High time to regulate Hedge funds
Hedge funds accused of fraud
Restraining order issued against firm
By Alexandra Navarro Clifton
Business Writer
Posted March 4 2005
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A West Palm Beach hedge firm and its advisers lost nearly all of the $81 million it raised from at least 250 investors, including some from Palm Beach County, according to an emergency restraining order issued Thursday by a federal judge.
KL Group LLC and a number of its funds, including KL Financial Group Florida LLC, stopped trading and closed its offices earlier this week after the Securities and Exchange Commission and FBI officials began investigating the firm. The SEC filed a lawsuit against the fund claiming it defrauded investors, and U.S. District Court Judge Kenneth Ryskamp of West Palm Beach issued the temporary order Thursday.
The complaint also named the funds' principals Won Sok Lee, 34, of Singer Island, John Kim of Jupiter and Yung Bae Kim, 34, of Irvine, Calif., as well as a number of related hedge funds run by one or more of the defendants. The SEC does not know where Lee and Yung Bae Kim are, according to the complaint.
At his Jupiter home, a woman who answered the telephone said John Kim "had nothing to say."
The complaint alleges that since 1999, when the fund was founded in California, it raised more than $81 million and claimed high returns by trading in aggressive growth stocks. But investors were sent false statements on at least one hedge fund that was actually suffering massive losses, and only about $11 million of the original $81 million remains, according to the complaint.
Boca Raton attorney Gary Klein represents 30 investors who collectively lost about $30 million. Klein said many of his clients lost all or nearly all of their retirement investments and thinks losses will ultimately be much higher.
"It's a good start, but I think the numbers are low," said Klein. "I'm sure the next couple of months will reveal higher losses."
Hedge funds and their managers are not regulated and offer high-risk investments in exchange for high returns. They're aimed at wealthy and sophisticated investors.
According to the complaint, KL Financial documents claimed the fund had annualized returns of up to 150 percent. The defendants named in the complaint also earned substantial fees of 20 percent of the funds' reported profits.
David Nelson, the SEC regional director in Miami said the next step takes the case on two tracks. The SEC will continue to pursue a lawsuit against KL Financial and the defendants while court-appointed receiver Guy Lewis takes over the company and begins an internal investigation. Lewis, a former U.S. attorney in Miami, may find higher losses, additional assets or identify additional defendants, said Nelson.
"This was a company based on lies," said Nelson. "It's not the biggest fraud I've seen in my 12 years, but it's definitely in the top 5."
Alex Clifton can be reached at anclifton@sun-sentinel.com or 561-243-6529.
posted by jagadish @ 5:23 PM
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