Hedge Fund Advisor Sentenced in $194 Million Hedge Fund Collapse
|U.S. Attorney’s Office December 11, 2009|
Jeffrey H. Sloman, Acting United States Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office; and J. Thomas Cardwell, Commissioner, State of Florida’s Office of Financial Regulation, announced that defendant Won Sok Lee, formerly of Singer Island, FL, was sentenced today by U.S. District Judge Kenneth Ryskamp on wire fraud charges for his participation in a massive hedge fund fraud scheme. Lee was sentenced today to 298 months in prison (60 months on Count 1; 238 months on Count 2), to be followed by three years of supervised release. In addition, he was ordered to pay $78,525,567.34 in restitution.
In December 2006, Won Sok Lee, Jung Kim, and Yung Bae Kim were indicted on charges that they orchestrated a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially in California and later in Palm Beach County.
According to the Indictment, documents filed with the court, and statements made during the plea hearings, the defendants used quarterly mailings and website postings to misrepresent to investors that the KL Financial Group was a hugely successful family of hedge funds. In fact, however, the KL funds lost millions of dollars, and, in Ponzi scheme fashion, used new investors’ monies to make payments owed to previous investors. From 2000 through 2005, KL received approximately $194 million in investor funds.
Also charged in the Indictment were three hedge fund advisor companies that were owned and controlled by the individual defendants: KL Group, LLC, KL Triangulum Management, LLC, and Shoreland Trading, LLC. The companies pled guilty in July 2007 to participating in the investment fraud conspiracy. They were sentenced and were ordered to pay restitution in the amount of $78,525,567.34. The corporations were placed on probation and a court appointed receiver continues to marshal assets for partial restitution to the defrauded investors. As well, defendants John Kim and Yung Kim pled guilty to their involvement in the fraud, and were sentenced on July 17, 2008 to 220 months in prison and 75 months in prison, respectively.
Defendant Won Lee remained a fugitive from December 2006 until early 2009. In 2009, federal authorities located Won Lee in South Korea. He was extradited to South Florida in April 2009 to face the federal charges pending against him. Won Lee admitted lying to investors to induce them to invest in the hedge funds and to keep their monies invested or to reinvest in different hedge funds. The misrepresentations included false statements about the soundness and performance of particular funds. Victims were told that the funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to perpetrate and conceal the scheme.
In addition, Lee admitted lying to a clearing house about the origin of monies used to buy and sell stocks cleared through Penson, a Texas-based clearing firm. Lee also admitted to creating fictitious stock trading sheets, which were used to show a one-day profit of $22 million in a stock known as RIMM, the company that manufactures the popular “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitable trades being conducted by the KL hedge funds.
Special Agent in Charge John V. Gillies stated, “Even the most sophisticated investors have to be vigilant when choosing where to invest their hard earned money. It is very easy to create fraudulent documents and investors must not take them at face value. This case demonstrates the global nature of FBI investigations and the outstanding cooperation we have with our many partners around the world.”
Mr. Sloman commended the investigative efforts of the Federal Bureau of Investigation and the State of Florida’s Office of Financial Regulation. The case is being prosecuted by Assistant U.S. Attorneys Stephen Carlton and Edward Nucci.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the United States District Court for the Southern District of Florida at www.flsd.uscourts.gov or http://pacer.flsd.uscourts.gov.