Friday, October 2, 2009

Fugitive Attorney Pleads Guilty

An attorney who was the final defendant is a $194 million hedge fund fraud has pleaded guilty in connection with a scheme that defrauded some 250 investors.

According to the Department of Justice:

In December 2006, defendants Won Lee, John Kim, and his brother, Yung Bae Kim were charged in a thirty-five count Indictment for their participation in 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. 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 2007 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. In pleading guilty today, Won Lee signed a detailed factual proffer, which was filed with the court, in which he 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. For example, 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.

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