Philadelphia, PA – Paul Eustace of Ontario, Canada, has been ordered to pay over $279 million in restitution and a $12 million civil penalty for defrauding investors in four commodity pools he managed, the Commodity Futures Trading Commission (CFTC) announced August 19, 2008. The order stems from a case filed in the U.S. District Court for the Eastern District of Pennsylvania.
The court also issued a default judgment against Philadelphia Alternative Asset Management Co. (PAAM), the commodity pool operator controlled by Eustace. PAAM faces permanent trading and registration bans, approximately $276 million in restitution (offset by prior payments), and an $8.8 million civil penalty.
The supplemental consent order, entered by Judge Michael M. Baylson on August 13, 2008, follows a prior consent order from July 13, 2007, which permanently enjoined Eustace from further violations and imposed trading and registration bans. The initial CFTC complaint against Eustace and PAAM was filed on June 21, 2005, and later amended.
According to the CFTC, Eustace operated the Option Capital Fund LP, the Philadelphia Alternative Asset Fund, L.P., the Philadelphia Alternative Feeder Fund LLC, and the Philadelphia Alternative Asset Fund, Ltd., an offshore fund holding over $250 million in assets. From at least spring 2001 through June 2005, Eustace allegedly concealed approximately $200 million in trading losses by issuing false account statements that showed consistently profitable results. He is also accused of misappropriating assets and receiving improper fees.
The CFTC froze assets under Eustace and PAAM’s control early in the litigation, preserving over $70 million for investors. A receiver was appointed and has recovered an additional $96 million to date, which will offset the restitution owed. The charges against Eustace include fraudulent solicitation and registration violations.
“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,” said CFTC Acting Chairman Walter Lukken.
The CFTC’s Division of Enforcement received assistance from the Ontario Securities Commission and the National Futures Association in this matter.
Source: CFTC.gov
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