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Westgate and Fraud: What You Need to Know

This week, while investors focused on the government bailout of AIG (AIG - Get Report), Citigroup (C - Get Report) and General Motors (GM - Get Report), the post- Madoff crackdown on investment fraud continued.

From FBI Fraud Probe Aims at Westgate: Reports:

James Nicholson, who heads investment firm Westgate Capital Management, was arrested by Federal Bureau of Investigation agents on charges of alleged securities fraud stemming back to 2004. Separately, Paul Greenwood of Greenwich, Conn.-based WG Trading Co. and Stephen Walsh, of Santa Barbara, Calif.-based Westridge Capital Management, were also arrested for what could be a $550 million financial fraud. Mark Bloom, a former associate of Greenwood and Walsh, was arrested in another separate case, according to the FBI.

Nicholson apparently told investors he had $600 million to $900 million in assets under management, while the actual amount was closer to $100 million, according to a complaint by the Department of Justice. While he marketed his funds as having returns that were almost always positive, the actual results were much lower, the Justice Department alleges.

Nicholson's alleged scheme unraveled after the Bernard Madoff scandal came to light and several investors made redemption requests, authorities said. About two dozen received checks for a total of $5 million, but all of them bounced, the Justice Department said. Others attempted to redeem over $10 million without success.

The Justice Department arrested Nicholson, 42, at his home in New Jersey on Wednesday and charged him with securities fraud and bank fraud.

Greenwood, 61, of North Salem, N.Y., and Walsh, 64, of Sands Point, N.Y., were charged with conspiracy, securities fraud and wire fraud. The FBI alleges that from at least 1996, the duo ran a "fraudulent commodities trading and investment advisory scheme," which secured investor funds by marketing a "conservative trading strategy" that had outperformed the S&P 500 Index for more than a decade.

Read the full story.

This FBI probe follows the Securities and Exchange Commission's recent charges of alleged "massive" fraud by R. Allen Stanford.

Get Up to Speed on the Alleged Stanford Fraud

  • Feb. 12: Stanford Financial's CDs Probed: Report
  • Feb. 17: Stanford Financial Accused of 'Massive' Fraud
  • Feb. 18: SEC Charges Allen Stanford With Fraud (Video)
  • Feb. 19: Stanford Bank Seized by Venezuela, FBI Serves Civil Papers on Stanford, Photo Gallery: Stanford Scandal
  • Feb. 20: Questioning Stanford's Returns Could Get You Fired
  • Feb. 27: Stanford Financial Exec Arrested by FBI
  • With Madoff ( Photo Gallery), Stanford and now Westgate, how much do you know about protecting yourself from investment fraud?

    Here are several insights from

    From Protect Yourself in Post-Madoff Investing World:

    In the case of Madoff, the investment returns he reported weren't so outrageous as to trigger inquiry -- just a small percentage every month. But that consistency, in itself, should have been a warning. Even Madoff's proclaimed strategy of option-writing doesn't give that consistent a result. And now it's been revealed that, given the size of his investment funds, it would have been impossible to execute all those options trades in a relatively limited marketplace.

    Sure, hindsight is 20/20. But complacency and greed are the enemies of investment success. No one is smarter than the market every single moment. That is, no one except scam artists.

    It may not be easy to prove your doubts. But just because you can't "put your finger" on the worry, doesn't mean you should get involved. Yet that's just what so many people do: ignore their own doubts and figure they're just not "smart enough" to understand this great deal. In fact, that's what con artists rely upon.

    Read the full version of Protect Yourself in Post-Madoff Investing World
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