TORONTO — Forty inmates lined up for the daily mail call at the Fort Dix Federal Correctional Institution, a complex of low-slung brick buildings in the middle of New Jersey.
It was July 2012, and one of the inmates was Philip Baker. A former hedge fund manager, he was serving a 20-year sentence for fraud. He had used bogus performance data to lure hundreds of people and institutions into his fund. His investors had lost hundreds of millions of dollars.
Mr. Baker, 46 at the time, admitted that he had committed fraud. “I’m a criminal,” he said recently. But he had convinced himself that he deserved to be free. And he was waiting for a letter that might turn his fantasy into reality.
Months earlier, Mr. Baker, who is Canadian, had signed a plea agreement that included an unusual caveat: Prosecutors would not object to the Justice Department’s transferring him to Canada to serve out his sentence.
Such transfers were rare. But Mr. Baker knew that if he could persuade the Justice Department to give him one, Canada would probably parole him after he had served only a fraction of his prison term.
Mr. Baker, a Baptist, prayed for God’s guidance. “Only he could set my direction straight,” he said during one in a series of interviews about his life and crimes.
In the prison’s television room, a guard dispensing the mail called out inmates’ names and numbers.
“Philip Baker, 22856-424.”
Mr. Baker stepped forward. The guard handed him a thin envelope with a Justice Department return address. Assuming it was more paperwork, he tore it open — and could not believe what he saw.
He started to tremble. He felt people staring at him.
“I felt like throwing up,” he said.
After the financial crisis last decade, the federal government was expected to aggressively pursue criminal cases against top financiers: the fund managers, bankers, mortgage lenders and Wall Street executives who helped cause the global economy to crater. But prosecutions have been rare. The exceptions have been obscure or relatively junior industry players against whom it was easy to build cases but who did not bear primary responsibility for the crisis.
One reason: Prosecutors were under pressure to move quickly and to not lose trials. They preferred to take the safest, simplest routes to win convictions, and to then move on to new cases.
That is what happened with Mr. Baker, who became a top target. The government labeled him a fugitive, made him the subject of an international manhunt and, eventually, extradited him from Germany, where he had been living with his wife.
Mr. Baker was not a big fish; his hedge fund had under $1 billion in assets. And even when he was apprehended, a desire to resolve the case swiftly led a powerful United States attorney to insert the transfer-to-Canada clause into an otherwise airtight plea agreement.
His experience highlights one of the primary critiques of the Obama administration’s efforts to clean up Wall Street: Bankers nearly destroyed the global economy, but few went to jail.
This account of Mr. Baker’s long-shot effort to escape to Canada, which has not previously been reported, is based on interviews with him and his family, and with his lawyers, former colleagues and current and former government officials, as well as on thousands of pages of legal documents, internal emails and other records from Mr. Baker’s defunct hedge fund.
Philip Baker was raised in a middle-class family in Toronto. One of his earliest memories took place in the hospital. Born with a heart defect, he needed surgery when he was 7. When it was time for the procedure, his parents walked out of his hospital room.
“I thought they were abandoning me,” he said. That fear stayed with him, fostering a desire to please his parents and other authority figures.
As a boy, he showed an affinity for finance. While his friends played with toy soldiers, he toted a leather briefcase and pretended to be a stockbroker.
But his early years in the financial industry were rocky. After dropping out of Liberty University in Lynchburg, Va., he eventually landed at the brokerage Refco. Colleagues remember an insecure man whose nickname was “Philipbuster,” because of his tendency to talk endlessly.
He married a woman from a wealthy Canadian family, heirs to the Hollinger media fortune. The couple had five children in Windsor, Ontario.
“I was always trying to impress that family,” Mr. Baker said. Hoping to prove that he could succeed as an entrepreneur, he quit Refco to start his own hedge fund.
The fund failed.
Mr. Baker lied to his wife and in-laws that he had found a new job at a big Detroit bank. For several months, he put on a suit and pretended to cross the Detroit River and go to work.
One day, he said, his wife tried to call him at the office. The bank told her that nobody named Philip Baker worked there.
Mr. Baker recalls her words to him that evening, when he came home: “Get out.” The marriage was over. (She declined to be interviewed.)
He holed up in a friend’s basement. One morning, he grabbed a .22-caliber rifle and drove to a forest outside town. He called a former Refco colleague, John Kurgan, and said he was preparing to kill himself.
“Slow down a minute, cowboy,” Mr. Kurgan responded. He told Mr. Baker he had a job prospect for him in Toronto. Then, noting that Mr. Baker had called in on a recorded Refco line, Mr. Kurgan jokingly asked if he could sell the audio of his suicide.
Mr. Baker was infuriated by the comment. But it snapped him out of his suicidal stupor.
What happened next set the stage for Mr. Baker’s later downfall.
According to Mr. Baker and to his plea agreement, he and Mr. Kurgan went into business together. They formed a new commodities-trading hedge fund, Lake Shore Asset Management. Mr. Baker lined up clients, and Mr. Kurgan did much of the trading.
Mr. Kurgan was not charged with wrongdoing. In an interview, he declined to describe his role in the business. “This is something that happened many years ago,” he said.
Mr. Baker set up shop in another basement — this one in his parents’ home, north of Toronto. He raised more than $10 million for the fund. A tiny sum in hedge-fund terms, but enough that Lake Shore was able to start trading in February 2002.
The fund got off to a spectacularly bad start. That summer, a single futures trade lost 48 percent of the fund’s assets. Mr. Baker blamed Mr. Kurgan for the bad trade.
To hide the loss, Lake Shore concocted data that showed a stellar performance. Mr. Baker shared the bogus numbers with current and prospective clients. One marketing brochure cited annual returns of more than 30 percent. Another claimed falsely that the firm had a 14-year investing record.
Mr. Kurgan, now working at Royal Bank of Canada, accused Mr. Baker of “trying to muddy my name” and noted that “the justice system obviously found him guilty.” Mr. Kurgan did not respond to detailed follow-up questions sent to him by email.
Mr. Baker knew he was committing fraud. “I failed to stand up for my clients,” he said, adding that he did not want to betray Mr. Kurgan, whom he credited with preventing his suicide. “I became too loyal.”
The firm attracted hundreds of new clients. Royal Bank of Canada invested millions of dollars, as did EquiGenesis, a Toronto money manager specializing in tax-efficient investing and charitable giving. Lake Shore “created an impression of credibility,” said Kenneth M. Gordon, EquiGenesis’s president.
Lake Shore’s staff grew to more than a dozen traders and salespeople. It opened offices in London and Geneva. Prominent finance executives, including Laurence Rosenberg, the former chairman of the Chicago Mercantile Exchange, joined the board.
Mr. Baker bought bespoke suits. He hired a butler. At a club in Hamburg, Germany, one night, he met Kristina Malychenko, a tall blonde from Kazakhstan. They started dating.
Mr. Baker was earning millions — more than $7 million in the first half of 2007 alone, he said. He felt like he was proving himself. “I chased pride and vanity,” he said. He described himself as being “on the cusp of happiness.”
Lake Shore wanted to enter the American market. It set up a website aimed at investors in United States.
That turned out to be a crucial mistake. A self-regulatory organization, the National Futures Association, started scrutinizing Lake Shore. The group alerted the Commodity Futures Trading Commission to what appeared to be suspicious claims on the website. The commission concluded that Lake Shore had been soliciting American clients without legal authorization.
Mr. Kurgan began to distance himself from the fund. He emailed Mr. Baker: “If, through your kindness, you have listed me as either, director, partner or any other title with any of the Lake Shore entities please remove my name at once.”
As investigators dug in, they realized the fund had been lying about its history and performance.
The problems deepened in August 2007, when the cash-management firm holding Lake Shore’s assets filed for bankruptcy. What little money the firm’s clients had left was now stuck in an insolvent firm.
“I felt like Napoleon being attacked by all sides,” Mr. Baker said.
Lake Shore shipped many of its files and computer hard drives to Geneva. Mr. Baker’s lawyer refused to hand over the materials to the Americans, citing Swiss bank-secrecy laws.
“We invested money in good faith based on representations they made, and then the money vanished,” Mr. Gordon of EquiGenesis said. “It was a disaster.”
The commodities trading commission filed civil fraud charges against Mr. Baker and Lake Shore. A federal judge, persuaded that Mr. Baker was on the run and hiding evidence, referred the case to the local United States attorney’s office for criminal investigation.
F.B.I. agents interviewed Mr. Baker’s Lake Shore colleagues. Mr. Kurgan told them that he had no formal role with Lake Shore and was only its outside broker, an F.B.I. summary of the interview shows.
By the F.B.I.’s tally, Lake Shore’s roughly 700 clients had lost more than $300 million. Investigators believed that Mr. Baker and others at the firm had siphoned off at least $11 million for their personal use.
In February 2009, a grand jury returned a sealed, 27-count indictment accusing Mr. Baker of fraud, embezzlement and obstruction of justice. His colleagues were not charged.
That month, Mr. Baker married Ms. Malychenko in a civil ceremony in Hamburg, where the two were living. He said he did not know that he had been indicted, or even that he was a wanted man. With Lake Shore dead, he said, he was trying to focus on the future. “God had a different plan, and I moved on,” he said.
Investigators, though, were moving in. A few months later, in June 2009, Patrick J. Fitzgerald, the United States attorney in Chicago, unsealed the criminal charges and described Mr. Baker as a “fugitive.” The Justice Department issued an international arrest warrant via Interpol.
Within a few weeks — and just days after Mr. Baker and Ms. Malychenko celebrated their nuptials with a black-tie party at a Hamburg yacht club — a pair of plainclothes German police officers appeared at Mr. Baker’s door. They escorted him to their car. His new wife blew him a kiss.
Mr. Baker was held in a prison near the Hamburg airport. One day, an official from the Canadian Embassy came to visit with a brochure explaining Mr. Baker’s rights as a Canadian citizen. One right he learned about: If he were convicted in the United States, he would be entitled under an international treaty to apply to be transferred to Canada to serve his sentence.
“That’s when I started thinking about how to pull this off,” he said.
In December 2009, after Mr. Baker had spent five months in a German jail, United States marshals flew him to Chicago, where he was booked into the Metropolitan Correctional Center. Months passed as he awaited a trial date, and Mr. Baker learned the prison’s rhythms. The most important thing, he said, was to convince other inmates that he was not a child molester. He told them he was a Wall Street crook.
Prosecutors thought they had a clear-cut case against him. But in April 2010, the court-appointed receiver overseeing Lake Shore’s bankruptcy issued a report that said Mr. Kurgan was a part owner of Lake Shore and its affiliates and had played an official role at the companies. That clouded the prosecution narrative that Mr. Baker had acted on his own.
Clifford C. Histed, the lead prosecutor on the case, summoned Mr. Baker to discuss the report. Mr. Baker argued that it proved he did not deserve to be punished alone. And he said the commodities trading commission was making Lake Shore a scapegoat, flexing its enforcement muscles after failing to prevent other hedge funds from blowing up.
Mr. Histed told him to provide proof.
Mr. Baker, using a computer in the prison library, spent months sifting through electronic documents before presenting his case to Mr. Histed.
The prosecutor did not agree that Mr. Baker was the victim of a government conspiracy. But in Mr. Baker’s final plea agreement, prosecutors said Mr. Baker did have a partner, described as “Individual A,” who had misrepresented Lake Shore’s returns and misappropriated money. “Individual A” refers to Mr. Kurgan, according to a person involved in the investigation who was not authorized to speak publicly about the plea document.
Mr. Baker and his lawyer, Daniel L. Rashbaum, a former prosecutor, were running out of legal options. Then Mr. Baker remembered the Canadian treaty he had learned about in Germany.
Starting in the late 1970s, the United States had entered into a series of treaties that established protocols for cross-border prisoner transfers. One catalyst was the nonfiction book “Midnight Express,” the basis of a 1978 movie, about a young American imprisoned in Turkey.
From 2005 to 2010, the Justice Department rejected 97 percent of all transfer applications, according to a 2011 government report. One reason was that federal prosecutors often opposed transfers on the grounds that prisoners did not serve their full sentences if transferred.
That gave Mr. Rashbaum an idea. If he could get the United States attorney’s office to support a transfer to Canada, perhaps Justice Department officials in Washington would go along with it. And the Canadians, Mr. Rashbaum recalled thinking, were likely to let Mr. Baker out quickly. In that case, the length of his sentence in America wouldn’t matter.
Mr. Rashbaum approached Mr. Histed with a proposal: Mr. Baker would admit guilt and accept a 20-year prison sentence, with no chance for parole, if the prosecutors did not object to him being transferred to Canada.
Mr. Histed said in an interview that he knew the defense hoped the maneuver would result in Mr. Baker’s freedom, but he doubted it would work. And more important, he knew that going to trial would be time-consuming and risky for the government, in part because Mr. Baker could raise questions in front of a jury about why he alone was on trial.
So Mr. Histed agreed to the deal. “What mattered to us was that he be brought to justice in the United States,” he said in an interview.
On Aug. 24, 2011, Mr. Baker was presented a plea agreement to sign. He was nervous; his lawyer was terrified. “The horror of pleading someone to 20 years based on a creative plan scared the living daylights out of me,” Mr. Rashbaum said.
Mr. Baker took a deep breath and signed the document. Mr. Rashbaum walked out to the parking lot and vomited.
The government’s news release announcing Mr. Baker’s plea and sentence did not mention the possibility of a transfer to Canada. Neither did newspaper accounts.
Before Mr. Baker left Chicago to begin serving his sentence, he received a bill from the Justice Department for $154,831,682.32 in restitution. “We strongly urge you to pay this debt immediately,” the bill said. He also received divorce papers from his wife.
Mr. Baker filed his transfer application in April 2012. He knew it was a gamble. He had not paid any of his restitution, and Justice Department guidelines listed unpaid fines as a reason for rejecting such applications. On the other hand, the department had recently been criticized for being stingy in approving international transfers.
Three months later, Mr. Baker stood in the mail-call line and opened the letter that would change his life. “The United States has approved the request for transfer to Canada of the above-named Canadian national,” it read.
Mr. Baker felt dizzy. He scanned the letter again to make sure he had not misread it. Then he walked back to his cell. “I think God really stepped in,” he said.
He had been imprisoned for about three years — five months in Germany, two years in Chicago and seven months at Fort Dix — after being convicted of a single count of fraud. As a result, he would probably be eligible for parole in Canada.
Mr. Histed, the prosecutor, said the speed of the decision surprised him. “If we knew he would immediately have been approved for a transfer, would that have changed our stance?” he said. “Perhaps.”
Mr. Baker’s transfer to Canada still needed the approval of the authorities there.
Vic Toews, the minister for public safety at that time, believed that such transfers posed public-safety risks. He wrote that, because he had lived in Germany, Mr. Baker intended “to abandon Canada as his place of permanent residence.” The application was rejected.
“I always thought the hitch would be with the U.S. government, not the Canadians,” Mr. Baker said. He had convinced himself that freedom was imminent. Now he was marooned in New Jersey.
Coming to terms with the prospect of spending years in prison, he started to teach yoga. He dispensed investing advice to guards. He got a landscaping job on the prison grounds. His monthly pay was $18, a few dollars of which were earmarked to pay down his $155 million debt.
And he began writing about his experience. Not knowing how his tale would end, he finished with a fictional scene in which he was reunited with his father on the shore of a lake where he had sailed as a boy.
Then, after Mr. Baker had spent nearly six years incarcerated in America, Canada elected a new government, and Mr. Baker sensed an opportunity. Perhaps the new administration would have a more positive attitude about prisoner transfers.
He reapplied. And this time, it worked.
On May 10, 2016, another letter arrived, this one from Ottawa. Canada’s public safety minister, it said, “has approved your transfer to Canada.”
Last fall, Mr. Baker rode a bus across the Canadian border to a minimum-security prison. He could cook for himself, and go fishing. Two months later, his case manager called him to ask: “Do you want to go home?”
It was his mother’s birthday. The prison gave him a winter jacket and a bus ticket to Toronto. On the bus, Mr. Baker borrowed a passenger’s cellphone and called his father.
“I’m on a bus!” he exclaimed.
“I started to cry,” his father, William Baker, recalled.
The elder Mr. Baker told his wife that he was taking her to dinner. The place, he said, was a surprise. Instead, he drove to a shopping mall northeast of Toronto. Their son was standing outside an Old Navy store.
Mr. Baker’s release was not announced. His former colleagues, his first wife, the Lake Shore clients who lost money — no one knew he was out.
“I’m sorry he’s out of jail, because that’s where he belongs,” said Mr. Rosenberg, the former Lake Shore director. “He screwed so many people.”
Mr. Baker moved back into his parents’ basement. He set up a small office with some accouterments — a golden pen case, a picture of a yacht — from his Lake Shore days. He interviewed for a job as a financial consultant. He contemplated turning his prison writings into a book.
That was when he discovered he had miscalculated. In prison, he had imagined that if he got to Canada, the authorities in the United States would not pursue him for the $155 million he owed.
But this summer, a lawyer whom he had consulted about a book deal broke the news: The receiver in the Lake Shore bankruptcy could chase him and any money he made, through Canada’s civil courts.
So Mr. Baker is free. But he has no prospect of escaping the shadow of his former life.
“I’m screwed,” he said.