Hedge Fund Manager Sentenced to Almost Six Years for Mail Fraud and Making a False Statement to the SEC

The former manager of Paramount Partners hedge fund was sentenced earlier today in federal court in St. Paul for convincing approximately 48 investors to invest more than $8 million collectively in the fund by overstating its success. United States District Court Judge Paul A. Magnuson sentenced John Walden Lawton, age 35, of Minneapolis, to 70 months in prison on one count of mail fraud and one count of making a false statement to the U.S. Securities and Exchange Commission (“SEC”). He was charged on October 30, 2009, and pleaded guilty on November 24, 2009.

At sentencing, Judge Magnuson told Lawton that despite losses in the stock market, he still stole money. “No one controls the market, but the reality is you didn’t tell the truth. When you lied, you stole. It’s as simple as that. What you did was wrong.”

At his November 29, 2009, plea hearing, Lawton admitted executing the scheme from January 1, 2006, through February of 2009. To further the scheme, he misrepresented to potential investors that Paramount provided annual investment returns of 19.22 to 64.97 percent. Moreover, he provided a “fact sheet” to potential investors that falsely claimed total returns for 2002 to 2007 of 167.71 percent, for an average annual return of 27.95 percent. Lawton also admittedly mailed existing investors monthly statements that falsely reflected substantial increases in their investment accounts. Those misrepresentations caused others to invest in Paramount and prompted existing investors to invest more money. In 2008, the fund received more than $6.3 million from investors.

According to the plea agreement, Lawton also knowingly provided a false account summary to the SEC in February of 2009. Specifically, Lawton created a summary that falsely showed a $12 million balance in Paramount’s account at Goldman Sachs. Then, he presented that summary to the SEC.

This case was the result of an investigation by the U.S. Postal Inspection Service, the Federal Bureau of Investigation and the SEC. It was prosecuted by Assistant U.S. Attorneys Nicole A. Engisch and Nate P. Petterson.