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Ex-Chicago hedge fund director pleads guilty in $294M fraud

Updated: November 4, 2011 9:37AM

The former managing director of a Chicago hedge fund pleaded guilty Wednesday to a fraud scheme that cost 900 investors $294 million.

Philip Baker, 46, admitted to a charge of wire fraud. The U.S. attorney’s office said Baker’s defunct firm, Lake Shore Asset Management Ltd., racked up losses from 2002 to 2007 while falsely claiming that its trading in futures contracts was profitable.

Federal agents also said Baker misappropriated $30 million in clients’ money for his own use and the use of an unnamed Lake Shore director. No one else has been charged in the case.

The plea deal calls for Baker to repay to victims $154.8 million. A court-appointed receiver has recovered more than $100 million in restitution.

Both a prosecutor in the case and an attorney for Baker said they believe he has no means to pay any restitution. However, the order gives federal agents power to take money from him over many years if any is found.

But Baker’s immediate future is in a federal penitentiary. In the plea agreement, prosecutors said they will ask a judge to impose a maximum 20-year sentence.

U.S. District Judge John Darrah scheduled the sentencing for Sept. 17. Baker has been held at the Metropolitan Correctional Center downtown since he was extradited from Germany in December 2009.

Baker is a Canadian citizen who ran Lake Shore from London and later Hamburg, Germany. He used claims of huge returns in commodity pool investments to lure clients.

In one fund, for example, Baker reported annual gains of from 21 percent to 55 percent when it was actually losing money, according to the plea agreement.

He also admitted to trying to hide evidence in the case. As federal agents were demanding access to his records in 2007 and requesting a freeze on Lake Shore assets, Baker transferred company records and its computer server from Canada to Bermuda and then to Geneva, Switzerland. He unsuccessfully appealed an asset freeze, arguing that U.S. investigative agencies had no authority over accounts held by foreign investors.

The case was made more complex by Lake Shore’s dealings with another company accused of fraud, Sentinel Management Group Inc. Sentinel was based in Northbrook and went bankrupt in 2007.

A year later, the Securities and Exchange Commission accused the firm’s two top officers of a massive fraud scheme that affected Lake Shore and other customers.

Frederick Grede, a court-appointed receiver in the Sentinel case, said he’s recovered about 31 percent of an estimated $600 million that was lost.

No criminal charges have been filed in the Sentinel case. Assistant U.S. Attorney Clifford Histed, who handled the case against Baker, declined to say if there are ongoing investigations of Lake Shore or Sentinel.

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