September 17, 09

NEWS / Last of Hedge Fund Advisors Pleads Guilty in $194 Million Hedge Fund Collapse

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 Division, and J. Thomas Cardwell, Commissioner, State of Florida, Office of Financial Regulation, announced that defendant Won Sok Lee, 39, an attorney, formerly of Riviera Beach (Singer Island), Florida, and Irvine, California, pled guilty this afternoon to two felony counts in connection with the operation of a hedge fund formerly run by the KL Group LLC in Florida and California, Case No. 06-80197-Cr-Ryskamp.

Sentencing has been scheduled for December 11, 2009 at 1:30 p.m. before U.S. District Court Judge Kenneth L. Ryskamp in West Palm Beach federal court. Lee faces a statutory maximum term of imprisonment of twenty-five years, a fine of $500,000, and restitution to the victims of the massive fraud. Lee pled guilty to one count of conspiracy to commit mail fraud and wire fraud, in violation of Title 18, U.S.C.§ 371 (Count 1, which carris a five-year maximum penalty) and one count of wire fraud, in violation of Title 18, U.S.C. §1343 (Count 2, which carries a 20-year maximum penalty).

In December 2006, defendants Won Lee, John Kim, and his brother, Yung Bae Kim were charged in a 35-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.

Acting U.S. Attorney Jeffrey H. Sloman remarked, “This plea is one of the final steps in a multi-year journey to bring to justice financial professionals who breached the trust placed in them by investors. The U.S. Attorney’s Office will continue to work with the State of Florida and its law enforcement partners to help restore the integrity of our private financial markets.”

Mr. Sloman commended the Federal Bureau of Investigation and the State of Florida’s Office of Financial Regulation for their tireless efforts on this matter. The case is being handled by Assistant U.S. Attorneys Stephen Carlton and Edward Nucci

http://miami.fbi.gov/dojpressrel/pressrel09/mm091609.htm

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