National Post (National Edition)
The CURIOUS CASE of a disgraced ex-hedge fund manager and the TRADER he says was his PARTNER
Philip Baker was sentenced to 20 years in the United States for defrauding investors of $294 million. He says he didn’t act alone, and that his partner, John Kurgan — now an executive at Royal Bank — is culpable as well. Kurgan, who has never been charged
On Aug. 24, 2011, Torontoborn Philip Baker stood before a judge in U.S. District Court for the Northern District of Illinois, and pleaded guilty to defrauding investors while running a global commodities trading and hedge fund business.
Lake Shore Group of Companies had been flying high, with hundreds of millions of dollars under management, operations in Chicago, London, Turks and Caicos, and the British Virgin Islands, until a U.S. financial agency questioned the double-digit returns and track record published on its website.
By 2007, the firm was in bankruptcy proceedings and directors, including former Chicago Mercantile Exchange chairman Laurence Rosenberg, had resigned. In July 2009, Baker, who had been managing director of Lake Shore, was arrested and jailed in Germany, and then extradited to the United States to face prosecution by prominent U.S. Attorney Patrick J. Fitzgerald.
He was accused of overstating returns to hide several millions dollars in trading losses, embezzling funds, and misleading investors. When Baker pleaded guilty to a single count of mail fraud two years later, the other charges against him were dropped.
Baker, then 46, was sentenced to 20 years in U.S. federal prison for “fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide,” according to a statement from the Federal Bureau of Investigation’s Chicago office.
No one other than Baker was ever charged with any wrongdoing connected to Lake Shore. But Baker said he did not act alone, and he feels betrayed by a man he calls his former partner: John Kurgan, who is now a wealth management executive at the Royal Bank of Canada, where he has worked since November 2011.
According to Kurgan’s LinkedIn page, registration records published by the Investment Industry Regulatory Organization of Canada, and his own deposition given in connection with Lake Shore’s bankruptcy, Kurgan was never an employee at the commodities trading firm.
However, in a series of interviews with the Financial Post, Baker said that Kurgan, who he met in 1990 while both were working at the derivatives trading firm RefCo Canada, was both a friend and a partner in Lake Shore.
Baker said Kurgan was a co-founder of the Lake Shore group and a partner in the operation. He also claims that Kurgan was the head trader, and responsible for initial trading losses that put Lake Shore in a hole. Baker acknowledges he was wrong to try to cover up the losses, but claims they were both responsible for providing false trading information that resulted in misleading account values for investors.
Kurgan responded to requests for comment through his lawyer Michael Meredith, who said the investment executive “will not otherwise be making any statement” on the matter.
Meredith did not comment on Baker’s claims that Kurgan had a much larger role at Lake Shore than he has acknowledged in documents related to Lake Shore’s bankruptcy.
“After a lengthy investigation of Lake Shore no charges were brought against Mr. Kurgan and he was not sanctioned by any U.S. or Canadian authority,” Meredith said via email.
“Mr. Kurgan denies any knowledge of Baker’s fraudulent activity.”