Philip J. Baker, held himself out as a co-founder and managing director of Lake Shore Asset Management Ltd., and the Lake Shore Group of Companies here in Chicago; yesterday he was sentence to the maximum 20-years in federal prison by U.S. District Judge John Darrah, which the government recommended under the terms of Baker’s plea agreement.
Philip J. Baker, 46, a Canadian citizen who lived in London and later Hamburg, Germany, remained in federal custody following his extradition in December 2009 from Hamburg, where he was arrested in July 2009. He was indicted in February 2009. The former managing director of a hedge fund that was forced into receivership by U.S. government regulators had pleaded guilty to wire fraud in August and was sentenced for fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide.
According to the plea agreement, between 2002 and September 2007, Baker admitted that he misappropriated at least $30 million for his own use and for the use of another Lake Shore director. He also admitted Lake Shore incurred several million dollars in net trading losses during the same time period that he misrepresented that Lake Shore’s trading was profitable. He was also ordered by Judge Darrah yesterday, in accordance to the plea agreement, to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors.
On June 13, 2007, National Futures Association (NFA) regulators reviewed a website associated with Lake Shore and saw a press release stating, “In its 13-year history, Lake Shore’s flagship ‘Program I’ has generated a 28.27% compound annual return.” The next day, NFA staff went to Lake Shore Ltd.’s office on North Michigan Avenue in Chicago to conduct an audit to verify the profit claim on the website and because Lake Shore Ltd. had been registered with the NFA only since January 2007. Lake Shore did not provide the NFA with certain records it was required by law to keep and produce to regulators.
Later that month, the Commodity Futures Trading Commission (CFTC), filed a civil lawsuit against Lake Shore Ltd. in Federal Court in Chicago, and obtained a court order freezing its assets and requiring the company to produce books and records verifying its profit claims and identifying investors. In that civil case, U.S. District Judge Blanche M. Manning issued several orders directing Lake Shore Ltd., other Lake Shore entities, and Baker himself to produce books and records. Judge Manning also appointed a receiver to gather all available assets for distribution to the defrauded investors. The receiver recovered and returned to investors approximately $120 million to date. Baker never produced the documents to the CFTC or receiver, but instead took steps to hide the records in violation of the court orders.
The sentence was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.