It seems in retrospect that there are always warnings, and such is the case with Santa Barbara, California–based money manager Westridge Capital Management, whose two principals are accused of bilking more than $500 million from clients.
“There were yellow flags,” says Randy Shain, vice president of New York–based First Advantage Investigative Services, a firm that conducts background inquiries on money managers. While checking out Westridge and WG Trading Co., a Westridge affiliate based in Greenwich, Connecticut, in 2006, Shain discovered that on at least four occasions from 1979 to 1992 the Chicago Board Options Exchange had fined a broker-dealer that Westridge founders Paul Greenwood and Stephen Walsh had operated.
“Some of these issues were serious,” Shain says.
More unsettling than the alleged crime, perhaps, was that Westridge ($1.3 billion in assets) had penetrated the pension-and-endowment industry so deeply, attracting investors that included the Sacramento County Employees’ Retirement System, the North Dakota Retirement and Investment Office and Carnegie Mellon University.
Wilshire Associates, a consulting firm based in Santa Monica, California, recommended to the Iowa Public Employees’ Retirement System that it place $400 million with Westridge in April 2007 in an enhanced index equity account. (Wilshire declined to comment for this article.) Westridge, as Ipers understood it, would buy futures in the Standard & Poor’s 500 index and then give the majority of the remaining capital to WG Trading, a registered broker-dealer, to trade.
But according to court documents Greenwood and Walsh were taking funds out of the broker-dealer and issuing promissory notes in their place. Ipers gave Westridge an additional $50 million in October 2008 and another $50 million two months later. In February the $20 billion Des Moines, Iowa–based fund demanded its money back after the National Futures Association suspended Greenwood and Walsh for failing to produce records. Then came their arrests. Ipers has hired Indianapolis law firm Ice Miller to try to recover its assets.
