Legal
Chicago Hedge Fund Manager Pleads Guilty To $294 Million Fraud
The former managing director of a now defunct Chicago hedge fund, Philip Baker, has pleaded guilty to defrauding investors in a $294 million scheme. Under a plea agreement, prosecutors will recommend 20 years in prison, and Baker has agreed to pay over $150 million in restitution.
Baker controlled Lake Shore Asset Management and the Lake Shore Group of Companies, which claimed to trade clients’ funds in several commodity futures pools, a statement from the US Attorney’s office said. He has pleaded guilty to wire fraud, avoiding a trial which was due to begin next month.
Between 2002 and September 2007, as a result of his fraudulent solicitations, Lake Shore acquired some $294 million from 900 investors. He then went on to misappropriate at least $30 million for his own use, as well as the use of another company director. He has also admitted Lake Shore incurred net trading losses which ran into the hundreds of millions, even as he represented trading was profitable.
Other false claims made by Baker included the level and types of fees paid for investments in the funds, as well as over the history and official regulation of Lake Shore. He claimed he co-founded Lake Shore in 1993, and that Lake Shore was regulated by US authorities, but he was not officially associated with a regulated Lake Shore entity until January 2007.
Baker, a Canadian citizen, has been in custody since his extradition to the US from Germany in December 2009. He was charged in a 27-count indictment returned in February 2009.
“Under the terms of a written plea agreement, the government will recommend the maximum term of 20 years in prison when Baker is sentenced. In addition, Baker agreed to an order requiring him to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors,” the statement said.
Sentencing has been set for 17 November in Federal Court in Chicago.
In a civil case brought by the Commodity Futures Trading Commission in 2007, the organization obtained a court order freezing Lake Shore’s assets. Due to that case more than $100 million has already been returned to investors to date.
