The Pennsylvania School Employees Retirement System was in the midst of drawing up a contract to invest $1 billion in Westridge Capital Management when it learned last week of potential problems.

As a result, press secretary Evelyn Tatkovski said yesterday, "PSERS ceased finalizing the contract and the investment will not be funded."

The retirement system board, which oversees a $45.4 billion portfolio, approved the investment of up to $1 billion in September, but such agreements often take months to execute.

"Timing played a crucial role for PSERS with this investment. Fortunately PSERS was able to avoid investing with this manager because contract documents had not yet been finalized. That said, we will be monitoring the situation as it moves forward," said Ms. Tatkovski yesterday.

The University of Pittsburgh and Carnegie Mellon University already had a combined $114 million invested with Westridge when the National Futures Association, an industry regulatory agency, Feb. 12 suspended Westridge's principal partners, Paul Greenwood and Stephen Walsh, after they didn't cooperate with an audit the association began Feb. 5.

After word got out about a reported investment scheme by Westridge, Pitt and Carnegie Mellon Friday filed a federal lawsuit seeking the immediate return of their investments.

The Iowa Public Employees' Retirement System also had already invested in Westridge Capital. As of the end of January, its investment was valued at $339 million, which is about 2 percent of its portfolio.

In a news release yesterday, the Iowa group said it has demanded a return of all of its assets.

Its news release stated it also is helping the Commodity Futures Trading Commission and the Securities and Exchange Commission in their investigations. Both agencies last week declined to confirm or deny the existence of any investigation.

"The investment board's policy is to vigorously seek recovery of losses through legal action should losses occur because of fraud," the news release stated. "However, IPERS cautions investigations are still underway, and there have been no findings against the company previously under contract to IPERS."

The IPERS news release noted the developments do not affect the retirement fund's ability to pay benefits.

A man who answered the phone at Westridge Capital Management yesterday said, "There's no one here that can comment."

According to a Securities and Exchange Commission filing, Westridge Capital management and related companies had assets valued at nearly $1.8 billion at the end of January. The minimum investment was $1 million.

The difficulties come at a bad time for organizations struggling to cope with declining overall investments.

At Pitt, where the Westridge investment was part of the endowment, Chancellor Mark Nordenberg in December said that the school's endowment -- which totaled $2.4 billion in summer 2008 and is the region's largest -- lost 22 percent of its value as of Nov. 30.

Mr. Nordenberg did not provide a dollar loss, but a drop of that magnitude suggests an endowment loss of just over a half-billion dollars.

Carnegie Mellon, with an endowment of roughly $1 billion, notified the campus earlier in the fall that its endowment investments had fallen by 9.5 percent from July through September.

A survey of some area universities and governments did not turn up any additional local investments in Westridge.

Duquesne University, Penn State University and the 14 schools that make up the State System of Higher Education do not have investments in Westridge, according to spokesmen.

City Finance Director Scott Kunka said the city doesn't have any money invested with Westridge, including pension money.

County deputy treasurer Janice Vinci said the county doesn't have any money invested either.

Robert Gentzel, spokesman for the Pennsylvania State Employees Retirement System, said it also doesn't have investments with Westridge.

As a result of the suit filed by Pitt and Carnegie Mellon, U.S. District Judge Terrence F. McVerry issued a temporary retraining order against Mr. Greenwood, Mr. Walsh, Westridge, WG Trading Investors and two commodities funds.

The order permits the business to pay employees -- except for Mr. Greenwood and Mr. Walsh -- as well as normal business expenses, but it freezes their accounts.