A US judge ordered Paul Eustace, a Canadian hedge fund manager, to pay $279m to compensate investors in Philadelphia Alternative Asset Managementâ??s four failed funds for losses while fining him and his company $20.8m.The settlement brings to an end a three-year legal battle between Mr Eustace and the Commodities Futures Trading Commission, which shut the fund in 2005 and froze its remaining assets.
The case saw Mr Eustace reveal he had stolen $2m from his funds while losing investors more than $200m through hidden trades.
The case, which involved the bankruptcy of a fund in the Cayman Islands, led the judge in an opinion this month to recommend that the US consider introducing new extra-territorial powers to over-ride offshore structures.
The CFTC and the SEC should consider proposing legislation allowing US courts to ignore offshore companies and laws that have no substantive relevance when a fraud has been conducted within the US, wrote judge Michael Baylson in the US District Court for the eastern district of Pennsylvania.
Mr Eustace admitted hiding losses in a secret account, allowing him to show investors (which included major institutions and wealthy individuals) he was making profits when he was losing millions of dollars a month.
The fraud ranks among the largest hedge fund scams in a series of multi-million dollar frauds by US-based funds in the past decade.
The receiver believes the $180m already recovered is unlikely to change significantly. Included in the amount were legal settlements of $19m from UBS and $75m from MF Global, the former brokerage arm of Londonâ??s Man Group.
Mr Eustace still faces US criminal action although he remains in Canada.
