An Ontario hedge fund manager who faces fraud allegations in the United States has been sent a $208-million (U.S.) claim on behalf of a group of investors.
Paul Eustace, who lives with his family in Oakville, Ont., ran Philadelphia Alternative Asset Management Co., or PAAM. The $230-million hedge fund was based in Philadelphia and specialized in complicated commodity trading.
In June, the U.S. Commodity Futures Trading Commission, or CFTC, alleged that Mr. Eustace defrauded investors by telling them his commodity trading pool was increasing in value when, in fact, it had lost more than $140-million from February to May.
The CFTC alleged the fraud dated back to 2001, when Mr. Eustace first raised millions of dollars from clients for a fund called Option Capital. According to CFTC allegations, Mr. Eustace issued false account statements that showed Option Capital had been increasing in value from 2001 to May, 2005. In fact, the CFTC alleged, the fund only operated until 2003 and lost $1-million. The CFTC also alleged Mr. Eustace later enticed clients to invest in a fund that did not exist by showing them fictitious monthly trading statements and co-mingled client money with his own accounts.
Mr. Eustace, 40, was unavailable for comment. His lawyers in the United States and Canada said he will defend himself against the allegations and he is co-operating with the CFTC.
In July, the Commission won court orders in Ontario and Pennsylvania freezing Mr. Eustace's bank accounts. The CFTC also obtained an order in the United States appointing a receiver for PAAM. Mr. Eustace is challenging the freeze orders, arguing they are draconian and unnecessary.
Mr. Eustace recently filed for personal bankruptcy in Ontario. In documents filed in court as part of the bankruptcy, Mr. Eustace included in his list of assets $5.3-million (Canadian) in securities, nearly $40,000 in cash and a $54,000 Porsche. His liabilities consisted of $5,000 owed to BMO MasterCard and $28.6-million owed to a group of American investors in the Option Capital Fund. His total monthly income is listed at $4,500.
Clark Hodgson, the receiver appointed for PAAM, is trying to recover money on behalf of investors. In a recent report filed in court, Mr. Hodgson said he "plans to take an active role in Mr. Eustace's bankruptcy case and has filed claims against Mr. Eustace in an amount exceeding $208-million (U.S.)."
A science graduate from the Wharton School of the University of Pennsylvania, Mr. Eustace has been involved in commodity trading in the United States for more than a decade. It is not clear whether he is Canadian or American.
He founded PAAM in 2003 and attracted some high-profile directors, including John Wallace, vice-chairman of the Philadelphia Stock Exchange. Mr. Wallace has not been available for comment.
It is not known how many Canadians invested in PAAM. However, according to sources, several families living in Oakville recently sank more than $200,000 (Canadian) into Mr. Eustace's funds.
Paul Waldie