PAAM Hedge Fund, Founder Ordered to Pay $300 Million

Date: Tuesday, August 19, 2008
Author: David Scheer, Bloomberg

Philadelphia Alternative Asset Management Co. and the hedge fund's founder, Paul Eustace, were ordered to pay almost $300 million by a federal court after U.S. commodities regulators accused him of defrauding clients.

Eustace consented to an order that he pay $279 million in restitution, plus a $12 million fine, the Commodity Futures Trading Commission said today in a statement. PAAM, which collapsed in 2005, was ordered to pay an $8.8 million fine and may be required to pay $276 million in restitution if Eustace doesn't, the Washington-based CFTC said.

Regulators shut down PAAM, which traded commodity futures and options, and froze its assets after accusing the fund of misleading investors about its trading and concealing losses. Eustace created false account statements to cover up about $200 million on losses from 2001 through 2005, the CFTC said. He also misappropriated assets from two commodity pools, it said.

MF Global Ltd., which served as the firm's broker, agreed in December to pay $77 million to settle related claims brought by the CFTC and a receiver for the hedge fund. MF Global inadequately supervised an account used to hide losses, the CFTC said at the time.

Eustace, who lists an Oakville, Ontario address in court records, represented himself in the case, CFTC spokesman Dennis Holden said. An Internet directory had no phone number for him.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.