David Paddon, THE CANADIAN PRESS

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TORONTO - Hedge fund operator Paul Eustace, an American living in Canada, has agreed to pay more than US$279 million to defrauded customers and more than US$12 million in civil penalties.

The penalties against Eustace and Philadelphia Alternative Asset Management, which he controlled, were announced Tuesday by the U.S. Commodity Futures Trading Commission. The settlement agreement was dated Aug. 13.

During a four-year period ending when the complaint was filed in June 2005, the CFTC says, Eustace incurred losses of US$200 million trading commodity futures and options either in accounts held in the name of the funds under his control or in his name.

The four commodity pools, which the commission says were fraudulent, were called the Option Capital Fund LP, Philadelphia Alternative Asset Fund, LP, Philadelphia Alternative Feeder Fund LLC; and the Philadelphia Alternative Asset Fund, Ltd.

"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," CFTC acting chairman Walter Lukken said in a statement.

Eustace, believed to be in his early 40s, couldn't be reached for comment on the settlement.

His businesses formerly had an office in King of Prussia, Pa., a suburb of Philadelphia, and his current address is listed in the settlement agreement as Oakville, Ont.

Under the settlement, Eustace agrees to waive any rights to assets frozen by the U.S. court or the Ontario Securities Commission.

Under a previous court order in July 2007, Eustace was prohibited from engaging in any commodity-related activity.

In November 2007, U.S. Attorney Patrick Meehan filed an indictment, or charges, accusing him of two counts of commodities fraud between spring 2001 and June 2005 at Philadelphia Alternative Asset Management Co.

According to reports, he spent some of the money from the hedge fund business to buy gifts and breast augmentation surgery for a stripper who lived in Mississauga, Ont., near his home in Oakville.

The U.S. criminal charges are still pending, although no court date has yet been set for that matter.