Aug. 19 (Bloomberg) -- Philadelphia Alternative Asset Management Co. and the hedge fund's founder, Paul Eustace, were ordered to pay almost $300 million by a federal court after U.S. commodities regulators accused him of defrauding clients.

Eustace consented to an order that he pay $279 million in restitution, plus a $12 million fine, the Commodity Futures Trading Commission said today in a statement. PAAM, which collapsed in 2005, must pay an $8.8 million fine and may be required to pay $276 million in restitution if Eustace doesn't.

Regulators shut down PAAM, which traded commodity futures and options, and froze its assets after accusing Eustace in 2005 of concealing losses and misleading investors about its trading. Eustace, a resident of Ontario, Canada, created false account statements to cover up about $200 million of losses and misappropriated assets from two commodity pools, the CFTC said.

``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 Washington-based regulator's acting chairman, Walter Lukken, said in today's statement.

The sanctions will be offset by money already seized for return to investors, the CFTC said. Regulators were able to freeze about $70 million when filing the case, and a receiver for the fund later recovered $96 million more.

Criminal Counts

Eustace still faces two criminal counts of commodities fraud at federal court in Philadelphia. In March, prosecutors asked a judge to appoint an attorney to represent him, after the asset freeze left him with too little money to hire a lawyer. At the time, Eustace had a job paying $20 an hour, prosecutors said.

He represented himself in the CFTC's case, and a public defender in his criminal case didn't immediately return a phone call seeking comment. Two phone directories had no number for him under an Oakville, Ontario address listed in court records.

MF Global Ltd., which served as the firm's broker, agreed in December to pay $77 million to settle related claims brought by the CFTC and the receiver. The Hamilton, Bermuda-based company inadequately supervised an account used to hide losses, the CFTC said at the time.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

Last Updated: August 19, 2008 17:03 EDT