By THE ASSOCIATED PRESS

Published: August 19, 2008

A federal court in Philadelphia has ordered the former president and
founder of a hedge fund to pay nearly $300 million for defrauding clients.

Federal prosecutors indicted Paul Eustace, president and founder of
the Philadelphia Alternative Asset Management Company, in November on
two criminal counts of commodities fraud.

The government said Mr. Eustace stole $200 million from clients from
2001 through 2005. The government accused Mr. Eustace, of Ontario,
Canada, of creating false account statements, raising management fees
based on false profits and transferring clients’ money to himself.

On Tuesday, the Commodity Futures Trading Commission said Mr. Eustace
was ordered to pay $279 million in restitution and a $12 million civil
penalty.

The Federal District Court for the Eastern District of Pennsylvania
also banned Mr. Eustace from trading indefinitely.

“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,” the acting
chairman of the trading commission, Walter Lukken, said.

Philadelphia Alternative, which traded in commodities futures and
options, collapsed in 2005. But the hedge fund was ordered to pay $8.8
million in fines and may have to pay the $276 million if Mr. Eustace
does not.

The futures and options broker MF Global agreed in December to pay
more than $77 million to settle federal charges that it failed to
watch over Mr. Eustace.

According to the commodities trading commission, Mr. Eustace
fraudulently operated four commodity pools from 2001 to 2005, when he
lost about $200 million while trading commodity futures and options.

He hid the losses using false accounts and bogus account statements
that showed huge profits.

http://www.nytimes.com/2008/08/20/business/20hedge.html?_r=1&oref=slogin

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