Pitt, Carnegie Mellon suing investment manager
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The University of Pittsburgh and Carnegie Mellon University yesterday filed suit against Westridge Capital Management and its operators, seeking the immediate return of more than $114 million they invested. They also asked a federal judge to appoint a receiver to oversee the investment manager.
The lawsuit, filed in U.S. District Court, comes after the two universities said they were unable to collect the money from Westridge or get documentation regarding the status of their money from Westridge's principal partners, Paul Greenwood and Stephen Walsh.
Mr. Greenwood and Mr. Walsh were suspended last week by the National Futures Association, an industry regulatory agency, after they failed to cooperate with an audit the association launched on Feb. 5.
Pitt and CMU have also notified the Securities and Exchange Commission and the Commodities Futures Trading Commission, urging them to investigate Westridge and its affiliated firms who invested their money. Both agencies declined to confirm or deny whether investigations are under way.
According to the lawsuit, Pitt said it has invested more than $65 million with Westridge since 2002. That includes $5 million transferred to a trust account Feb. 2 and $21.3 million wired to a Westridge affiliate Feb. 6. Pitt spokesman Robert Hill said the school invested endowment funds with Westridge.
CMU has invested with Westridge since April and had a balance of more than $49 million as of Jan. 31, according to the lawsuit.
"The universities are taking appropriate steps to secure the return of any of their investment assets that may have been placed in jeopardy," the schools said in a joint statement.
They became concerned after the Chicago-based National Futures Association took action against Mr. Greenwood and Mr. Walsh for not answering questions about more than $500 million in loans made by two Westridge investment funds to WG Trading Investors, a Greenwich, Conn., firm whose managing general partners are Mr. Greenwood and Mr. Walsh.
Late yesterday, U.S. District Court Judge Terrence F. McVerry issued a temporary restraining order against Mr. Greenwood, Mr. Walsh, Westridge, WG Trading Investors and two commodities funds.
The order freezes their accounts, allowing the companies to pay normal business expenses, including payroll, but prohibiting paychecks to Mr. Greenwood or Mr. Walsh.
It also prohibits Mr. Greenwood and Mr. Walsh from "concealing, transferring, gifting, encumbering, selling, liquidating or conveying" assets, including money in bank accounts.
They and their four affiliates are also prohibited from destroying, concealing or disposing records.
Judge McVerry said he would consider appointing a receiver and urged parties to the lawsuit to agree on an appointee and report back to the court by March 2.
A hearing on the restraining order is scheduled for March 5.
"We don't want to talk with you. Why would we want to talk to a reporter," said a woman at Mr. Greenwood's Westchester, N.Y., home who identified herself as his wife.
A woman who answered the phone at Westridge Capital Management in Santa Barbara, Calif. said the company "was shutting down" and that auditors were on the premises yesterday.
She did not say where the auditors were from.
After the futures association announced the suspensions of Mr. Greenwood and Mr. Walsh on Feb. 12, CMU and Pitt began seeking answers from Westridge and its affiliates.
The schools put their money into Westridge Capital Management Enhancement Funds, a Virgin Islands fund that invested in commodities.
The complaint described them as "enhanced index" funds.
Managers of such funds try to outperform a market index by investing a minimal amount of money in a market index and investing the majority of the funds into other investments that provide returns above those provided by the market index. The promise of market-beating returns made it a popular strategy in recent years for endowments, pension funds and other large investors.
According to the complaint, the Westridge funds had 16 investors, including universities and retirement and pension funds. The lawsuit did not identify the other investors.
According to the lawsuit, $324 million from the enhanced index funds was loaned to WG Trading Investors, an entity controlled by Mr. Greenwood and Mr. Walsh.
A second commodities fund, WG Trading Co., also managed by Mr. Greenwood and Mr. Walsh, loaned $194.5 million to WG Trading Investors, the complaint stated.
Mr. Greenwood and Mr. Walsh "have converted investor funds for their own use," the lawsuit said.
CMU treasurer and chief investment officer Edward Grefenstette and senior investment manager Charles A. Kennedy began calling Westridge officials on Feb. 13 and over the weekend. According to the lawsuit, Mr. Kennedy flew to New York on Monday and called on Westridge offices in Greenwich and Jersey City, N.J. Attorneys at both offices declined to turn over documents.
When Mr. Kennedy asked at the Connecticut office who was in charge, an attorney there said "that the answer was 'tricky,' " according to the lawsuit.
CMU notified the Commodity Futures Trading Commission the following day and in a Wednesday phone call urged the agency to investigate.
The lawsuit indicates CMU also contacted the SEC, which is in the midst of several high-profile investigations, including the alleged $50 billion Ponzi scheme operated by New York investment manager Bernie Madoff.
On Feb. 13, Pitt assistant treasurer Paul Lawrence called Jack E. Reynolds and James Carder, who operated the enhanced index funds for Westridge. When Mr. Lawrence inquired about Pitt's investment, they told him they believed the "money was there."
But they also said they could not be certain because they had not spoken with Mr. Greenwood or Mr. Walsh.
Later that day, Pitt treasurer Amy March asked Mr. Carder why the futures association said the enhanced index funds managed $1.3 billion in assets when Mr. Greenwood had told Mr. Lawrence on Jan. 21 that the figure was $2.8 billion. Mr. Carder responded that the $2.8 billion figure was actually $1.8 billion.
The lawsuit said that Mr. Carder told CMU officials on Sunday that his career was over and he expressed shock over the conduct of his "partners of more than 20 years."
In their joint statement, the schools said there is "insufficient information available" to determine how many entities or accounts Mr. Greenwood and Mr. Walsh control, the account balances, the financial condition of each entity, or when investors will get their money.
First Published February 21, 2009 12:00 am
