July 24, 2005

KL hedge fund case: some findings

There has been a lot of development since SEC ordered the closure of West Palm Beach-based KL Hedge Fund group on March 1st 2005.  KL has been charged of violating laws and defrauding investors. About 230 investors have put in money close to $150 million into six hedge funds since 1999. KL group’s partners, Won Sok Lee, John Kim and Yung Bae Kim, have lost all of it is trading or spent it on building assets for themselves and on their personal spending. When the KLs trading records were scrutinized, it was found that they had made massive losses from the very beginning by ‘short-selling’. The value of stocks usually rose leading to losses which they again tried to make up by gambling more and ended up loosing more money. Firms investigating the group’s spendings are attempting to review all the bank accounts where they feel that the group has put the investor’s money. They also believe that there may be several more accounts of this type and also expect ‘Third-party’ liability as it is difficult to pull off a fraud of this proportion by themselves. Just to give an idea, the last known mega loss made by any hedge fund was $59 million by Maricopa Investment Funds of Naples. MSN.com reports:

“There also are indications money put in by second waves of investors were used to pay original investors what they thought were profits, Lewis said. A review of KL trading shows there were "massive losses," almost from the start and "short-selling on a massive scale"

Read More: Condo, jewelry, Maserati, Porsche recovered in KL hedge fund case .

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