Heinous Hedge Fund Fraud

April 27, 2011 James Heinsman Hedge Fund News

Diamonds Not Kim’s Best Friend

The Diamond Lake Investment Group hedge fund venture was launched by Dow Kim in 2007, following a two year stint at Merrill Lynch. But Kim doesn’t have much to smile about today. He was recently sued for the fund for more than $2 million in compensation, accused of having promised this amount to Namuk Cho – who used to be head of US derivatives trading at UBS AG (UBSN) – in 2007. Mere “days after demanding the money,” Cho was terminated.

A year after launching the company, Kim saw that he wouldn’t be able to raise enough money for wages and contract implementation. He was also sued by his managing director and general counsel, Karl Wachter, for compensation. Apparently, “Cho insisted that his $2 million minimum compensation be unconditional and not subject to the launch of Kim’s investment funds.”

There is another case due in two days’ time. Michael Pasternak claimed that he didn’t take a job at Morgan Stanley “based on representations that Kim made and took a job with Diamond Lake.” He’s now claiming $6 million of damages. The greed in these cases is nothing short of heinous.

Kimura Fraud

There hasn’t been such innocent play at Morgan Stanley recently either. Indeed, Ryan Kimura, previously employed at Morgan Stanley Dean Witter, just today “pled guilty” to one count each of: “wire fraud, bank fraud, filing a false federal tax return and money laundering.” Kimura is being accused of encouraging some of his wife’s family “to deposit more than $2.1 million in accounts with the bank by making false and fraudulent representations and omitting facts.”

Members of his wife’s family “unknowingly applied for and received MSDW checks,” which Kimura then used without them knowing. A Japanese company Kimura’s father-in-law owns also received deposits which Kimura then used to make “stock trades with the company’s funds resulting in losses of approximately $360,000, while receiving a commission for each and manufacturing reports of interest allegedly earned.”

All in all Kimura embezzled $1.5 million by forging over 200 signatures on checks and “using the Japanese company’s funds without permission.” Kimura thus owes $1.5 million in restitution to MSDW. According to expert on the case IRS special agent Marcus Williams, “cheating on your income taxes harms us all because most Americans benefit greatly from services made possible by taxpayer money.” As well, US attorney Nakakuni insisted that they will “vigorously investigate financial crimes and ensure that those who commit them are made to pay the price—by serving long sentences and making restitution to taxpayers, as well as victims.”

Now Kimura is looking at decades of sentencing for all his fraud with possible millions of dollar worth of fraud fines. Clearly these two cases are indicative of how success can lead to greed but that ultimately it doesn’t pay. There are too many checks and balances in place for greedy executives to get away with this behavior.

Diamond Lake Investment Group hedge fund venture, Dow Kim, IRS, Marcus Williams, Morgan Stanley Dean Witter,

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