Last defendant pleads in KL Financial scam

By David Sedore, Palm Beach Business.com

WEST PALM BEACH — The last of defendant in the massive KL Financial hedge fund scam that shook Palm Beach four years ago pleaded guilty to conspiracy to commit mail and wire fraud Thursday in federal district court.

Won Sok Lee, 39, formerly of Riviera Beach, faces a maximum of 25 years in prison, a $500,000 fine and restitution after entering his plea. He is scheduled to be sentenced by Judge Kenneth Ryskamp on Dec. 11.

“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,” acting U.S. Attorney Jeffrey H. Sloman said.

Lee, a Tulane University Law School graduate, was one of three partners who ran KL from opulent trading offices on the 17th floor of the Esperante Building in West Palm Beach. Lee and brothers John and Yung Bae Kim, used those offices to lure many of Palm Beach’s richest, and in some cases, most business-savvy residents, where they took them for as much as $200 million. The scheme collapsed in early 2005 when the FBI and Securities and Exchange Commission swept through KL’s offices.

A federal grand jury indicted Lee and the Kims on 35 counts of fraud in December 2006.

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 classic Ponzi-scheme- fashion, used new investors’ money to make payments owed to previous investors. From 2000 through 2005, KL took in about $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 pleaded guilty in July 2007 to participating in the investment fraud conspiracy and were ordered to pay restitution in the amount of $78.5 million. John Kim and Yung Kim pleaded guilty and  received sentences of  to 220 months in prison and 75 months in prison, respectively.

Lee remained a fugitive from December 2007 until early 2009, when 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.

As part of his guilty plea, Lee signed a detailed statement in which he admitted lying to investors to convince them to pour their money into the KL funds. He also admitted to counterfeiting clearing firm statements that were used to show KL as hugely profitable when it fact it was hemorrhaging cash.

Lee said KL created fictitious stock trading sheets, which were used to show the firm making $22 in one day trading shares of Research in Motion, the Canadian firm that makes “Blackberry” phones and PDAs. The RIMM trade, however, never took place, and the bogus trading sheets were used to create the illusion of a hugely profitable KL that never existed.