Hedge Fund Fraudster Gets Almost Six Years

Oct 7 2010 | 11:54am ET

A hedge fund manager who ripped clients off of $10 million has been sentenced to almost six years in prison.

John Lawton pleaded guilty last year to mail fraud and making a false statement, and received 70 months in prison for it, after a judge rejected his argument that $8.6 million in client losses where the result of the market crash, and not of fraud.

“I’m sorry from the bottom of my heart,” Lawton told the court’s gallery. “The money did not go into my pocket…. I’m sorry the losses were more than the gains.”

Certainly, the losses were more than the gains he claimed. Lawton’s Crossroad Capital Management told investors that its Paramount had enjoyed annual returns ranging from 19% to 65% with only one losing year. And despite claims that he managed $17 million, when the feds shut down Crossroad last February, there was only $1.3 million in the firm’s accounts.

“He provided false information on a monthly basis,” Assistant U.S. Attorney Nicole Engisch told U.S. District Judge Paul Magnuson in St. Paul, Minn. “He did not have cash in the fund that he said he had. His acceptance of responsibility is tepid at best.”

To be sure, Lawton has spent the last year trying to have his guilty plea vacated to allow him to pursue a stock market defense. He also blamed a relationship with a California firm, whose principals were charged last month with running a $95 million Ponzi scheme, for hurting his hedge fund.

Magnuson wasn’t buying any of it, although Lawton’s sentence is substantially less than the 25 years he faced.

“Yes, there were losses in the market,” the judge said. “But the reality is just there. You didn’t tell the trust and when you lied, you stole. It’s as simple as that.”

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