Hedge fund manager Paul Eustace of Ontario, Canada, has been ordered to pay more than USD279m in restitution and a USD12m civil penalty under a court order settling an enforcement action b
Hedge fund manager Paul Eustace of Ontario, Canada, has been ordered to pay more than USD279m in restitution and a USD12m civil penalty under a court order settling an enforcement action brought against him by the US Commodity Futures Trading Commission for defrauding participants in four commodity pools that he managed.
The court also entered a default judgment against the commodity pool operator that Eustace controlled, Philadelphia Alternative Asset Management, imposing permanent trading and registration bans, requiring payment of restitution of USD276m, subject to offset by prior disbursements and payments by Eustace, and imposing a USD8.8m civil monetary penalty.
The court order follows a consent order of permanent injunction imposed against Eustace on July 13, 2007 that enjoins Eustace from further violations, and imposes permanent trading and registration bans.
‘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, and to bring wrongdoers to justice,’ says acting CFTC chairman Walter Lukken.
The orders arise out of a CFTC complaint filed on June 21, 2005 against Eustace and PAAM. At the outset of the litigation, the regulator’s action froze all the assets under the control of PAAM and Eustace and preserved more than USD70m for return to pool participants.
The CFTC also obtained the appointment of a receiver to recover and distribute funds to defrauded participants. Through related litigation, an additional USD96m has been obtained to date for the benefit of defrauded pool participants.
The 2007 consent order found that from at least the spring of 2001 until June 2005, Eustace fraudulently operated four commodity pools, the Option Capital Fund and, through PAAM, the Philadelphia Alternative Asset Fund LP, Philadelphia Alternative Feeder Fund and the Philadelphia Alternative Asset Fund Ltd, an offshore fund with more than USD250m in assets.
During this period, Eustace incurred losses of around USD200m trading commodity futures and options either in accounts held in the name of the funds or in his own name. Eustace concealed the losses through false account statements reflecting highly and consistently profitable trading results.
He also misappropriated assets of the Option Capital Fund and Philadelphia Alternative Asset Fund LP, and received incentive and management fees through his fraudulent operation of the commodity pools.
Last December, the CFTC issued a related order filing and settling failure to supervise and recordkeeping charges against MF Global, a registered futures commission merchant which at the time was part of Man Group, and Thomas Gilmartin, a former senior vice-president of MF Global, relating to their mishandling of trading accounts managed by Eustace and PAAM that sustained losses of around USD133m. MF Global and Gilmartin paid collectively USD2.25m in civil penalties and Gilmartin agreed never to seek registration with the CFTC.