BGSU may be victim of investment fraud

3/16/2009

BOWLING GREEN - Bowling Green State University might be the victim of an apparent investment fraud by two East Coast investment managers, university officials announced Monday.

The school has $15 million invested in a low-risk, cash enhancement fund with Westridge Capital Management run by New York residents Paul Greenwood and Stephen Walsh, who have been charged with securities fraud, wire fraud, and conspiracy.

Federal authorities have said the partners conducted an investment scam designed to cover up trading losses and fund extravagant purchases by the partners who ran a number of affiliated funds and entities.

It is not yet known how much, if any, of BGSU's investment might be lost because of the alleged fraud, according to Dave Kielmeyer, university spokesman.

BGSU is moving aggressively to recover its assets.

Sheri Stoll, BGSU's chief financial officer, said the university has submitted a liquidation request for the entire amount. Although the assets of the two investment partners have been frozen, the university wanted to make sure it is in line for any distribution of assets.

However, Ms. Stoll said " we are cautiously optimistic" that the university will recoup the $15 million because there are assets of the partners that could be liquidated.

Because of the scope of the alleged fraud, it could take years, rather than months, for any distribution to be made, said Mr. Kielmeyer.

The university invested with Westridge last year.

This marks the first time that university funds have been involved in a possible investment fraud, Ms. Stoll said.

Universities, retirement and pension funds, and charitable organizations are among investors who have done business with the two investment managers.

Enforcement actions have been filed against Westridge in federal court in New York by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The U.S. Justice Department has filed criminal charges against partners in the firm, alleging criminal conspiracy, wire fraud, and securities fraud.

In February, the Securities and Exchange Commission took emergency action and obtained an asset freeze against the two New York residents and affiliated entities including Westridge, alleging that the men orchestrated a brazen investment fraud involving the misappropriation of as much as $554 million in investor assets, according to the SEC's Web site.

The SEC alleged that the partners promised investors that their money would be invested in a stock index arbitrage strategy. Instead, Mr. Greenwood and Mr. Walsh essentially treated their clients' investments as their personal piggy bank to purchase multi-million dollar homes, a horse farm and horses, luxury cars, and rare collectibles such as Steiff teddy bears, according to the Web site.

Assets of Westridge have been ordered frozen by a New York federal district court which has appointed a receiver to assume control of the company's assets and funds and to take actions necessary to protect Westridge clients, according to BGSU officials.

The university and the Ohio Attorney General's office have spoken with the receiver about the recovery of BGSU's investment, Mr. Kielmeyer said, and the university will continue to work with the receiver, the attorney general, and regulatory authorities to protect BGSU's interests.

The university invested in a fund indexed to 90-day U.S. Treasury bills and sought to obtain commensurate returns.

This was not an aggressive investment, Mr. Kielmeyer said, adding that it was a very liquid, cash enhancement fund that was ideal for universities, state and county pension funds, and other institutional investors to earn a return on large, short-term investments.

The apparent fraud, he said, would not have any near-term impact on the university's operations or its ability to meet its obligations.

The university's foundation had no investments with Westridge.