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The Philadelphia Story

Being Diligent


As Sidney Sheldon famously said “Life is like a novel. It's filled with suspense,” we often find it very true when we learn what actually happens behind the scenes of fraud cases. The private life of Paul Eustace, a founder of PAAMCo, was similarly filled with malodorous facts, including his extra-marital relationship with a stripper.


It is often very difficult to collect private life information lawfully and to verify its trustworthiness. However, such knowledge helps to understand a target’s personality and to fill a missing link, which might lead to identifying a possible fraud. Paul Eustace’s private life was one of those cases…


Paul Eustace’s Private Life

Paul Eustace (“Eustace”), a founder and portfolio manager of now-defunct Philadelphia Alternative Asset Management Company (“PAAMCo”), not only concealed loss-making accounts from his investors but also hid his another life from his wife.


In 1990, Eustace joined his childhood friend Monroe Trout (“Trout”), who had managed a successful trading business in Chicago. Trout sent Eustace to Toronto in order to set up a subsidiary of his firm, Trout Trading Management Co. Ltd and Eustace moved to Oakville, Ontario, a suburb town about 25 miles south of Toronto, with his wife and two children. While he was busy setting up a branch office, he learned how to enjoy himself as he frequented the Locomotion Cabaret in Mississauga where he met Denise Nadeau (“Nadeau”), a 21-year-old stripper.


Eustace began buying Nadeau luxurious gifts and paid for her cosmetic surgery. The relationship started affecting Eustace’s professional life. He brought Nadeau to a Bermuda headquarter of Trout Trading as his secretary. Together with Eustace’s poor performance, Trout found it a good reason to fire Eustace. When Eustace launched his own firm called Windas Ltd., he named Nadeau as a director.


In 2000, Eustace started Option Capital Fund LP (“Option Capital”) where he served as a general partner of the fund. As the business of Option Capital was stagnant, Eustace decided to establish PAAMCo to attract more money to manage and he successfully raised more than $250 million.


When the relationship fell apart, Nadeau allegedly threatened Eustace to tell his wife about their affair unless he gave her money; Eustace allegedly paid Nadeau to pay off debt and bought her a house. Unfortunately, Eustace used the money not belonged to himself, but his investors. The receiver, who oversaw the liquidation of funds managed by Eustace, estimated the amount paid to Nadeau from the funds topped $1 million.


By no later than March 2003, Eustace allegedly fabricated his performances and hid the losses with help from his college friend, Thomas Gilmartin. When CFTC announced its investigation against Eustace and PAAMCo., more than $200 million of investors’ money had disappeared.

Eustace’s disruptive private life may not be the only reason for his misconduct, but I believe there was a strong link between them. From my experience, a manager, who is struggling with his or her spouse, often loses his focus on business and suffers from poor judgments, sometimes leading to a miserable downward spiral. Not all fraudsters begin their businesses with an intention to violate laws. But, a small white lie to protect their businesses turned into big trouble. It’s impossible to know which case Eustace was, but it’s not hard to believe that his little venture in private life was the beginning of his big secret.

Monroe Trout:

Monroe Trout, Jr. was born in New Canaan, CT, on January 22, 1962 and a founder of Trout Trading Management Co. Ltd. After graduating from Harvard, Trout joined Victor Niederhoffer’s NCZ Commodities and became a celebrity on the trading floor when he generated a profit 69 out of 79 months. In 1986, he founded Trout Trading in Chicago.


In 2002, at the age of 39, Trout sold his $3 billion asset management business to CEO Matthew Tewksbury after achieving 21.5% annualized returns over 14 years. The announcement was a surprise to many in the industry. The firm later changed its name to Tewksbury.


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