Two money managers who oversaw investments for Carnegie Mellon University and other institutions were arrested on Wednesday on charges of running an estimated $550 million, decade-long swindle, the latest in a wave of big financial fraud cases.

Paul Greenwood, 61, and Stephen Walsh, 64, managing general partners of broker-dealer WG Trading Co with main offices in Greenwich, Connecticut, were charged by U.S. prosecutors with conspiracy, securities fraud and wire fraud.

The pair, both former part-owners of the New York Islanders National Hockey League team, are accused of using client money as their personal piggy-bank to fund lavish lifestyles, according to the U.S. Securities and Exchange Commission.

The SEC and the Commodity Futures Trading Commission brought civil charges against the men and their companies, which also include WG Trading Investors LP and investment adviser Westridge Capital Management Inc in Santa Barbara, California. The SEC obtained a court-imposed asset freeze against the men and their affiliated entities.

The two men appeared in U.S. Magistrate's Court in Manhattan where a judge set bail at $7 million to be secured by $1 million in cash or property not from proceeds of the purported fraud. The judge imposed travel restrictions. They did not enter a plea and were freed, but were ordered to meet the bail conditions by March 11.

Their lawyers declined to comment.

The charges come amid a wave of fraud cases involving money managers. The biggest case involves former Nasdaq Chairman Bernard Madoff, arrested in December and charged with fraud after authorities said he confessed to running a Ponzi scheme with losses of up to $50 billion over many years.

Greenwood and Walsh were arrested by the FBI on Wednesday morning, two weeks after their suspension by the National Futures Association for not complying with an audit.

A woman who answered the phone at a WG Trading office in North Hills, New York, declined to comment. There was no answer at the firm's main office in Greenwich.

HORSES, COLLECTIBLES

Authorities contend the scheme began in 1996 and operated through this month. Of the $667 million that clients invested, Greenwood and Walsh misused as much as $554 million, the SEC said.

Greenwood, of North Salem, New York, was accused of using investor funds to buy items including horses and expensive collectibles, while Walsh, of Sands Point, New York, was accused of using client money for himself and to make large payments to his ex-wife.

The SEC complaint said other spending included multimillion-dollar homes and cars.

The purported scheme targeted institutional investors, including educational institutions and public pension plans, by promising to invest their money in an enhanced equity index strategy, the SEC said. Instead of investing the money as promised, they stole investor funds for their personal use, the commission said.

Greenwood and Walsh had been suspended by the National Futures Association on February 12 for not disclosing financial records and failing to answer questions about promissory notes totaling hundreds of millions of dollars.

The SEC said that as recently as February 6, Greenwood and Walsh had received a $21 million investment from the University of Pittsburgh, which had been a client of Westridge since 2002 and has about $65 million invested with the money managers.

Also Wednesday, former WG Trading employee Mark Bloom was charged with fraud by criminal prosecutors and the SEC, related to his activities at his North Hills Management LLC financial firm in New York.

Bloom stopped working for WG Trading in 2001, according to the court papers. The SEC said he misused more than $13.2 million of North Hills investor funds. His lawyer could not immediately be reached for comment.

(Reporting by Martha Graybow; Additional reporting by Christine Kearney; Editing by Richard Chang and Tim Dobbyn)