The former manager of a hedge fund shut down by a federal judge pleaded guilty Tuesday to a fraud scheme that cost dozens of investors more than $10 million.

John W. Lawton, 34, pleaded guilty in U.S. District Court in St. Paul to a count of mail fraud and a count of making a false statement.

Lawton, the manager of Paramount Partners LLP and the majority owner of Crossroad Capital Management, had been facing seven counts. Paramount Partners, the hedge fund, had been based in Wayzata until Lawton moved to San Francisco late last year. He also was sued by 14 clients seeking to recoup $2.4 million.

In a plea agreement, Lawton admitted to inducing dozens of people to invest millions in Paramount Partners as well as to knowingly overstating the hedge fund's assets and gains while understating its losses, according to a statement from the U.S. attorney's office.

Lawton aided the scheme with fact sheets that falsely represented its performance and situation, the U.S. attorney's office said. He also created fraudulent monthly statements for investors that showed increases in the investment value and was responsible for having them sent in the U.S. mail.

Paramount fraudulently received more than $10 million between January 2006 and February 2009 because of Lawton's criminal activity, according to the plea agreement.

Lawton faces up to 20 years in federal prison on the mail fraud count and five years on the false statement count.

He will be sentenced later by U.S. District Judge Paul Magnuson.

Vince Tuss • 612-673-7692