Greenwood, 61, the town supervisor of North Salem in Westchester County, who were among the top echelon of Islander executives in the 1990s, surrendered to FBI agents in Manhattan yesterday, investigators said.

After an initial appearance before Manhattan federal magistrate Douglas F. Easton both men were released on individual $7-million bonds, with their travel restricted to the approximately 200-mile area between upper Westchester and Washington, D.C.

Defense attorneys Bob Jossen, who represents Greenwood, and Richard Weinberg, who represents Walsh declined to comment yesterday.

Three federal law enforcement agencies coordinated a series of criminal and civil investigations in recent weeks, which culminated in three separate actions being taken by regulators against Walsh and Greenwood in Manhattan Federal Court.

Walsh was listed in federal court documents as having served as co-chairman of the Islanders and as a member of the board of governors of the National Hockey League from 1991 to 1998. Greenwood was identified in the same documents as being the operator of a commodity pool, a fund that pools assets to deal in commodity futures. However, a 1994-95 Islanders executive roster depicts Greenwood as an executive vice president with the team. A federal law enforcement official also said Greenwood and Walsh were once executives with the team. The Islanders declined to comment yesterday.

A criminal complaint filed by the FBI alleged Walsh and Greenwood engaged in conspiracy, wire and securities fraud through the running of WG Trading Investors of Greenwich, Conn. The complaint alleged that from about 1996 the company solicited more than $668 million in investments from universities, charities, pension funds and other investors for "enhanced stock indexing" trading. While touted as conservative, the investment program was actually a conduit through which Walsh and Greenwood misappropriated the majority of the money, the complaint charged.

"We worker bees are sitting here all stunned," one WG Trading employee who didn't want to be identified said yesterday.

Six days ago, Carnegie Mellon University and the University of Pittsburgh filed federal lawsuits in Pennsylvania seeking to find out what happened to some $80 million invested with Walsh and Greenwood's firms.

A longtime employee of WG Trading told the FBI that Greenwood and Walsh directed the employee to wire funds from a company account to bank accounts in the name of their family and other persons, the complaint alleged. The money was then used to pay Walsh and Greenwood's personal expenses, the complaint stated. Among those items were collectibles and horses for Greenwood, payments to Walsh's ex-wife Janet, as well as the purchase of an apartment for the woman in a divorce settlement, according to the complaint.

In a civil action, the Commodities Futures Trading Commission said Walsh, Greenwood and their companies misappropriated about $553 million from $1.3 billion paid into commodity pool funds, according to the agency complaint, which further charged that $160 million was used to pay personal expenses. The agency also alleged that both men generated promissory notes to show that fund money had been loaned to them, said the CFTC.

The Securities and Exchange Commission also filed a civil action in federal court containing similar allegations as in the FBI complaint and CFTC action. The SEC also named Walsh's ex-wife and Greenwood's wife for allegedly receiving the benefit of funds.

Staff writer Greg Logan contributed to this story.

PAUL GREENWOOD

Age: 61

Residence: North Salem, N.Y.

Education: Bachelor of arts degree in psychology and doctorate in finance from UCLA

Islanders title: Executive vice president

STEPHEN WALSH

Age: 64



Residence: Sands Point

Education: East Rockaway High School; bachelor of arts degree, SUNY at Buffalo, 1966; attended Bernard Baruch Graduate School of Public and Business Administration

Islanders title: Co-chairman/chief executive

THE ISLANDERS CONNECTION

In 1991, a group led by two LI investment firms, Walsh, Greenwood & Co. and First Long Island Investors Inc., agreed to buy up to 50 percent of the Islanders. The group, headed by Walsh and Jerome H. Grossman of Walsh's firm and Robert D. Rosenthal and Ralph Palleschi of First Long Island, managed the team.

Walsh and Greenwood were bought out by Charles Wang when he acquired the team for $175 million in

April 2000.

THE GOOD LIFE

What Paul Greenwood and Stephen Walsh allegedly bought with other people's money, according to complaints filed in Manhattan Federal Court

Real estate: As much as $3 million for an apartment for Walsh's ex-wife in divorce settlement.

Steiff teddy bears: $80,000 in the collectibles that can sell at mail order for $300 each.

Plus unspecified amounts on:

Rare books, Horses, Horse farm, Cars