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July 23, 2009

Pitt request to review fraud case documents opposed

A court-appointed receiver wants a federal judge to refuse the University’s request to review documents of Stephen Walsh and Paul Greenwood and their related companies (including Westridge Capital Management, WG Trading Company and WG Trading Investors) before he approves a plan for distributing the disgraced investment managers’ assets, which include millions of dollars from Pitt’s endowment funds.

Pitt’s attorneys filed an objection July 7 in New York federal court opposing the receiver’s proposed plan for administering the claims of Pitt and other investors who were victimized in an apparent fraud by Walsh and Greenwood.

They argued that the proposed procedures “do not expressly set forth an opportunity for the University and other investors to review the Westridge documents and records.”

Another investor has made a similar request to review the documents.

At issue are 250 boxes of documents receiver Robb Evans & Associates has collected from the defendants’ California, Connecticut, New York and New Jersey offices.

In its July 14 response, the receiver argued that opening the documents to inspection would “wreak havoc” on its administration of the assets, would disclose confidential information about other investors and could jeopardize a separate federal criminal investigation against the defendants.

In a June 30 report, the receiver told the court that its investigation into the activities of Walsh, Greenwood and their affiliated firms was continuing and proposed a process through which decisions on disbursing the defendants’ assets could proceed.

The receiver’s proposed plan would give investors and creditors 45 days to express their views on how the funds in the receivership estate should be disbursed. Then the Commodity Futures Trading Commission and Securities and Exchange Commission, which filed the federal actions against the defendants, would have 30 days to respond. Following that, the receiver then would have 30 days to file a proposed distribution plan with the court and ask the judge to set a hearing date and request final briefs from interested parties.

In Pitt’s objection to the proposed plan, the attorneys noted, “The University does not quarrel with this general scheme, but respectfully suggests that investors have the right to be fully informed throughout the process and should not be left without complete information.”

They also pointed out that federal Judge Terrence McVerry in Pittsburgh ordered the defendants to give Pitt and Carnegie Mellon University copies of all business documents and records given to the government or regulatory agencies.

In that joint complaint filed in February, Pitt sought damages in excess of $65 million and CMU sought damages of more than $49 million. That action has been stayed as the CFTC and SEC actions proceed. (See March 5 University Times.)

Earlier this week in a separate case in the New York federal court, former WG Trading chief compliance officer Deborah Duffy pleaded guilty to securities fraud, wire fraud and money laundering charges.

Court documents stated that between 1996 and February 2009, some $7.6 billion was solicited from institutional investors. According to the documents, Duffy solicited investors’ funds under false pretenses, failed to invest the funds as promised and misappropriated at least $131 million for her own and others’ personal benefit.

Pitt’s investment in WG Trading included $21.25 million that was wired to the company Feb. 6, just days before the apparent fraud came to light. (See June 11 University Times.)

—Kimberly K. Barlow

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