<•• .­

.\~ UNITED STATES DISTRICTCOURT
 

EASTERN DISTRICT OF PENNSYLVANIA
 w 

Case No. Q5cvf)173 

COMMODITY FUTURES TRADING )
 

COMMISSION, )
 

)
 

Plaintiff, )
 

) Complaint for Injunctive and Other
 

v. ) Equitable Relief and for Civil Penalties 

) Under the Commodity Exchange Act,
 

PAUL M. EUSTACE, AND
 ) as Amended, 7 U.S.c. §§ 1-25
 

PHILADELPHIA ALTERNATIVE ASSET
 

MANAGEMENT COMPANY, LLC 'ILID 

) JUN ?, ? ZOOS ) Defendants. ) M'CH1£.'~UNZI CI. By .I Dep. C!eItC ---------------) 

The U.S. Commodity Futures Trading Commission ("Commission"), by and through its 

attorneys, hereby alleges as follows: 

I. 

SUMMARY 

1. Beginning in or about March 2003 and continuing through the present (the 

"relevant period"), Paul M. Eustace ("Eustace") and Philadelphia Alternative Asset Management 

Company, LLC ("PAAM") (collectively, "Defendants") have fraudulently solicited and accepted 

at least $680,000 from at least one member ofthe general public to participate in a commodity 

trading pool, Philadelphia Alternative Asset Fund, LP (the "LP Pool"). LP Pool claims to be a 

hedge fund operated by PAAM and traded by Eustace, and was established to trade, among other 

things, commodity futures and options contracts. 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 1 of 30
2. The Defendants issued false statements to the LP Pool participant showing that as 

of January 31,2005, the Pool was purportedly trading commodity futures and options and that 

his share of the LP Pool had increased in value to $1,118,973. 

3. The Defendants also attempted to solicit another prospective LP Pool participant 

by using a one-page chart purporting to show actual trading results from October 2002 through 

March 2004 reflecting a cumulative percentage return of25.38%. In fact, Defendants had not 

achieved those results trading commodity futures and options for the LP Pool. 

4. At the time that these statements were issued, and as Eustace has admitted, the 

Defendants had not engaged in any commodity futures or options trading in the name of the LP 

Pool or the LP pool participant. 

5. Since approximately July 2004, the Defendants have operated two other 

commodity pools, the Philadelphia Alternative Asset Fund, Ltd., an off-shore pool ("Off-Shore 

Pool"), and the Philadelphia Alternative Asset Feeder Fund LLC. ("Feeder Fund"), which allows 

US customers to participate in the Off-Shore Pool. The Defendants have accepted over $230 

million from pool participants. Those pools traded, among other things, commodity futures and 

options. According to the Defendants' website, the Off-Shore Pool traded on regulated futures 

markets. 

6. Beginning in February 2005 and continuing through May 2005, the Off-Shore 

Pool sustained severe trading losses exceeding $140 million. However, during those same 

months, the Defendants posted trading results on their website, www.paamcollc.com. reflecting 

that the Fund was trading profitably for those same months, and issued an account statement to at 

least one pool participant in the Feeder Fund showing that his account had increased in value in 

April 2005. 

Complaint 2 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 2 of 30
7. The Defendants have engaged, are engaging, or are about to engage in acts and 

practices that violate the antifraud provisions of the Commodity Exchange Act, as amended 

("Act"), 7 U.S.C. § 1 et seq., and the Regulations ofthe Commodity Futures Trading 

Commission ("CFTC"), 17 C.F.R. § 1.1 et seq., including Sections 4b(a)(2)(i) - (iii); 4c(b); and 

40(1)(A) and (B) of the Act, 7 U.S.C. §§ 6b(a)(2)(i) - (iii); 6c(b); and 60(1) (2002), and Sections 

4.41 (a) and 33.10 ofthe Commission's Regulations (the "Regulations"), 17 C.F.R. §§ 4.41 (a) 

and 33.10. (2004). 

8. Eustace's actions and failures alleged in this Complaint were done within the 

scope of his employment with PAAM, and therefore PAAM is liable for his violations pursuant 

to Section 2(a)(1 )(B) of the Act, 7 U.S.C. § 2 (2002). 

9. In addition to his direct liability, Eustace directly or indirectly controls PAAM 

and did not act in good faith or knowingly induced, directly or indirectly, the acts constituting 

PAAM's violations alleged in this Complaint, and is therefore liable for PAAM' s violations of 

the Act and Regulations pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b) (2002). 

10. Accordingly, the Commission brings his action pursuant to Section 6c of the Act, 

7 U.S.C. § 13a-l (2002), to enjoin the Defendants' unlawful acts and practices and to compel 

their compliance with the Act and CFTC Regulations. In addition, the Commission seeks 

disgorgement of the Defendants' ill-gotten gains, restitution to pool participants, civil monetary 

penalties, and such other relief as this Court may deem necessary or appropriate. 

11. Unless restrained and enjoined by this Court, the Defendants aTe likely to 

continue to engage in the acts and practices alleged in this Complaint and similar acts and 

practices, as more fully described below. 

Complaint 3 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 3 of 30
II.
 

JURISDICTION AND VENUE
 

12. This Court has jurisdiction over this action pursuant to Section 6c ofthe Act, 7 

U.S.c. § 13a-l (2002), which authorizes the Commission to seek injunctive relief against any 

person whenever it shall appear to the Commission that such person has engaged, is engaging, or 

is about to engage in any act or practice constituting a violation of any provision ofthe Act or 

any rule, regulation or order thereunder. 

13. Venue properly lies with the Court pursuant to Section 6c(e) ofthe Act, 7 U.S.C. 

§ 13a-l (e) (2002) in that the Defendants are found in, inhabit, or transact business in this 

District, and the acts and practices in violation of the Act have occurred, are occurring, or are 

about to occur within this District. 

III. 

THE PARTIES 

14. Plaintiff Commission is an independent federal regulatory agency charged with 

the responsibility for administering and enforcing the provisions ofthe Act, 7 U.S.C. §§ 1 et seq. 

(2002), and the Regulations promulgated under it, 17 C.F.R. §§ 1 et seq. (2004). 

15. Defendant Eustace is an individual who resides in Ontario, Canada. Eustace is 

the President ofPAAM. He has been registered with the CFTC as the sole Associated Person of 

PAAM since October 8, 2003, and is listed as its sole principal. 

16. Defendant PAAM is a Delaware Limited Liability Company with an office 

located in King ofPrussia, PA. PAAM has been registered with the CFTC as a Commodity Pool 

Operator ("CPO") since October 8, 2003 and was a registered Commodity Trading Advisor 

("CTA") from October 8, 2003 until January 13, 2005, when it withdrew its CTA registration. 

Complaint 4 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 4 of 30
23. This fictitious monthly account statement was issued on the LP Pool's letterhead 

and signed by Eustace. 

24. During the time that the LP pool participant was receiving these fictitious account 

statements, as Eustace has admitted, the Defendants never managed accounts that traded futures 

or options in the name of the LP Pool or the LP pool participant. 

B.	 Defendants Presented Fictitious Trading Records To a Prospective Pool 

Participant 

25. On or about March 8,2004, Eustace sent promotional materials for the LP Pool to 

at least one prospective participant via e-mail, which included a PowerPoint presentation dated 

December 2003, describing the LP Pool; a private placement memorandum for the LP Pool dated 

December 2003; and a one-page document that purported to show actual trading results for the 

LP Pool for the period October 2002 through March 2004 (the "LP Pool trading chart"). 

26. The PowerPoint presentation states that PAAM is the "General Manager" of the 

Pool, and that Eustace is the President of PAAM. 

27. The private placement memorandum refers to the LP Pool as "the Fund" and 

states that it is a "Delaware limited partnership organized for the purpose of achieving capital 

appreciation through investments in a wide range of capital market instruments," including 

commodity futures and options. 

28. The private placement memorandum also states that "The Fund and the General 

Partner are recently formed entities and have a limited past performance record." 

29. The trading chart states that "the Fund commenced trading under the direction of 

the Manager in October 2002. The Fund had no transaction history prior to this." 

30. The trading chart further states "Past performance may not be indicative of future 

performance." 

Complaint	 6 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 5 of 30
31. Each ofthese statements indicates that actual trading had taken place in the LP 

Pool by the date ofthe solicitation documents. Nevertheless, at the time these statements were 

issued, by Eustace's admission, the Defendants had not actually conducted any trading for the LP 

Pool. 

32. On or about May 26, 2005, Eustace informed the National Futures Association 

("NFA"), a selfregulatory organization that oversees the commodity futures and options 

markets, that the trading chart "numbers were meant to demonstrate hypothetical performance of 

my trading strategies with a gradual escalation of assets" and provided purported back-up 

documentation reflecting futures trading results. Eustace further explained that "[t]he entity 

referenced, Philadelphia Alternative Asset Fund, LP, in this document never had a trading 

account." Philadelphia Alternative Asset Fund, LP is the LP Pool. 

C.	 Defendant Eustace Did Not Disclose the Existence and Operation of the LP Pool 

toNFA 

33.	 In or around September 20,2004, NFA conducted an audit ofPAAM. 

34. Eustace was the person at PAAM who responded to all ofNFA's questions 

concerning PAAM. 

35. During the on-site audit ofPAAM, NFA did not find any documents referring to 

the LP Pool, and Eustace did not disclose the existence of the LP Pool. 

36. As part of its audit, NFA conducted sworn testimony of Eustace and asked him to 

name all ofthe accounts over which he exercised any control during 2004. Eustace identified 

four trading accounts that he managed in 2004. Eustace did not identify or otherwise disclose 

that he managed the LP Pool. 

37. On or about May 20, 2005, NFA asked Eustace about the LP Pool and Eustace 

said it contained only personal money and might have been traded at F.C. Stone. During the 

Complaint	 7 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 6 of 30
relevant time period, FC Stone never maintained an account in the name ofthe LP Pool or 

Eustace. 

38. On or about May 24, 2005, Eustace changed his story and claimed that the LP 

Pool was never traded. 

39. On or about June 8, 2005, Eustace again revised his story, claiming that the LP 

Pool did not trade, and had never traded, futures or options, but instead had engaged in "swap 

transactions." 

D.	 Defendants Issued False Statements to Participants and Posted False Trading 

Results On Its Website For An Off-Shore Commodity Pool 

40. Beginning around July 2004 and continuing through the present, PAAM also 

operated the Off-Shore Pool which, according to PAAM, trades exclusively on regulated futures 

markets. PAAM also operated the Feeder Fund, which allows US customers to participate in the 

Off-Shore Pool. Defendants have solicited and accepted over $230 million from pool 

participants to trade in the Off-Shore Pool and Feeder Fund. 

41. During the relevant period, the Feeder Fund did not maintain any accounts in its 

own name. 

42. Those pools traded commodity futures and options on U.S. registered entities, or, 

in other words, on U.S. futures exchanges. 

43. Beginning in February 2005 and continuing through May 2005, the Off-Shore 

Pool sustained severe trading losses which totaled more than $140 million. By the end ofMay 

2005, the accounts had lost $85 million, representing approximately 50 percent of the remaining 

value ofthe pool. 

Complaint	 8 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 7 of 30
44. In or about May 2005, the Defendants issued an account statement to one Feeder 

Fund pool participant showing that his monthly net return for April 2005 was 1.69%. 

45. In or about May 2005, the Defendants posted on their website, 

www.paamcollc.com. the following 2005 net returns for the Off-Shore Pool: 1.25% in February; 

1.56% in March; 1.69% in April, with a year-to-date net return of 5.5%. 

46. In fact, the Off-Shore Pool's commodity futures and options trading resulted in 

the following losses during those months: February - $18 million (-10.36%); March - $7 

million(-4.41 %); April - $33 million (-17.94%); and May - $85 million (-50.16%). 

47. The April 2005 monthly account statement issued to the Feeder Fund pool 

participant was issued on Feeder Fund letterhead and signed by Paul Eustace. 

E. Defendant Eustace Acted with Scienter and is the Controlling Person of PAAM 

48. In making the misrepresentations, omissions and false statements identified 

above, Eustace acted knowingly or with reckless disregard for the truth of those matters. 

49. Eustace is the President ofPAAM and controls its overall day-to-day operations. 

Eustace is the only registered Associated Person and listed principal of PAAM, and the only 

person authorized to trade on behalf ofPAAM until approximately March 2005. 

50. Eustace failed to act in good faith or knowingly induced, directly or indirectly, the 

violations alleged herein. 

Complaint 9 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 8 of 30
V. 

VIOLATIONS OF THE COMMODITY EXCHANGE ACT
 

COUNT ONE
 

VIOLATIONS OF SECTIONS 4b(a)(2)(i)-(iii) OF THE ACT:
 

FRAUD IN THE SALE OF FUTURES CONTRACTS
 

51.· The allegations set forth in paragraphs 1 through 50 are realleged and 

incorporated herein by reference. 

52. Beginning in or about March 2003 and continuing through the present, the 

Defendants have: (1) cheated or defrauded or attempted to cheat or defraud other persons; (2) 

willfully made or caused to be made false reports or statements to other persons; and/or (3) 

willfully deceived or attempted to deceive other persons, in or in connection with orders to make, 

or the making of, contracts of sale of commodities for future delivery, made, or to be made, for 

or on behalf of any other persons, where such contracts for future delivery were or could be used 

for the purposes set forth in Section 4b(a) ofthe Act, 7 U.S.C. § 6b(a), all in violation of Section 

4b(a)(2)(i) - (iii) ofthe Act, 7 U.S.C. § 6b(a)(2)(i) - (iii) (2002). 

53. The Defendants, knowingly or with reckless disregard for the truth, violated 

Section 4b(a)(2)(i) - (iii) ofthe Act, 7 U.S.C. § 6b(a)(2)(i) - (iii) by, among other things (a) 

issuing false account statements to at least one LP pool participant showing fictitious futures 

trading; (b) omitting to inform at least one LP pool participant ofthe material information that 

defendants had not engaged in any futures trading in the name ofthe LP Pool or LP Pool 

participants; (c) providing false trading results to at least one prospective LP Pool participant 

showing profitable actual trading; (d) providing false account statements to at least one Feeder 

Fund pool participant; and (e) posting false trading results for the Off-Shore Pool on its website. 

Complaint 10 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 9 of 30
54. In addition to his direct liability, the actions and failures ofEustace as alleged 

herein were done within the scope of his employment with PAAM, and therefore PAAM is liable 

for his violations of Section 4b(a)(2)(i) - (iii) of the Act, pursuant to Section 2(a)(l )(B) ofthe 

Act, 7 U.S.C. § 2 (2002). 

55. Defendant Eustace, directly or indirectly, controlled PAAM and did not act in 

good faith or knowingly induced, directly or indirectly, the acts constituting PAAM's violations 

alleged in this count, and therefore Defendant Eustace is liable for PAAM' s violations of Section 

4b(a)(2)(i) - (iii) of the Act, pursuant to Section 13(b) ofthe Act, 7 U.S.C. § 13c(b) (2002). 

56. Each act of issuing of false account statements; each failure to disclose material 

facts; each act of showing false trading results to prospective participants; and each posting of 

false trading results on the Defendants' website by the Defendants including, but not limited to, 

those specifically alleged herein, is alleged as a separate and distinct violation of Section 

4b(a)(2)(i) - (iii) ofthe Act. 

COUNT TWO
 

VIOLATIONS OF SECTION 4c(b) OF THE ACT
 

AND REGULATION 33.10:
 

OPTIONS FRAUD
 

57. The allegations set forth in paragraphs 1 through 56 are realleged and 

incorporated herein by reference. 

58. Beginning in or about March 2003 and continuing through the present, the 

Defendants have: (1) cheated or defrauded or attempted to cheat or defraud other persons; (2) 

made or caused to be made to any other person any false report or statement thereof; and/or (3) 

deceived or attempted to deceive other persons, in or in connection with an offer to enter into, 

the entry into, the confirmation of the execution of, or the maintenance of, commodity option 

Complaint 11 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 10 of 30
transactions, all in violation of Section 4c(b) of the Act, 7 U.S.C. § 6c(b), and Regulation 

33.10(a) - (c), 17 C.F.R. § 33.10 (a) - (c). 

59. The Defendants, knowingly or with reckless disregard for the truth, violated 

Section 4c(b) of the Act, 7 U.S.C. § 6c(b), and Regulation 33.10(a) - (c), 17 C.F.R. § 33.10 (a)­

(c) by, among other things: (a) issuing false account statements to at least one LP pool 

participant showing fictitious commodity options trading; (b) omitting to infonn at least one LP 

pool participant that defendants had not engaged in any commodity options trading in the name 

of the LP Pool or LP Pool participants; (c) providing false trading results to at least one 

prospective LP pool participant; (d) providing false account statements to at least one Feeder 

Fund pool participant; and (e) posting false trading results for the Off-Shore Pool on its website. 

60. In addition to his direct liability, the actions and failures of Eustace as alleged 

herein were done within the scope of his employment with PAAM, and therefore PAAM is liable 

for his violation of Section 4c(b) of the Act and Regulation 33.10 (a) - (c), pursuant to Section 

2(a)(I)(B) of the Act, 7 U.S.C. § 2 (2002). 

61. Defendant Eustace, directly or indirectly, controlled PAAM and did not act in 

good faith or knowingly induced, directly or indirectly, the acts constituting the violations of 

PAAM alleged in this count, and thereby Eustace is liable for PAAM's violations of Section 

4c(b) of the Act and Regulation 33.10 (a) - (c), pursuant to Section 13(b) of the Act. 

62. Each act of issuing of false account statements; each failure to disclose material 

facts; each act of showing false trading results to prospective participants; and each posting of 

false trading results on the Defendants' website by the Defendants including, but not limited to 

those specifically alleged herein, is alleged as a separate and distinct violation of Section 4c(b) of 

the Act and Regulation 33.10 (a) - (c). 

Complaint 12 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 11 of 30
COUNT THREE
 

VIOLATIONS OF SECTION 40(1) OF THE ACT AND REGULATION 4.4Ha):
 

FRAUD BY A COMMODITY POOL OPERATOR AND AN ASSOCIATED PERSON OF
 

A COMMODITY POOL OPERATOR 

63. The allegations set forth in paragraphs I through 62 are realleged and 

incorporated herein by reference. 

64. Beginning in or about March 2003 and continuing through the present, Defendant 

PAAM was a registered CPO and acted as a CPO by soliciting, accepting or receiving funds 

from others and engaging in a business that is of the nature of an investment trust, syndicate, or 

similar form of enterprise, for the purpose of trading in commodities for future delivery or 

options on futures contracts on or subject to the rules of a contract market. Defendant Eustace 

was a registered AP of a CPO, PAAM, and acted as an AP of a CPO by soliciting prospective 

pool participants. 

65. Beginning in or about March 2003 and continuing through the present, Defendant 

PAAM, while acting as a CPO, and Defendant Eustace, while acting as an AP of PAAM, 

knowingly or with reckless disregard for the truth, employed a device, scheme or artifice to 

defraud LP pool participants and prospective LP Pool, Off-Shore Pool and Feeder Fund pool 

participants, in violation of Section 4Q(1)(A) ofthe Act, 7 U.S.C. § 6Q(1)(A), and Commission 

Regulation 4.4I(a)(1), 17 C.F.R. § 4.4I(a)(1). 

66. Beginning in or about March 2003 and continuing through the present, Defendant 

PAAM, while acting as a CPO, and Defendant Eustace, while acting as an AP ofPAAM, 

engaged in a transaction, practice or course of business which has operated as a fraud or deceit 

upon LP Pool, Off-Shore Pool and Feeder Fund pool participants and prospective LP Pool, OffComplaint 13 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 12 of 30
Shore Pool and Feeder Fund pool participants, in violation of Section 4Q(l)(B) ofthe Act, 7 

U.S.C. § 6Q(l)(B), and Commission Regulation 4.41 (a)(2), 17 C.F.R. § 4.41 (a)(2). 

67. The Defendants, knowingly or with reckless disregard for the truth, violated 

Sections 4Q(l)(A) and (B) of the Act by, among other things: (a) issuing false account statements 

to at least one LP pool participant showing fictitious commodity futures and options trading; (b) 

omitting to inform at least one LP pool participant that the Defendants had not engaged in any 

commodity futures or options trading in the name of the pool or the pool participants; (c) 

providing false trading results to at least one prospective LP pool participant; (d) providing false 

account statements to at least one Feeder Fund pool participant; and (e) posting false trading 

results for the Off-Shore Pool on its website. 

68. The Defendants, knowingly or with reckless disregard for the truth, violated 

Commission Regulations 4.41 (a)(l) and (2),17 C.F.R. § 4.41 (a)(l) and (2) by, among other 

things: (a) posting false trading results for the Off-Shore Pool on its website, and (b) providing 

false trading results to at least one prospective LP pool participant. 

69. In addition to his direct liability, the actions and failures of Eustace as alleged 

herein were done within the scope of his employment with PAAM, and therefore PAAM is liable 

for his violations of Sections 4Q(l)(A) and (B) ofthe Act, and Commission Regulation 4.41 (a)(l) 

and (2) pursuant to Section 2(a)(I)(B) ofthe Act, 7 U.S.C. § 2 (2002). 

70. Defendant Eustace, directly or indirectly, controlled PAAM and did not act in 

good faith or knowingly induced, directly or indirectly, the acts constituting PAAM's violations 

alleged in this count, and thereby Defendant Eustace is liable for PAAM's violations of Sections 

4Q(l)(A) and (B) of the Act, and Commission Regulation 4.41 (a)(l) and (2), pursuant to Section 

13(b) of the Act. 

Complaint 14 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 13 of 30
71. Each act ofissuing of false account statements; each failure to disclose material 

facts; each act of showing false trading results to prospective participants; and each posting of 

false trading results on the Defendants' website by the Defendants including, but not limited to 

those specifically alleged herein, is alleged as a separate and distinct violation of Sections 

4Q(1)(A) and (B) ofthe Act. 

72. Each act of showing false trading results to prospective participants; and each 

posting of false trading results on the Defendants' website by the Defendants including, but not 

limited to those specifically alleged herein, is alleged as a separate and distinct violation of 

Sections 4Q(1)(A) and (B) ofthe Act. and Commission Regulation 4.41 (a)(1) and (2). 

VI.
 

RELIEF REQUESTED
 

WHEREFORE, the Commission, respectfully requests that this Court, as authorized by 

Section 6c ofthe Act, 7 U.S.C. § 13a-1, and pursuant to its own equitable powers, enter: 

a)	 a permanent injunction prohibiting the Defendants and any other 

person or entity associated with them, including any successor 

thereof, from engaging in conduct violative of Sections 4b(a)(2)(i) 

- (iii), 4c(b), and 40(1) (A) and (B) ofthe Act and Sections 4.41 

and 33.10 ofthe Commission's Regulations, and from engaging in 

any commodity-related activity, including soliciting new pool 

participants or pool funds; 

b)	 an order directing the Defendants to disgorge, pursuant to such 

procedure as the Court may order, all benefits received from the 

acts or practices which constitute violations ofthe Act or 

Regulations, as described herein, and interest thereon from the date 

ofsuch violations; 

c)	 an order directing the Defendants to make full restitution to every 

pool participant whose funds were received by him as a result of 

acts and practices which constituted violations ofthe Act and 

Regulations, as described herein, and interest thereon from the date 

of such violations; 

Complaint	 15 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 14 of 30
d)	 an order requiring Defendants to pay civil monetary penalties 

under the Act, to be assessed by the Court, in amounts of not more 

than the higher of $120,000 for each violation before October 24, 

2004 and $130,000 for violations on or after October 24, 2004, or 

triple the monetary gain to Defendants for each violation of the Act 

and Regulations described herein; and 

e)	 such other and further remedial ancillary relief as the Court may 

deem appropriate. 

Date:	 ([~ ~d , 2005 

Respectfully submitted by, 

ATTORNEYS FOR PLAINTIFF 

w 

William Longwifz,E~, MS Bar No. 101047 

Karen Kenmotsu, Esq., NJ Bar No. 05713-1993 

Gretchen L. Lowe, Esq., DC Bar No. 421995 

Division of Enforcement 

Commodity Futures Trading Commission 

1155 21st Street, N.W. 

Washington, D.C. 20581 

Phone - (202) 418-5642 

Facsimile - (202) 418-5523 

Complaint	 16 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 15 of 30
~~ UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF PENNSYLVANIA 

Case No. t/ic V1173 ----''''--­

COMMODITY FuTURES TRADING 

COMMISSION, 

)

)
 

)
 

Plaintiff, 

v. 

PAUL M. EUSTACE, AND 

)

)

)

)
 

)


PHILADELPHIA ALTERNATIVE ASSET 

MANAGEMENT COMPANY, LLC 

Defendants. 

) 

)

) 

)

)
 

------------) 

(Proposed) ORDER OF PRELIMINARY INJUNCTION 

This matter comes before the Court on the motion for preliminary injunction filed 

by plaintiff, the Commodity Futures Trading Commission ("Commission"). The Court 

has previously issued an ex parte statutory restraining order freezing the Defendants' 

assets, appointing a temporary receiver and containing other relief. The Court has also 

ordered the Defendants to show cause why a preliminary injunction should not be issued 

against them to preserve the status quo pending the trial in this case. The Court has 

reviewed the memoranda, declarations, and other exhibits filed with the Court, and 

having heard oral argument and now being fully advised in the premises finds that: 

(1)	 This Court has jurisdiction over the subject matter ofthis case, and 

Section 6c of the Commodity Exchange Act ("Act"), 7 U.S.C. §13a-l (2002); 

(2)	 Venue lies properly within this District pursuant to Sections 6c(e) ofthe 

Act, 7 U.S.c. §13a-l(e)(2002); 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 16 of 30
(3) There is good cause to believe that Defendants Paul M. Eustace 

("Eustace") and Philadelphia Alternative Asset Management Co., LLC. 

("PAAM") have engaged in, are engaging in and are about to engage in: 

fraud in violation of Sections 4b(a)(2)(i) - (iii); 4c(b); and 40(1)(A) and (B) of 

the Act, 7 U.S.C. §§ 6b(a)(2)(i) - (iii); 6c(b); and 60(1) (2002), and Sections 

4.41(a)(1) and (2) and 33.10 ofthe Commission's Regulations (the 

"Regulations"), 17 C.F.R. §§ 4.41(a)(1) and (2) and 33.10. (2004); 

(4)	 There is good cause to believe that immediate and irreparable damage to 

the Court's ability to grant effective final relief for investors in the form of 

monetary redress will occur from the sale, transfer, assignment, or other 

disposition of assets or records unless the Defendants are immediately 

restrained and enjoined by Order of this Court; 

(5)	 An asset freeze as to Defendants is necessary to assure the ability of the 

Court to order payment ofrestitution, disgorgement, and civil monetary 

penalties as authorized and for the benefit of investors; 

(6)	 An accounting is appropriate to determine the location and disposition of 

investor funds; 

(7)	 It is necessary to order the repatriation of assets to assure the ability ofthe 

Court to order payment of restitution, disgorgement and civil monetary 

penalties as authorized and for the benefit of investors; 

(8)	 Good cause exists for the appointment of a permanent receiver in order to 

prevent waste and dissipation of assets to the detriment of investors and to 

2
 

Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 17 of 30
assess and ensure the proper operation ofthe commodity pools currently 

operated by the Defendants; and 

(9) Absent this order, there is a reasonable likelihood that the violations will be 

repeated. 

DEFINITIONS 

For the purposes ofthis Order, the following definitions apply: 

1. "Assets" means any legal or equitable interest in, right to, or claim to, any 

real or personal property, including but not limited to chattels, goods, instruments, 

equipment, fixtures, general intangibles, effects, leaseholds, mail or other deliveries, 

inventory, checks, notes, accounts, credits, receivables, contracts, insurance policies, and 

all cash, wherever located, whether in the United States or abroad. 

2. The term "document" is synonymous in meaning and equal in scope to the 

usage ofthe term in Federal Rule of Civil Procedure 34(a), and includes, but is not 

limited to, writings, drawings, graphs, charts, photographs, audio and video recordings, 

computer records, and other data compilations from which information can be obtained 

and translated, if necessary, through detection devices into reasonably usable form. A 

draft or non-identical copy is a separate document within the meaning ofthe term. 

3. "Defendants" means Paul M. Eustace and Philadelphia Alternative Asset 

Management Company LLC, and any person insofar as he or she is acting in the capacity 

of an officer, agent, servant, employee, or attorney ofDefendants, and any other person 

who receives actual notice ofthis Order by personal service or otherwise insofar as he or 

she is acting in concert or participation with the Defendants. 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 18 of 30
I. 

RELIEF GRANTED 

Prohibited Conduct 

IT IS HEREBY ORDERED that until a final adjudication on the merits may be 

had, Defendants are restrained and enjoined from directly or indirectly: 

4. In or in connection with any order to make, or the making of, any contract 

of sale of any commodity for future delivery, made, or to be made, for or on behalf of any 

other persons, where such contract for future delivery was or could be used for (A) 

hedging any transaction in interstate commerce in such commodity or the products or 

byproducts thereof, or (B) determining the price basis of any transaction in interstate 

commerce in such commodity, or (C) delivering any such commodity sold, shipped, or 

received in interstate commerce for the fulfillment thereof, 

(A)	 cheating or defrauding or attempting to cheat or defraud other 

persons; 

(B)	 willfully making or causing to be made to other persons 

false reports or statements thereof, or willfully entering or causing 

to be entered for other persons false records thereof; and 

(C)	 willfully deceiving or attempting to deceive other persons; 

in violation of Section 4b(a)(2)(i)-(iii) of the Act, 7 U.S.c. §§ 

6b(a)(2)(i)-(iii). 

5. In or in connection with an offer to enter into, the entry into, or the 

confirmation ofthe execution of, any commodity option transactions: 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 19 of 30
(A) cheating or defrauding or attempting to cheat or defraud any other 

persons; 

(B)	 making or causing to be made to any other person any false report or 

statement thereof; and 

(C)	 deceiving or attempting to deceive any other person 

in violation of Section 4c(b) ofthe Act, 7 U.S.C. § 6c(b) and Regulation 

33.1 0, 17 C.F.R. §33.1O. 

6. As Commodity Pool Operators ("CPOs"), or Associated Persons ("APs") 

of CPOs, employing any device, scheme, or artifice to defraud any pool participant or 

prospective pool participant, or engaging in any transaction, practice or course of 

business which operates as a fraud or deceit upon any pool participant or prospective pool 

participant, by use ofthe mails or any means or instrumentality ofinterstate commerce, in 

violation of Section 40(1) (A) and (B) ofthe Act; 

7. As a CPO or a principal of a CPO, advertising in any manner which 

employs any device, scheme, or artifice to defraud any pool participant or prospective 

pool participant, or involves any transaction, practice, or course of business which 

operates as a fraud or deceit upon any pool participant or prospective pool participant in 

violation of Section 4.4l(a)(1) and (2) ofthe Regulations, 17 C.F.R. §4.4l(a)(1) and (2). 

8. Defendants and any other person or persons acting in concert or 

participation with Defendants are prohibited from soliciting new customers or otherwise 

soliciting, accepting or receiving funds or other property from any existing or prospective 

participant in any investment relating to commodity futures or options contracts. 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 20 of 30
II. 

Asset Freeze 

IT IS FURTHER ORDERED that: 

9. Defendants, except as otherwise ordered by this Court, are restrained and 

enjoined from directly or indirectly: 

(A)	 transferring, selling, alienating, liquidating, encumbering, pledging, 

leasing, loaning, assigning, concealing, dissipating, converting, 

withdrawing, or otherwise disposing of any assets, wherever located, 

including assets held outside the United States, except as provided in 

Paragraphs III and VI of this Order, or as otherwise ordered by the Court; 

(B)	 Opening or causing to be opened any safe deposit boxes titled in the name 

or subject to access by any of the defendants. 

(C)	 Notwithstanding the provisions of this paragraph, defendants shall transfer 

possession of all assets of the receivership defendants pursuant to 

paragraph VI ofthis Order. 

III. 

Financial Institutions 

IT IS FURTHER ORDERED, pending further Order ofthis Court, that any 

financial or brokerage institution, business entity, or person that holds, controls,or 

maintains custody of any account or asset titled in the name of, held for the benefit of, or 

otherwise under the control of any Defendant, or has held, controlled, or maintained 

custody of any such account or asset of any Defendant at any time since March 2002, 

shall: 

(A)	 Prohibit Defendants, and all other persons from withdrawing, removing, 

assigning, transferring, pledging, encumbering, disbursing, dissipating, 

converting, selling or otherwise disposing of any such asset except as 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 21 of 30
directed by further order of the Court or, as to receivership assets, as 

directed by the Receiver appointed herein; 

(B)	 Deny Defendants, and all other persons access to any safe deposit box that 

IS: 

1.	 titled in the name of any defendant, either individually or jointly; 

or 

2.	 otherwise subject to access by any defendant. 

Notwithstanding this Paragraph, the Receiver appointed 

herein shall be provided with access to any safe deposit box titled in 

the name of, or subject to access by, the Defendants; 

(C)	 Provide the Receiver and counsel for the Commission, within five (5) 

business days ofreceiving a copy of this Order, a statement setting forth: 

1.	 the identification number of each such account or asset titled in the 

name, individually or jointly, of any ofthe Defendants, or held on 

behalf of, or for the benefit of, any of the Defendants, or under the 

control of any ofthe Defendants; 

2.	 the balance of each such account, or a description ofthe nature and 

value ofsuch asset as ofthe close ofbusiness on the day on which 

this Order is served, and, ifthe account or other asset has been 

closed or removed, the date closed or removed, the total funds 

removed in order to close the account, and the name ofthe person 

or entity to whom such account or other asset was remitted; and 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 22 of 30
3.	 the identification of any safe deposit box that is either titled in the 

name, individually or jointly, of any Defendant, or is otherwise 

subject to access by any defendant; 

D.	 Upon request by the Receiver or the Commission, promptly provide the 

Receiver and the Commission with copies of all records or other 

documentation pertaining to such account or asset, including, but not 

limited to, originals or copies of account applications, account statements, 

signature cards, checks, drafts, deposit tickets, transfers to and from the 

accounts, all other debit and credit instruments or slips, currency 

transaction reports, 1099 forms, and safe deposit box logs; and 

E.	 Cooperate with all reasonable requests of the Receiver relating to 

implementation ofthis Order, including transferring funds at the 

Receiver's direction and producing records related to Defendants' 

accounts. 

IV. 

Accounting 

IT IS FURTHER ORDERED that within five (5) business days following the 

service ofthis Order, each Defendant shall, if they have not done so already: 

(A)	 Provide the Commission and the Receiver with a full accounting of all 

funds, documents, and assets outside ofthe United States which are (1) 

titled in the name individually or jointly of such defendant; or (2) held by 

any person or entity, for the benefit of any defendant; or (3) under such 

defendant's direct or indirect control, whether jointly or singly; 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 23 of 30
(B)	 Transfer to the territory ofthe United States and deliver to the Receiver all 

funds, documents, and assets located in foreign countries which are (1) 

titled in the name individually or jointly ofsuch defendant; or (2) held by 

any person or entity, for the benefit of any defendant; or (3) under such 

defendant's direct or indirect control, whether jointly or singly; 

(C)	 Provide the Commission access to all records of accounts or assets ofthe 

defendants held by financial institutions located outside the territorial 

United States by signing the Consent to Release of Financial Records 

attached to this Order. 

V. 

Permanent Receiver 

IT IS FURTHER ORDERED that IS 

appointed pennanent Receiver for Defendant PAAM and any partners, affiliates or 

subsidiaries or related entities of the Defendants (hereinafter referred to as the 

"receivership defendants"), with the full powers of an equity receiver. The Receiver shall 

be the agent of this Court in acting as Receiver under this Order. 

VI. 

IT IS FURTHER ORDERED that the Receiver is directed and authorized to 

accomplish the following: 

A.	 Assume full control of the receivership defendants by removing defendant 

Eustace, and any officer, independent contractor, employee, or agent of 

the receivership defendants, from control and management ofthe affairs of 

the receivership defendants; to the extent necessary, the Receiver may 

authorize the Defendant Eustace, subject to monitoring by the Receiver, to 

trade any accounts held in the name of or for the benefit of any commodity 

pools, pool participants or other clients managed by Defendants for the 

limited purpose of unwinding any open positions held in the accounts, 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 24 of 30
including liquidating or covering the exposure of any open positions in 

accordance with trading strategies and applicable trading authorizations, 

until the Receiver hires a person to manage and direct the trading of all 

accounts controlled by Defendants. 

B.	 Take exclusive custody, control, and possession of all the funds, property, 

mail and other assets of, in the possession of, or under the control ofthe 

receivership defendants, wherever situated. The Receiver shall have full 

power to sue for, collect, receive and take possession of all goods, chattels, 

rights, credits, moneys, effects, land, leases, books, records, work papers, 

and records of accounts, including computer-maintained information, and 

other papers and documents ofthe receivership defendants, including 

documents related to customers or clients whose interest are now held by 

or under the direction, possession, custody or control ofthe receivership 

defendants; 

C.	 Take all steps necessary to secure the business premises ofthe 

receivership defendants, including but not limited to premises located at 

2701 Renaissance Boulevard, Fourth Floor, King ofPrussia, Pennsylvania 

19406; and any and all other premises under the control ofthe defendants; 

D.	 Preserve, hold and manage all receivership assets, and perform all acts 

necessary to preserve the value ofthose assets, in order to prevent any 

loss, damage or injury to investors, pool participants or clients; 

E.	 Prevent the withdrawal or misapplication of funds entrusted to the 

receivership defendants, and otherwise protect the interests of investors, 

pool participants or clients; 

F.	 Manage and administer the receivership defendants by performing all acts 

incidental thereto that the receiver deems appropriate, including hiring or 

dismissing any and all personnel or suspending operations; 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 25 of 30
G.	 Collect all money owed to the receivership defendants; 

H.	 Initiate, defend, compromise, adjust, intervene in, dispose of, or become a 

party to any actions or proceedings in state, federal or foreign court 

necessary to preserve or increase the assets ofthe receivership defendants 

or to carry out his or her duties pursuant to this Order; 

I.	 Choose, engage and employ attorneys, accountants, appraisers, and other 

independent contractors and technical specialists, as the Receiver deems 

advisable or necessary in the performance ofduties and responsibilities 

under the authority granted by this Order; 

J.	 Issue subpoenas to obtain documents and records pertaining to the 

receivership, and conduct discovery in this action on behalf of the 

receivership estate; 

K.	 Open one or more bank accounts as designated depositories for funds of 

the receivership defendant. The Receiver shall deposit all funds ofthe 

receivership defendants in such designated accounts and shall make all 

payments and disbursements from the receivership estate from such 

accounts; and 

L.	 Make payments and disbursements from the receivership estate that are 

necessary or advisable for carrying out the directions of, or exercising the 

authority granted by, this Order. The Receiver shall apply to the Court for 

prior approval of any payment of any debt or obligation incurred by the 

receivership defendants prior to the date of entry of this Order, except for 

payments that the Receiver deems necessary or advisable to secure assets 

of the receivership defendants. 

VII. 

IT IS FURTHER ORDERED that, immediately upon service ofthis Order upon 

them, Defendants and any other person or entity served with a copy of this Order, shall 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 26 of 30
immediately or within such time as permitted by the Receiver in writing, deliver over to 

the Receiver: 

A.	 Possession and custody of all funds, assets, property, and all other assets, 

owned beneficially or otherwise, wherever situated, ofthe receivership 

defendants; 

B.	 Possession and custody of documents ofthe receivership defendants, 

including but not limited to, all books and records of accounts, all 

financial and accounting records, balance sheets, income statements, bank 

records (including monthly statements, canceled checks, records of wire 

.transfers, and check registers), client lists, title documents and other 

papers; 

C.	 Possession and custody of all precious metals, other commodities, funds, 

and other assets being held by or on behalf ofthe receivership defendants 

or on behalf ofthe receivership defendants' customers; 

D.	 All keys, computer passwords, entry codes, and combinations to locks 

necessary to gain or to secure access to any ofthe assets or documents of 

the receivership defendants, including but not limited to, access to the 

receivership defendants' business premises, means of communication, 

accounts, computer systems, or other property; and 

E.	 Information identifying the accounts, employees, properties or other assets 

or obligations ofthe receivership defendants. 

VIII. 

IT IS FURTHER ORDERED that Defendants, and all other persons or entities 

served with a copy of this order shall cooperate fully with and assist the Receiver. This 

cooperation and assistance shall include, but not be limited to, providing any information 

to the Receiver that the Receiver deems necessary to exercising the authority; providing 

any password required to access any computer or electronic files in any medium; and 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 27 of 30
discharging the responsibilities of the Receiver under this Order, and advising all persons 

who owe money to the receivership defendants that all debts should be paid directly to 

the Receiver. 

IX. 

IT IS FURTHER ORDERED that except by leave ofthe Court, during the 

pendency of the receivership ordered herein, the Defendants, and all other persons and 

entities be and hereby are stayed from taking any action to establish or enforce any claim, 

right or interest for, against, on behalf of, in, or in the name of, the receivership 

defendants, the Receiver, receivership assets, or the Receiver's duly authorized agents 

acting in their capacities as such, including but not limited to, the following actions: 

A.	 Commencing, prosecuting, litigating or enforcing any suit, except that 

actions may be filed to toll any applicable statute of limitations; 

B.	 Accelerating the due date of any obligation or claimed obligation, 

enforcing any lien upon, or taking or attempting to take possession of, or 

retaining possession of, property ofthe receivership defendants or any 

property claimed by the receivership defendants, or attempting to 

foreclose, forfeit, alter or terminate any ofthe receivership defendants' 

interests in property, whether such acts are part of a judicial proceeding or 

otherwise; 

C.	 Using self-help or executing or issuing, or causing the execution or 

issuance of any court attachment, subpoena, replevin, execution or other 

process for the purpose ofimpounding or taking possession of or 

interfering with, or creating or enforcing a lien upon any property, 

wherever located, owned by or in the possession of the receivership 

defendants, or the Receiver, or any agent of the Receiver; and 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 28 of 30
------

D.	 Doing any act or thing to interfere with the Receiver taking control, 

possession or management ofthe property subject to the receivership, or to 

in any way interfere with the Receiver or the duties ofthe Receiver; or to 

interfere with the exclusive jurisdiction ofthis Court over the property and 

assets ofthe receivership defendants. 

This Paragraph does not stay the commencement or continuation of an action or 

proceeding by a governmental unit to enforce such governmental unit's police or 

regulatory power. 

X. 

IT IS FURTHER ORDERED that the Receiver and all personnel hired by the 

Receiver as herein authorized, including counsel to the Receiver, are entitled to 

reasonable compensation for the performance of duties pursuant to this Order and for the 

cost of actual out-of-pocket expenses incurred by them, from the assets now held by, or 

in the possession or control of, or which may be received by the receivership defendants. 

The Receiver shall file with the Court and serve on the parties periodic requests for the 

payment of such reasonable compensation, with the first such request filed no more than 

sixty (60) days after the date of this Order. The Receiver shall not increase the hourly 

rates used as the bases for such fee applications without prior approval ofthe Court. 

XI. 

IT IS FURTHER ORDERED that, pursuant to 28 U.S.C. § 754 (1994), the 

Receiver shall file with the Clerk of the Court a bond in the amount of$ 

with sureties to be approved by the Court, conditioned that the Receiver will well and 

truly perform the duties of the office and abide by and perform all acts the Court directs. 

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Case 2:05-cv-02973-MMB Document 1 Filed 06/22/05 Page 29 of 30
-------

XII. 

BOND NOT REQUIRED OF PLAINTIFF 

IT IS FURTHER ORDERED THAT: 

Plaintiff Commission is an agency of the United States ofAmerica and, 

accordingly, it is not necessary for the Commission to post bond. 

XIII. 

FORCE AND EFFECT 

IT IS FURTHER ORDERED THAT: 

This Order shall remain in full force and effect until further order ofthis Court, 

and that this Court retains jurisdiction ofthis matter for all purposes. The Statutory 

Restraining Order previously ordered by the Court as to all Defendants shall remain in 

full force and effect until further order ofthis Court. 

IT IS SO ORDERED. 

Dated: 

UNITED STATES DISTRICT COURT JUDGE
 

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