Report: Ex-Islanders owners arrested for money scandal

NEW YORK (TICKER) —Two members of the New York Islanders’ former “Gang of Four” ownership group are charged with stealing $553 million from charities and pension plans to buy horses, mohair teddy bears and a $3 million home, according to a published report.

The New York Daily News reported that Paul Greenwood, 61, and Stephen Walsh, 64, were arrested on securities and wire fraud charges on Wednesday and taken to Manhattan Federal Court.

The report cited feds saying the duo promised investors - including the University of Pittsburgh and Pittsburgh’s Carnegie Mellon University - huge returns with bogus claims of a trading strategy that outperformed the S&P 500 Index for a decade.

The feds say the scandal dates to 1996, but was uncovered by the National Futures Association this month. The association found $812 million on the books of the pair’s Greenwich, Connecticut, WG Investors, with $794 million due from Greenwood and Walsh.

The two men have been in business together since 1979, when they founded the brokerage firm Walsh, Greenwood & Co.

In 1991, Walsh, Greenwood and two other investors bought a minority stake in the Islanders’ professional hockey franchise.

The investment group, which became known as the “Gang of Four,” received 100 percent operating control over the team.

However, with the team losing millions of dollars per year, the group sold the Islanders in late 1996. In that same year, the federal criminal complaint filed yesterday alleges, the partners conspired to commit securities and wire fraud that continued through this month.

Also arrested was James Nicholson, who prosecutors say duped investors out of $900 million since 2004. Nicholson’s scheme was uncovered after several investors tried to recoup their money following reports of Bernie Madoff’s $50 billion Ponzi scheme, the report claimed.

In a suit filed Wednesday, federal officials say Greenwood and Walsh spent $168 million of their ill-gotten gains on rare books bought at auction, horses and a lavish home for Walsh’s ex-wife Janet, the Daily News stated. They spent as much as $80,000 on mohair Steiff teddy bears, which are German-made.

Follow Yahoo! Sports' NHL coverage on Twitter.
Updated Thursday, Feb 26, 2009