Dude, where's my life savings?
West Palm hedge firm closes, leaving clients wondering
By David Sedore
Palm Beach Post Staff Writer
Tuesday, March 01, 2005
WEST PALM BEACH — The telephones could be heard ringing and ringing Monday from outside the offices of KL Financial Services, but there was no one there to answer.
KL Financial, a hedge fund manager that catered to wealthy investors and held as much as $300 million of clients' money, unexpectedly closed after visits from investigators with the Securities and Exchange Commission and FBI on Friday and Monday, according to sources familiar with the investment firm.
"My life savings are essentially gone," said one KL Financial client who asked not to be identified.
When contacted Monday, law enforcement officials were tight-lipped about the hedge fund firm.
"My official response is no comment," said Carlos Castillo of the U.S. attorney's office in Miami. Calls to the SEC were not returned.
In October, KL Financial moved its 2-year-old local office from North Palm Beach to the entire 17th-floor of the Esperante building in downtown West Palm Beach. As a hedge fund manager, the firm specialized in making high-risk, high-reward investments for its rich clients. The business started in Irvine, Calif., eight years ago, according to those familiar with the firm.
There's little paper trail on the company, mainly because as a hedge fund it falls outside the purview of state and federal securities regulators. John Kim and Won S. Lee are listed as principals of the firm, according to a document filed with the state. One of the principals is believed to have recently left the country.
By all accounts Monday, what was emerging from interviews and a visit to the company's offices was that something went awry at KL Financial, and now investors want to know what happened to their money.
Boca Raton lawyer Gary Klein said his clients who had invested with KL Financial collectively lost about $10 million. It's unclear exactly what happened but his clients' records offer a few clues, Klein said.
The attorney said the hedge fund firm was engaged in margin trading, which means it was borrowing against the value of its investments to cover the cost of buying more securities. "They were clearly margined to the hilt," Klein said.
One customer who had money invested with the company for two years said KL Financial reported annual investment returns of 67 percent and 40 percent the last two years.
"And those were its two worst years," the customer said. "It seems too good to be true, and it was."
He said each quarter he received a statement showing profits and a check.
The hedge fund manager mostly found its clients by word-of-mouth. West Palm Beach attorney Ronald Kochman, one of the firm's clients, recommended the hedge fund to friends and legal clients.
"I don't know a lot," said a somber Kochman, whose legal office is also in the Esperante building. "Most important, my thoughts are with the numerous innocent victims. I've lost all the money I have in the world. I'm sure the SEC and the FBI will catch those responsible."
On Monday afternoon, after a locksmith finished his work on the door to KL Financial's offices, two of the firm's traders came with the hope of picking up personal belongings. They said they didn't know what had happened to their employer. An official with the firm emerged from an office marked private but declined to answer a reporter's questions.
"We were told not to show up for work," one of the traders said as he left. "So, here we are."
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