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Promises, Promises

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From their nearly 11,000 square feet of luxury office space in downtown West Palm Beach, the principals of the KL Group hedge fund had a panoramic view of the mansion-studded island from which they could draw well-heeled clients.

Principals Won Sok Lee, John Kim and Yung Bae Kim made appearances count. Clients who visited their 17th floor office in the swanky Esperante building saw a $47,000-a-month office suite furnished in $13,000 designer couches and $30,000 executive desks. The office even included its own trading floor, from which the principals made the magic that was supposed to have yielded returns of up to 150% a year.

KEY PLAYER: Key player: Won Sok Lee was a principal of KL Group hedge fund.It was all very "feng shui," says David Rosemberg, an associate in the Miami law firm of Lewis Tein, which is working as the SEC-appointed receiver in the case of the now-defunct fund.

The island's residents took the bait. They poured millions into the KL Group's fund, lured by the prospects of returns available only to investors with a minimum net worth of $1.5 million.

The scheme, of course, proved too good to be true: A Justice Department and SEC investigation into KL indicates that investors may have lost as much as $200 million. "I've heard stories from people who lost everything," Rosemberg says.

Now the receiver and a handful of private lawyers are left trying to pick up the pieces. As of early September, authorities had not yet located Lee or Yung Bae Kim. Kim's brother, John Kim of Jupiter, reportedly made a deal to cooperate with the investigation.

According to the complaint filed by the SEC, the business produced false and inflated quarterly account statements and forged trading reports that were purportedly produced by outside clearing firms. "The defendants have lost most of the investors' money apparently through disastrous trading," the complaint says.

At least $20 million, Rosemberg says was diverted to the principals' private use. Most of it is presumed to be gone. Though Rosemberg says a number of third-party lawsuits are forthcoming, lawyers for some of the investors were not overly optimistic about recovery prospects.

Adam Rabin of Dimond, Kaplan & Rothstein in West Palm Beach, which represents one investor who does not want to be identified, says the business appears to have been tightly controlled by the principals without any other "deep-pocket" professionals "aiding and abetting" the fraud.

"The big concern is there's nobody to sue," Rabin says.