A Fraudulent Scheme?

North Salem’s former town supervisor Paul Greenwood allegedly has left institutions drowning in a sea of red ink and his one-time constituents scratching their heads.



Photo courtesy of AP Images

In a recession, the economy’s ebbing tide can leave people’s fortunes and financial lifelines–stock portfolios, savings accounts, mutual funds, IRAs, pensions, 401(k) plans–floundering on the sand, gasping for air like so many dying fish. The receding financial waters also can expose the foundations of our financial institutions: banks, brokerage firms, hedge funds, and insurance agencies, revealing some of them to be cracked and decaying, supported by greed, ready to tumble and fall.

Bernie Madoff and R. Allen Stanford have become America’s poster boys for the fiscal deception and avarice this economic turmoil has exposed, but closer to home, Westchester can claim, according to the Justice Department, its own millionaire con man: Paul Greenwood, former North Salem Town Supervisor. The Department says Greenwood, 62, and business partner Stephen Walsh, 64, of Sands Point, Long Island, used more than a half-billion dollars of their clients’ money as “their own personal piggy bank,” through their companies, WG Trading and Westridge Capital Management. The charges have Greenwood and Walsh cast squarely as villains and have put the quiet town of North Salem briefly and uncomfortably under the media’s harsh glare.

Unlike Madoff and Stanford, however, Greenwood and Walsh didn’t invest money for individuals directly. Their clients were institutions: retirement systems and universities, which would sign on with WG Trading and let Greenwood and Walsh invest a portion of their portfolios. There are no rich old folks who’ve been bilked out of their life savings and left destitute by WG Trading or Westridge Capital Management. Instead, prosecutors say, it’s thousands of Average Joes, government employees, university students, and researchers whose pension funds and grant money slowly may have been siphoned off over the last decade by these two men.

Greenwood is a tall, thin man with a squarish face and salt-and-pepper hair. Soft-spoken and bespectacled, he’s taken to wearing bow ties formally, though just as often is seen around town in a shirt and jeans. Those who’ve met or worked with him generally agree that he’s a nice guy, without airs or pretense. “I was very impressed by him,” says North Salem resident Scott Hershman.

The government’s criminal and civil suits paint a different picture: a greedy, evasive Paul Greenwood who, with co-defendant Stephen Walsh, is described dipping into university endowments to buy cars and scamming hardworking civil servants out of their retirement plans to pay for rare books.

Greenwood, whose assets have been seized by federal prosecutors and who remains free on $7 million dollars’ bond, began as something of a financial wünderkind. According to published reports, he grew up in Los Angeles, majored in psychology at UCLA, and earned his MBA and doctorate in finance there in 1972. After graduating, he began an academic career and, for the next three years, held faculty positions in economics at UCLA, York University in Toronto, and Ohio State University. While at Ohio State, Greenfield published a dissertation on stock-portfolio theory that was sponsored by Chase Bank. He took a job with the bank shortly after that and worked there until 1979, when he left to start WG Trading with Walsh.

Greenwood’s passion for horses first brought North Salem to his attention, while he was living in New York City and working at WG Trading. “He was a horse guy,” says North Salem resident Matt Britt, who used to work in the horse business and first met Greenwood 25 years ago. “He used to ride—show riding, amateur stuff on the weekends.”

In the 1980s, Greenwood bought Old Salem Farm, a bucolic farm and stable complex on 120 acres in the northern central part of town, from Paul Newman (yes, the Paul Newman). That same year, he met Robin Bacon, a horse trainer, at a North Salem country club’s black-tie soirée. By 1987, Greenwood had moved from the city to a house in North Salem (separate from the farm), and he and Bacon were married in 1991 on Old Salem’s Grand Prix Field. They have two daughters, ages 10 and 13; the elder attends private school in Connecticut. Britt says Greenwood was an easy guy to admire. “You wish you could be him.”

During the 1980s, Greenwood and Walsh developed a computer program called Shark that gave real-time information on equities, options, and futures and provided analytic tools to financial institutions, money managers, and professional investors. They sold Shark to now-defunct Wang Laboratories in 1986 (Wang, in turn, sold Shark to Infotechnology in 1990 for $16 million to help pay down some of its debts). The two made enough money off the Wang deal to buy an ownership stake in the New York Islanders, though the passion for ice hockey really belonged to Walsh. The two men were half of what the media dubbed the “Gang of Four” Islanders ownership group that the New York Daily News called “infamous.” Chris Botta, the team’s former VP of media relations, says, “Greenwood was the quiet one.” He and Walsh later sold their stakes in the team.

Once settled in North Salem, the Greenwoods became active members of the community. “The family’s been an asset to this town,” says Michele Savino, who co-owns 121 Restaurant, an upscale North Salem eatery and watering hole. “They’re always doing good.” Like many residents, she’s hoping the charges simply aren’t true. “There may be something more to this that we just haven’t seen yet.” Paul became treasurer of the town’s Ruth Keeler Memorial Library, the Saint James Episcopal Church, and the North Salem Bridle Trails Association. He also sat on the board of the North Salem Open Land Foundation and the Putnam County Agricultural & Farmland Protection Board. Robin served as president of the board of directors for the North Salem Nursery School, sat on the board of Friends of Karen—a local charity—and taught Sunday school at Saint James.

North Salem Bridle Trails Association President Steve Mulligan, who also served with Greenwood on the library board, says, Greenwood is “just a regular guy, driving a regular car; a very generous person. I liked to refer to Paul as the ‘Michael Bloomberg of North Salem.’ Obviously, this recent news is very disturbing.”

The Greenwoods’ generosity is well known in North Salem. Among the beneficiaries is Franco Florenzino, 121’s chef, who was diagnosed with non-Hodgkin’s lymphoma in 2006. “I didn’t have insurance,” Florenzino says. When the cost neared a million dollars, the Greenwoods stepped-in, hosting a farmhouse fundraiser for the chef that raised nearly $30,000 for his treatment (the rest of which was covered by Medicaid along with other fundraisers). “He gave me a big hug and said, ‘I’m here for you.’ He treated me like I was a son.” Florenzino’s cancer is now in remission.

In 2007, Greenwood ran for town supervisor as a Republican on a platform of being a strong fiscal conservative and won. (He joined one other Republican and three Democrats.) Though the position pays an annual salary of $88,257, Greenwood took only a dollar a year for his service.

“What’s great about Paul was that he really brought the town together,” says board member Amy Rosmarin, the only board member who would comment for this story. “The town had been divided, and he was able to bring everybody together through his efforts and leadership. More than eighty people began to participate in different committees.” Rosmarin says Greenwood also worked to eliminate a lot of wasteful spending.

North Salem business owners have mostly good things to say about Greenwood. Take Jim Stake, owner of Croton Creek Steakhouse & Wine Bar. “In his tenure as Town Supervisor, I don’t know anybody who could say a bad thing about him,” says Stake. When he heard the charges against Greenwood, Stake says, “I was as shocked as if my own dad had been accused.”

About a week after the FBI arrested Greenwood, he resigned from the town board and Warren Lucas, the board’s other Republican member, took his place. “A lot of people are shocked,” says Rosmarin. “We’re hoping that these are just allegations and that it’s not what it appears in the press.” The press is not very popular in North Salem right now.

Beyond his written letter of resignation as Town Supervisor, Greenwood and his wife haven’t made any public statements since the FBI arrested him on February 25. Some people in town say they’ve seen Robin here and there, but Paul has remained almost entirely out of sight. Robert Jossen, Greenwood’s lawyer, has not returned repeated calls to his office, and calling Greenwood’s home—and identifying oneself as a reporter—earns you a click and a dial tone. Neither Stephen Walsh nor his attorneys returned phone calls, either. With few exceptions, North Salem seems to be in Greenwood’s corner, or at least is withholding its judgment until a court has delivered a verdict. “He’s a good guy,” says Paul Schettini, a neighbor who lives one street away from the Greenwoods’ imposing estate, which is on a hill overlooking North Salem’s Titicus Reservoir. “I’ve got nothing bad to say about him.”

Several miles from their farm, the Greenwoods’ mansion seems out of place with the rest of the modest, clapboard homes on Wheeler Road. It’s a stark, three-story brick structure, with a three-car-garage and white trim around large picture windows. A lack of any significant architectural detail gives it the sterile, institutional look of a small office building or an elementary school—an impression only deepened by the tall, steel flagpole planted in the front yard, where deer graze peacefully.

Though reporters aren’t exactly given the grand tour of the building, the Greenwoods have opened their home to visitors, like local architecture enthusiasts Ben Wild and Basil Jones, who’ve marveled at the Palladian interior and grand Cuban mahogany library. “The library wood was all quartersawn mahogany, the best-of-the-best,” Wild says, adding that Greenwood told him the wood came from trees felled by Hurricane Andrew in 1992 and showed him documentation for everything. The room’s centerpiece is a large “G” carved into the wooden wall. Wild and Jones say the shelves are filled with rare books, a collecting hobby of Greenwood’s that the government says he funded with his clients’ cash, which he used to buy books at auctions. Wild also describes a sweeping staircase rising from a black-and-white marble floor and full-length cabinets displaying the Greenwoods’ $80,000 antique Steiff teddy bear collection, a collection the government says was also financed by his clients’ money.

“He was very nice, very welcoming,” says Wild. Jones agrees: “Extremely friendly, a great guy. Very well mannered, very open, not at all guarded.” Jones also recalls a book in the library, featuring horse farms from around the country, that was open to the page that profiled the Greenwoods’ farm.

The government says that the farm and its ponies are also fruit from a poisonous vine. In 2001, Greenwood sold Old Salem Farm and prosecutors say he used his clients’ money to buy a new one more than twice the size: Eight Bells, which he and Robin renamed Grand Central Farm, after one of Robin’s beloved horses. This new farm is about six miles northeast of the Greenwoods’ lakeside home, and town building permits show the Greenwoods have spent about $3 million (again, say prosecutors, his clients’ money) since 2002 redeveloping its 300 acres from a hodgepodge of pastures, forests, and wetlands into a sprawling, state-of-the-art complex of corrals, stables, a 22,000-square-foot barn, and an arena for horse and pony shows. According to one published report, the farm also features an advanced firefighting system that, during a fire, would douse the land with 900 gallons of water per minute. Grand Central, along with the rest of Greenwood and Walsh’s assets, is now in receivership, and Robin Greenwood’s lawyer says if their finances are unfrozen, she plans to sell the property.

The Department of Justice says Greenwood and Walsh had been defrauding their clients since at least 1996. Though a complete list of their victims hasn’t yet come to light, an investigation by Pensions & Investments Magazine has identified 26 institutional investors who’d put their cash with either WG Trading or Westridge Capital Management. These include Carnegie Mellon University, University of Pittsburgh, CBS Television, Iowa Public Employees Retirement System (IPERS), North Dakota State Investment Council, Kern County Employees Retirement Association, Sacramento County Employees Retirement System (SCERS), Viacom, and Wells Fargo & Co. Court documents differ on the total value of these assets—somewhere between $667 million and $1.3 billion—but all agree on the amount Greenwood and Walsh allegedly stole: $554 million.

Like most scam artists, their victims describe Greenwood and Walsh as wolves in sheeps’ clothing. “You couldn’t have asked for more pleasant, congenial, intelligent-speaking people,” says Michael Fitzgerald, Iowa State Treasurer and trustee of the IPERS executive board. He recalls Greenwood and Walsh’s presentation when IPERS first decided to place a portion of their fund with Westridge Capital Management. “They walked us through it and, if they’d done what they said they were doing, it was a very low-risk strategy.”

Their plan was called an “enhanced equity index” strategy, also known as “equity index arbitrage.” This involved investing the clients’ money in both funds based on the Standard & Poor’s 500 and Standard & Poor’s 500 index futures. When one fund was doing better than the other, it was bought and the other was sold. It’s a slow, steady strategy that offers slow, positive growth and is ideal for large institutional investors with billions of dollars to manage, investors like universities (with endowments) and retirement systems (with pension funds). “We were only expecting a quarter or half-percent return from their investment strategy,” says Fitzgerald. IPERS had only 2 percent of its portfolio invested with Westridge, but this still amounted to some serious cash: $339 million.

Fitzgerald says he’s outraged. “From what I understand, they essentially just stole the money. We have three hundred-twenty-thousand Iowans who rely on this pension fund for their retirement and their livelihood. That’s the number of people their selfishness is hurting.”

Others reserve more colorful language to address Greenwood and Walsh, like Ted Somera, executive director of the Sacramento County United Public Employees Union, whose office has gotten hundreds of calls from worried county employees wondering if their retirement money is still secure. “Just for what these individuals did, they should take a straight path to the devil. They messed with people’s lives. I’m at a loss for words because my gut reaction is anger; our members are angry. Who in their right mind, in these times, would want to do something like that?” SCERS had about $90 million invested through Westridge Capital Management. “If these guys were sitting in my office now, I’d probably pick them up by their behinds and throw them out. That’s what they did to our members, took their money and threw them out in the cold.”

Last fall was when the alleged scheme began to unravel. In October, the San Diego County Employees Retirement Association (SDCERA), which had $150 million invested with Westridge since 2004, asked its consultant, Albourne America, to fly to WG Trading’s Greenwich headquarters and check up on them. According to a press release from SDCERA, the Albourne analyst found Greenwood “uncooperative and evasive,” and WG Trading reluctant to give any useful information. SDCERA ended its contract with WG Trading in December but has yet to see a penny of its investment returned.

On February 5, the National Futures Association (NFA) decided to audit WG Trading and Westridge. It started poking around WG Trading’s books, asking where the hundreds of millions of dollars were going. According to the NFA’s report, after finding only a series of vague “promissory notes” and “notes receivable” to account for the missing cash, NFA members tried sitting down with Greenwood and Walsh to get some straight answers. That’s when both men allegedly tried to pull a vanishing act. NFA staff members reportedly tried more than a dozen times to speak with Greenwood and Walsh and each time, there was another excuse: the report says they were “in meetings in New York City,” “traveling all day,” or called away on a “personal emergency.” Despite the lack of cooperation, the government had an ace in the hole against Greenwood and Walsh: a person on the inside.

The court documents only refer to this individual as “The Employee.” According to the Securities and Exchange Commission (SEC), The Employee is the person who wired the money from WG Trading into Greenwood and Walsh’s personal accounts to use for buying the horses, homes, cars, rare books, and antique teddy bears. The Employee, the SEC says, kept a record—signed by Greenwood and Walsh—of each time they withdrew money from WG Trading, and how much. These records go back to 1996 and have Greenwood responsible for $293 million and Walsh for $261 million. On the morning of February 25, Greenwood and Walsh surrendered themselves to the FBI. They face criminal charges of conspiracy and wire fraud that could land them in jail for up to 25 years, and civil suits that would force them to repay all the lost cash, plus interest and penalties.

WG Trading’s headquarters now sits empty and silent. It’s on the second floor of a nondescript, three-story office building in downtown Greenwich, Connecticut, across the street from a church. A man who wouldn’t give his name but who also works on the second floor, says he only saw Greenwood in the early mornings and that he kept odd hours, arriving early and leaving by 9 am. The man recalls the day in late February when agents from the Securities and Exchange Commission, five or six serious-looking men in suits, knocked on his door looking for WG Trading’s offices. He directed them down the hall to the correct office and said that when they left, the door was bolted.

On the second floor, a sign still instructs visitors exiting the elevator to WG Trading’s offices, at the north side of the building, on the left. Gold letters tacked to the wall near the door still read: “WG Trading Co., LLP.” If they were carved on a plaque, it would be the sort of thing one might hawk on eBay as a souvenir of recessionary greed. When well lit, the imposing wooden door could convey an aura of fiscal confidence; the sense that money managed within was in solid, sensible hands. As it stands now, the locked portal at the end of the darkened hallway has the stark and ominous look of a coffin.

Caption: Greenwood leaving federal court in Manhattan February 25.