August 20, 2008

A U.S. District Court in Pennsylvania has ordered hedge-fund trader Paul Eustace and the asset-management firm he controlled to pay more than $279 million in restitution and roughly $12 million in civil penalties for defrauding clients, the Commodity Futures Trading Commission said.

Mr. Eustace, who was already subject to a July 2007 permanent injunction, was charged with civil solicitation and registration violations. The court also imposed permanent trading and registration bans on his firm, Philadelphia Alternative Asset Management Co.

In June 2005, the CFTC filed a complaint against Philadelphia Alternative that alleged Mr. Eustace concealed $200 million in losses from participants of four commodity pools he managed.

Mr. Eustace, a Canadian who represented himself in the civil proceeding, couldn't be reached for comment.

The actions against Mr. Eustace and Philadelphia Alternative follow a December 2007 settlement where registered futures commission merchant MF Global and one of its employees, Thomas Gilmartin, agreed to pay more than $77 million in civil monetary penalties for their role in failing to supervise Mr. Eustace.

The CFTC sued MF Global and Mr. Gilmartin for mishandling hedge-fund accounts that were carried by MF Global and managed by Mr. Eustace. CFTC officials charged that MF Global and Mr. Gilmartin committed supervision and record-keeping violations.

Mr. Eustace opened trading accounts at MF Global and another firm for an off-shore hedge fund, according to the CFTC lawsuit.

After Mr. Eustace allegedly concealed losses by backdating execution dates of trades made through MF Global, the CFTC criticized Mr. Gilmartin and MF Global for failing to respond to "indications of questionable activity by Eustace."