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March 31, 2011

Pitt to recover some funds from investment fraud

There is a bright spot amid otherwise dismal financial news at Pitt. The University expects to receive part of the endowment money that disappeared in a Ponzi-style securities fraud perpetrated by a pair of investment managers.

In a March 21 order, U.S. District Judge George B. Daniels ordered the receiver in the case to distribute $815 million in an initial release to two dozen institutional investors (including operators of charitable and university foundations and retirement and pension plans), who invested a net total of nearly $1 billion into companies operated by Paul Greenwood and Stephen Walsh.

According to court papers, the initial distribution, which Daniels ordered be made 30 days from the date of his order, represents about 85 percent of the investors’ net investment of $959.5 million.

The exact amount that Pitt will receive is unclear. Administrators familiar with the situation did not respond to University Times requests made through the Office of Public Affairs.

However, earlier news accounts place the value of Pitt’s investment at approximately $70 million. (See Oct. 29, 2009, University Times.)

Partners Greenwood and Walsh, who operated WG Trading Co. (WGTC) and WG Trading Investors (WGTI), were arrested and indicted in 2009 on six charges: conspiracy, securities fraud, commodities fraud, two counts of wire fraud, and money laundering. (See March 5, 2009, University Times.)

The funds, which were to have been invested in stocks, instead were misappropriated to fund a lavish lifestyle, including the purchase of expensive homes, a horse farm, cars and collectibles.

In a report filed with the court last summer, Los Angeles-based receiver Robb Evans & Associates stated that WGTC and WGTI paid $158 million to Walsh and Greenwood between January 1993 and February 2009, when assets were frozen. According to the report, the companies owed investors $651 million that could not have been paid without raising additional capital through investors.

Greenwood pleaded guilty last July in federal court in New York. His sentencing, which was to have been held last December, has been delayed. Walsh has not changed his not guilty plea. His case is continuing.

Robb Evans has been liquidating the partners’ real estate and personal property including furniture, works of art, books and manuscripts, carpets and other household items. Included in the personal property auctioned was Greenwood’s extensive Steiff stuffed animal collection. The 1,300 items, including highly collectible teddy bears and other toys by the famous German manufacturer, brought $1.75 million in an auction held last fall in London by Christie’s International.

—Kimberly K. Barlow

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