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Julie DiMauro Contributing Editor

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Russell A. Stamets Contributing Editor

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Eric Carlson Contributing Editor

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FCPA Blog Daily News

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Tuesday
Jan132015

Ex-compliance chief avoids prison for $500 million hedge fund fraud

Paul Greenwood, former part owner of the New York Islanders (Image courtesy of ESPN)The former chief compliance officer of WG Trading Company won't serve time in prison after she helped prosecutors jail the firm’s two partners for a $554 million fraud scheme.

Deborah Duffy was sentenced to time served, the DOJ said Monday. She had provided critical evidence against Paul Greenwood and Steven Walsh about a scheme to steal from their institutional clients.

From at least 1996 until early 2009, Walsh and Greenwood raised $7.6 billion in investor funds. The money was supposed to be invested in a program called “equity index arbitrage.” Walsh and Greenwood described it as "a conservative trading strategy that had outperformed the results of the S&P 500 Index for more than ten years," the DOJ said.

The two partners misappropriated $554 million from the fund. They used the money to buy horse farms, collectible teddy bears, and cars, the DOJ said.

Duffy, 59, of Mahwah, New Jersey, was sentenced to one year of supervised release and ordered to forfeit nearly $1.3 million.

Greenwood is a former part owner of the NHL’s New York Islanders. He pleaded guilty in 2010. Last month federal judge Miriam Goldman Cedarbaum sentenced him to 10 years in prison.

Walsh pleaded guilty in April 2014. He was sentenced to 20 years in prison in October 2014.

Compliance chief Duffy pleaded guilty in 2009 to money laundering, securities fraud, and conspiracy. She approved fraudulent fund transfers of about $100 million and created promissory notes from the partners that mislead investors.

Manhattan U.S. Attorney Preet Bharara said: “Deborah Duffy abdicated her oversight responsibility at WG Trading, enabling Walsh and Greenwood to perpetuate their massive investment fraud scheme. . . . Her sentence today reflects both her acknowledgment of her guilt and the value of her cooperation.”

During the fraud, Duffy served as the chief compliance officer of WG Trading. "Among other duties," the DOJ said, "she maintained the books and records of WG Trading, communicated with WG Trading’s regulators and auditors, and prepared and maintained the promissory notes signed by Walsh and Greenwood."

WG Trading's institutional investors included charitable and university foundations, and retirement and pension plans, the DOJ said.
 
About 94% of investor claims against the firm have been recovered, Finalternatives.com said.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.