PAAM Receiver files US$208 million claim in Canadian Court

Date: Monday, September 12, 2005
Author: Chris Clair, Senior Financial Correspondent Hedgeworld.com

Paul M. Eustace, whose Philadelphia Alternative Asset Management hedge fund was shut down and had its assets seized by the Commodity Futures Trading Commission earlier this year amid fraud allegations, has filed for personal bankruptcy in an Ontario court.

In response to that filing, C. Clark Hodgson, a Philadelphia attorney who was appointed by the CFTC as the temporary receiver for PAAM assets, has filed a claim with the Canadian bankruptcy court for US$208 million, the sum Mr. Hodgson says Mr. Eustace owes to investors in the onshore and offshore funds that comprised PAAM's trading vehicles.

That US$208 million claim is divided between Philadelphia Alternative Asset Fund Ltd., PAAM's offshore fund whose investors Mr. Hodgson's filing says have a claim against Mr. Eustace for US$179.1 million, and the onshore version, Philadelphia Alternative Asset Fund LP, with investor claims of US$29 million.

Mr. Hodgson is asserting his claims against Mr. Eustace "for losses … as a direct and proximate result of the conduct of Paul Eustace. . . ," according to the filing.

Mr. Eustace, an Oakville, Ontario, resident who ran PAAM out of a Philadelphia suburb, is facing a CFTC complaint that he solicited money from investors by claiming he was running a successful commodity pool that traded futures and options (Previous HedgeWorld Story), when in reality he had never conducted any such trading and statements he showed one early investor were based on "hypothetical trading," according to the CFTC.

Eventually, after Mr. Eustace had gotten nearly US$680,000 from one investor and wooed others, he did begin trading as he claimed he had been, but not very successfully. The funds lost 50% of their value in May of this year, although Mr. Eustace continued to post positive results on his web site, according to the CFTC.

Mr. Eustace has denied the charges and is working with the CFTC.