Law & Owners Special Islanders Unit: Stephen Walsh & Paul Greenwood

"OK. Pick him up." - Lt Anita Van Buren, commanding officer 27th precinct, New York City

In the professional sports system, there are two types of owners: those who do underhanded, immoral and illegal things to win at all costs and those who get caught. Throughout their history, the New York Islanders have had more than their share of the latter. These are their stories. DUN-DUN!

For four Long Island businessmen, the cost of buying a mere 10 percent of the Islanders was very steep: four years, several million dollars, a ton of confusion, eternal humiliation and a dash of disappointment.

The group that would conveniently, and perhaps derisively, come to be known as the "Gang of Four" were long-time season ticket holders and successful entrepreneurs before becoming owners. Stephen Walsh, Paul Greenwood, Robert Rosenthal and Ralph Palleschi were installed as the team's day-to-day management group in 1992 by then-owner John Pickett and finally purchased a combined 10 percent of the team in 1994. The sale, though small, necessitated some financial hoop-jumping and wishful thinking which would prove to be ironic many, many years later.

"Our group had previously made a loan to the team," said Stephen Walsh, co-chairman and chief executive officer of the committee, which invested in the Islanders when Pickett put them up for sale two years ago. "In exchange for that, we converted the loan to equity, which makes the team a lot stronger financially."

(Between the loan and the completed purchase is the tangled, enticing and aggravating tale of a different almost-sale of the Islanders. But that's another story for another time.)

In fairness to all parties, the sale appears to have come with the best of intentions. Pickett, already a well-established absentee owner for the previous half dozen or so years, realized that he had lost touch with Long Island and that the team should have ownership that was closer to the ground than he was from his home in Florida. For the investors, it was an opportunity that is astronomically rare, the kind of thing that only happens in the movies: To own a part of your favorite team and have managerial control and a chance to rebuild the franchise after years of just watching.

GANG WAR!

Unfortunately for the Gang of Four, the Hollywood scenario quickly faded away. Strong argument can be made that it was during this short era that the Islanders dissolved from "downtrodden former dynasty" to "global laughingstock/contraction candidate/relocation project/free agent poison."

Here's a short list of some notable events that happened to the Islanders under the Gang of Four's watch:

  • Dynasty architect Bill Torrey is forced to retire and is replaced with assistant GM Don Maloney.
  • The team makes a surprising run to the conference finals in 1992-93. This is the lone positive thing to happen during this era.
  • Al Arbour, one of the greatest NHL coaches of all time, retires and is replaced by Lorne Henning, one of the nicest NHL coaches of all time.
  • Pierre Turgeon and Vladimir Malakhov are sent to Montreal for Mathieu Schneider and a sentient computer virus construct code-named "K.I.R.K. M.U.L.L.E.R."
  • Henning is fired and Mike Milbury is named coach.
  • Maloney is fired and replaced by Milbury, who crashes on the Islanders' couch like a deadbeat roommate that just won't leave for the next 11 years.
  • And then there are these.
By 1996, Pickett had finally had enough and decided to sell the team for good. Still owner of 90 percent of the franchise, Pickett refused to spend money on payroll and management's efforts to get Nassau County rolling on a new arena went nowhere (surprise, surprise). The Pickett era was coming to an end and the Gang of Four would be ushered out the door once someone willing to pay the asking price was found.

The eventual buyer was an unassuming Dallas businessman named John Spano. And that's definitely another story for another time.

WHO OWN DA RECEIPTS?

On February 25, 2009, Islanders fans saw two names in the newspaper that they hadn't read or thought about in over a decade. Stephen Walsh and Paul Greenwood who, 13 years and five owners ago, had part-owned and operated the New York Islanders, were arrested by the FBI for securities and wire fraud.

Befitting their time in the front office, the crimes they were accused of were disappointingly simple. As brokers and general partners of WG Trading Company, Walsh and Greenwood took money from hopeful investors and turned it into lavish homes and luxuries for themselves including rare books, a collection of teddy bears valued at $80,000 and horses stabled at a farm purchased from Reggie Dunlop himself, Mr. Paul Newman.

Starting sometime in 1996, Walsh and Greenwood began soliciting investors from coast to coast, focusing on municipal retirement funds and universities. The victims certainly didn't hold back when handing over their dough for what they thought would be a healthy return on their investments.

Those involved include the Iowa Public Employees' Retirement System, which invested $339 million with the pair; the University of Pittsburgh, which had invested $65 million; and Carnegie Mellon, which had invested $49 million. It was the universities that first alerted the Securities and Exchange Commission that something was amiss.

WG Trading also received nearly $90 million from the Sacramento Employees' Retirement System. The Pennsylvania Employees' Retirement System was readying a $1 billion investment in WG Trading when it learned this month that the National Futures Association, which oversees futures brokers, was auditing the firm.

A 2009 audit by the independent National Futures Association uncovered where the money at WG Trading was really going. Walsh and Greenwood made off with over $550 million in funds that were supposed to have been invested for their clients as well as expenses that were also billed to the customers.

In July of that year, the pair were indicted. And in the grand tradition of other partners in crime, it took little time for one to roll over on the other. In July of 2010, Greenwood pleaded guilty and elected to cooperate with the feds on the case against the not-guilty-pleading Walsh.

SUSPENDED ANIMATION

Greenwood faces up to 85 years in prison for his misdeeds, but his sentencing is on hold until the conclusion of Walsh's trial which was postponed last summer. The investors who got soaked are being paid back from the sales of the duo's many assets, and the total restitution being redistributed is over $800 million or about 85% of what was taken from them.

Walsh and Greenwood sold investors the same lies they sold Islanders fans: that their financial expertise and acumen would lead to future wealth. Considering how much they swindled from those that trusted them, getting stuck with some ugly jerseys and the comedy stylings of Tommy Söderström doesn't really seem like a bad deal.

NEXT TIME ON LAW & OWNERS SPECIAL ISLANDERS UNIT: "The Strange Case of Dr. J and Mister Islander."

___

Part Two of a series. Read the rest of the series here.

Reporting cited in this article:

1. http://www.nytimes.com/1994/11/16/sports/hockey-10-percent-of-islanders-sold.html?n=Top%2fReference%2fTimes%20Topics%2fSubjects%2fF%2fFinances
2. http://www.nytimes.com/1991/12/11/sports/hockey-new-local-ownership-will-control-islanders.html
3. http://www.nydailynews.com/archives/sports/tycoon-set-sale-isles-league-approval-step-article-1.743305
4. http://www.nytimes.com/2009/02/26/business/26scam.html?dlbk&_r=2&
5. http://www.nydailynews.com/news/money/ex-islanders-bosses-nabbed-stealing-533-million-buy-horses-teddy-bears-article-1.366253
6. http://hedgefundfraud.wordpress.com/2012/04/19/case-study-wg-trading/
7. http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20120530_0000453.SNY.htm/qx
8. http://www.bloomberg.com/news/2010-07-28/paul-greenwood-wg-trading-hedge-fund-manager-to-plead-guilty-to-fraud.html
9. http://northernwestchester.lohudblogs.com/2012/06/07/trial-for-paul-greenwoods-business-partner-postponed/
10. http://northernwestchester.lohudblogs.com/2011/03/25/judge-in-paul-greenwood-case-approves-distribution-of-815-million-to-investors/
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