Tuesday, 22 July 2014
Last updated 2 hours ago
Mar 15 2010 | 1:09pm ET
The Securities and Exchange Commission has filed suit against yet another hedge fund manager it says ran a Ponzi scheme.
In a complaint filed in Houston, the regulator said Stephen Kim defrauded investors of some $4.7 million. Kim’s Spyglass Management told clients it would invest in collateralized mortgage obligations using a “dynamic hedging strategy,” as Kim, a former day trader, was betting on rising interest rates. But the strategy proved a disaster, the SEC said, quickly losing $2.3 million on “highly-leveraged repurchase agreements,” leading Kim to go the Ponzi scheme route.
“In offering materials and personal sales pitches for the fund, Kim portrayed himself as a successful businessman who had gained significant personal wealth through securities trading,” the SEC alleged. “In reality, Kim was simply a day-trader who lost money.”
The Houston-based Kim sold investors all sorts of lies, according to the SEC. He falsified forms and lied to the Internal Revenue Service in 2004, a year before he turned Spyglass into a Ponzi scheme. He also allegedly lied about his background, including his education, and failed to mention that he had been fired from a brokerage firm for unauthorized trading.
Desperate to turn things around, Kim turned to other business ventures, according to the SEC. But the regulator said that led only to further lies.
“In November 2006, after the investors because aware of Kim’s other business ventures and the dearth of information concerning the fund, Kim had Spyglass Management produce a false statement valuing the fund at $1.9 million, when in reality the fund only had approximately $1,000.”
The complaint alleges Kim wasn’t just sending investor money to former investors—he was keeping some for himself. “Kim misappropriated approximately $1.5 million of the fund’s remaining assets to repay several outstanding personal obligations,” the SEC said.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…