(March 26, 2012) — The Iowa Public Employees Retirement System is asserting in Federal Court that auditor Deloitte facilitated a $553 million Ponzi scheme by turning a blind eye.
The civil case stems from criminal prosecutions against Paul Greenwood and Stephen Walsh — both accused of defrauding investors in their commodities and investment house, WG Trading Investors. The two men also owned Westridge Capital Management, a registered investment adviser, and WGIA LLC. While Greenwood pleaded guilty, the charges against Walsh are pending.
In a complaint filed last week and obtained by Courthouse News Service, the Iowa Public Employees’ Retirement System claimed that between early 2007 and late 2008, the scheme invested about $496 million in the managers’ companies. Thus, its auditor Deloitte should have warned its clients about the fraud. Instead, the fund asserts, the auditors ignored warning signs.
According to the complaint, the National Futures Association suspended Greenwald and Walsh from trading in February 2009, noting that they refused to cooperate with an audit.
The complaint states: “Plaintiff suffered millions of dollars of losses as a result a fraudulent investment scheme that had the elements of a classic Ponzi scheme. At all relevant times, defendant served as the auditor of a company controlled by the operators of the fraudulent scheme, and it aided and abetted the scheme by issuing unqualified and/or ‘clean’ audit reports on which plaintiff justifiably relied in purchasing securities issued as part of the scheme. Defendant acted in willful blindness of the scheme, and its auditing practices were so deficient that the audits amounted to no audit at all, or an egregious refusal to see the obvious, or investigate the doubtful, and the professional judgments which it made were such that no reasonable auditor would have made the same decisions if confronted with the same facts.”