Ex-hedge fund manager ordered to pay $300 million

Wed Aug 20, 2008 7:17am EDT
 
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BOSTON (Reuters) - A former hedge fund manager was ordered to pay nearly $300 million for having cheated clients by sending out fake account statements, the Commodity Futures Trading Commission said on Tuesday.

Paul Eustace, the founder of Philadelphia Alternative Asset Management Company, must return more than $279 million to clients and pay about $12 million in civil penalties, the regulator said.

Eustace, who represented himself in the case, had been indicted on two criminal counts of commodities fraud. He signed the consent order last week and could not be reached in person on Tuesday.

The fund, which collapsed in 2005, was ordered to pay a $8.8 million fine. It may also be ordered to pay $276 million in restitution if Eustace is not able to pay.

The court appointed Philadelphia-based law firm, Stradley, Ronon, Stevens & Young, LLP to act as receiver and account for the assets and collect them. The receiver has already recovered $96 million.

Additionally, regulators froze about $70 million when the Commodity Futures Trading Commission first brought the case.

Prosecutors accused Eustace, who lives in Canada, of having fabricated false trading account statements that hid mounting losses between October 2002 and May 2005.

While he told clients that he would trade commodity futures or options and said the portfolios were valued at over $230 million in May 2005, prosecutors alleged that he fraudulently operated the funds and lost millions of dollars.

"This concludes a successful effort by our division of enforcement to stop fraud in its tracks, return as much money as possible to defrauded investors," Walter Lukken, acting chairman of the Commodity Futures Trading Commission, which filed the lawsuit, said in a statement.

(Reporting by Svea Herbst-Bayliss, editing by Richard Chang)