John Greenwood, Financial Post
Published: Wednesday, August 20, 2008
The bizarre career of renegade hedge fund manager Paul Eustace appeared to be near the end of its trajectory on Tuesday as a U. S. court ordered him to pay US$291-million in restitution and penalties after the U.S. Commodity Futures Trading Commission accused him of defrauding clients.
As head of Philadelphia Alternative Asset Management Co. (PAAM), Oakville, Ont.-based Mr. Eustace is alleged to have racked up more than $200-million of losses on wrong-way trades that he then tried to conceal by falsifying account statements, leading to the collapse of the fund in 2005.
Court documents allege Mr. Eustace made liberal use of investor funds, spending $2-million on such things as his children’s private-school fees and even a breast augmentation operation for his mistress, a former dancer at the Locomotion strip club in Mississauga, Ont.
“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 CFTC said in a statement.
Mr. Eustace, now a legal assistant at an Oakville law firm, could not be reached for comment.
Though PAAM’s clients were mostly American, Mr. Eustace ran the operation from Oakville, trading mostly in futures and options. According to the CFTC, the losses and fraudulent cover-up took place between 2001 and 2005, culminating in a move by Canadian and U. S. regulators to close down the fund.
Clark Hodgson, the receiver, aggressively pursued the assets, launching a series of lawsuits against MF Global, the former brokerage unit of Man Group, and Swiss banking giant UBS, accusing them of abetting Mr. Eustace.
(Both cases were settled out of court.)
So far, the receiver has recovered about 70% of the missing funds, said Keith Dutill, a lawyer for Clark Hodgeson. “It’s a substantial amount and we believe we recovered all there is to recover,” he said.
In the wake of his fund’s collapse, Mr. Eustace filed for personal bankruptcy. He was later found in contempt of court for trying to sell assets that had been frozen by the court.
“He had hidden money and used it for personal purposes,” said Mr. Dutill.
Born in the United States, Mr. Eustace graduated from the University of Pennsylvania in 1987 and went to work for high-profile Chicago hedge fund manager Trout Trading Co. in 1990.
A few years later he was dispatched to Toronto to set up a new office, so he moved with his wife and two children to the bedroom community just west of Toronto.
That’s when he became acquainted with Denise Nadeau, a dancer at the nearby Locomotion Cabaret strip club. According to court documents, the relationship turned into an affair as Mr. Eustace showered the youthful Ms. Nadeau with gifts and brought her along on business trips.
After he left Trout Trading to start his own firm, the gifts including a breast-enlargement operation — continued. Only now he began paying for them with clients’ money, court documents show.
The documents say he paid her debts; he even bought her a house. When the relationship fell apart, the largesse continued, partly because Mr. Eustace feared Ms. Nadeau might reveal the relationship to his wife.
http://www.financialpost.com/money/taxes/Story.html?id=735125
