Whether it’s redemption requests or the fact that the regulatory staff is working overtime (18 hour days in some offices we hear ) since the Madoff bust or some combination of both, the capital market cops are putting up some big charges of late. Three today, and counting.
Today’s came in quick succession. James Nicholson, manager of 11 unregistered hedge funds, allegedly defrauded hundreds of investors out of “millions” of dollars, in a Ponzi scheme he’s been conducting since January 2008, according to the SEC complaint. Like any good Ponzi, Nicholson claimed positive returns in 98 of 99 consecutive months.
Also announced today the SEC/DOJ/FBI are charging Paul Greenwood, 61, of North Salem, New York, and Stephen Walsh, 64, of Sands Point, New York, conspiracy, securities and wire fraud charges. The DOJ complaint alleges that from 1996 through February 2009, Greenwood and Walsh ran a fraudulent commodities trading and investment advisory scheme using an entity they controlled called, WG Trading Investors. The DOJ release goes on to say “several institutional investors” pumped more than $668 million into WG Trading in exchange for promissory notes. (The release says the men misappropriated as much as $550 million.)
The SEC must have enjoyed laying out the details in this particular release. Besides (allegedly) burning up investor funds on the usual purchases—multi-million dollar homes, horse farm complete with horses and luxury cars—the release notes that Greenwood and Walsh also spent their clients’ money on “rare collectibles such as Steiff teddy bears.” That’s a new one, no? If you’ve never heard of a Steiff teddy bear, here’s a $5,000 example up for auction on Ebay. Read the description. Mouth made of gold, eyes of sapphire! A Steiff Teddy Bear is the most expensive teddy bear in the world (one sold last year for GBP 43,000).
The hat-trick of regulatory announcements ended with the SEC announcing charges against Mark Bloom and his firm, North Hills Management. The SEC obtained a court order to freeze the assets of Bloom and his firm and to halt an alleged investment scheme marketing a “fund of funds” vehicle. (More bad PR for fund of funds…) The SEC complaint alleges that Bloom raised roughly $30 million from 40 to 50 investors between 2001 and 2007, telling them he’d invest the money in a diversified portfolio of hedge funds. The SEC alleges Bloom instead stole $13.2 million of investor funds to “furnish a lavish lifestyle that included the purchase of luxury homes, cars and boats for himself and his wife, who is named as a relief defendant.”