Philip J. Baker, principal of the collapsed Chicago hedge fund Lake Shore Asset Management Ltd., pleaded guilty to one count of wire fraud for his role in an alleged $292 million global scheme.
Baker, 46, dressed in an orange federal Bureau of Prisons jumpsuit, entered his plea today before U.S. District Judge John W. Darrah in Chicago.
Indicted in absentia in February 2009 for his role in the scheme that ensnared about 900 investors, Baker had faced 27 criminal counts including 17 for wire fraud and two for commodities fraud, as well one count of embezzlement of commodity pool funds. He pleaded not guilty last year after being extradited from Hamburg.
“Did you read this before you signed it,” Darrah, holding the 38-page plea agreement, asked Baker today.
“Yes your honor,” Baker replied. Minutes later, Baker pleaded guilty to the first wire-fraud count in the indictment, a crime punishable by as long as 20 years in prison.
Baker is also liable for $154 million in restitution, the judge said. Sentencing is set for Nov. 17.
“The government will recommend the maximum term of 20 years in prison when Baker is sentenced,” Chicago U.S. Attorney Patrick Fitzgerald said in an e-mailed statement after the plea was entered. A trial had been scheduled for Sept. 19.
Baker’s lawyer, Kurt Stitcher of Baker & Daniels LLP, declined to comment after the hearing.
Pools of Investors
Summarizing the charges, Assistant U.S. Attorney Clifford Histed told Darrah that Baker controlled the activities of Lake Shore Asset Management and several other businesses, some of which also used “Lake Shore” in their names, through which they traded commodities for pools of investors.
While those trades lost money, Baker caused false profit information to be relayed to a Canadian firm that issued misleading account statements to investors. Those false trading results were also touted in marketing materials used to recruit new investors.
Baker misappropriated about $33 million for his own use, according to Histed.
“That’s it in a nutshell,” Histed told the judge.
“Do you disagree?,” Darrah asked Baker.
“No, your honor,” Baker replied.
The Lake Shore scheme ran from about 2002 through September 2007, during which time it lost about $38 million, according to the indictment. The U.S. Commodity Futures Trading Commission sued the firm in 2007. It later won court orders barring Lake Shore from commodities trading.
Baker, a Canadian citizen, was extradited from Germany after the U.S. agreed to drop criminal contempt and obstruction of justice charges. He faces deportation as a result of his plea, Darrah said today.
The criminal case is U.S. v. Baker, 1:09-cr-00175, and the civil case is U.S. Commodity Futures Trading Commission v. Lake Shore Asset Management Ltd., 1:07-cv-03598, U.S. District Court, Northern District of Illinois (Chicago).
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