KL Financial scammer gets prison — and more prison

By David Sedore, Palm Beach Business.com

WEST PALM BEACH — The last defendant in the $200 million KL Financial hedge fund scam will be spending the better part of the next few decades behind bars.

Federal Judge Keenneth Ryskamp on Monday sentenced Won Sok Lee, formerly of Riviera Beach, to 2i98 months in prison after Lee pleaded guilty to wire fraud charges for his role in KL, a supposedly high-flying hedge fund that attracted investment dollars from some of Palm Beach’s richest. KL collapsed nearly five years ago.

Lee, a graduate of Tulane Law School also was sentenced to 3 years of supervised release after serving his prison sentence, and he must pay $78.5 million 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.

Lee, along with the Kim brothers, started KL in the late 1990s, operating out of California. In 2003, the hedge fund moved to North Palm Beach and began attracting some of Palm Beach’s richest residents as clients. They later leased the 17th floor of the Esperante building in West Palm Beach, some of the most prestigious commercial real estate in the county.

In early 2005, the SEC examined the books of KL’s stock brokerage, Shoreland Trading, and found massive losses that caused the agency to investigate KL itself.

KL, according to  court records and the defendants themselves, was nothing more than a Ponzi scheme that took investors for $194 million by claiming that it had an insight into the market that would provide annual returns of 100 percent or more.

Victims were told that KL’s various funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to conduct and conceal the scheme.

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 Research in Motion, the company that manufactures the “Blackberry” device. The Research in Motion trade, however, never took place, and the fictitious stock trading sheets were used to show investors KL’s trading savvy.

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