Feds Say Hedge Funder Made Up Returns, Used Phony Auditor


Here’s the first thing you need to know. Westgate Capital Management is a totally different firm than Westridge Capital Management, even though both had their managers charged with fraud today. The Westridge guys are named Stephen Walsh and Paul Greenwood, and they’re accused of misappropriating funds for personal use. The Westgate guy is called James Nicholson, and he’s accused of making up phony returns and using a phony auditor.

Oh, and Nicholson’s lawyer is Ira Sorkin, who is also Bernie Madoff’s lawyer. As you can tell, there’s so many scams going on that it’s hard to keep them straight. Which is convenient, since Ira will just have to change the name on the defence papers since the charges are so similar.

MarketWatch describes the Westgate scam:

Nicholson, 42, told investors that Westgate Capital had assets under management ranging from $600 to $900 million when, in fact, the true value of its assets was materially less. Investors probably put roughly $100 million in various Westgate Funds since 2004, the DOJ complaint said.

Westgate also said in an offering document that its Westgate Strategic Growth Fund was audited by an independent accounting firm located in New York. However, the address of the firm is a business known as “The New York City Virtual Presence.” Nicholson leased “virtual space” for the accounting firm in 2004 and arranged, for a time, for an answering service to direct calls to phone numbers he provided, the complaint alleges.

Marketing brochures for the Strategic Growth Fund also claimed positive returns for each month from January 2004 through August 2008, and a similar brochure for another Westgate fund shows, except for September 2001, uniformly positive returns every month from October 1999 through December 2007. But the performance of the funds was materially lower than that, the DOJ said.