Hedge fund guy bites the dust

Discussion in 'Trading' started by Don Bright, May 26, 2005.

  1. Ex-trader gets 9-year term, will appeal

    Bloomberg News
    Published May 26, 2005

    A former Chicago Board Options Exchange trader on Wednesday was sentenced to
    more than nine years in prison and ordered to pay $21 million in restitution
    for using money and securities from investors to subsidize his trading and

    Edward Thomas Jung was convicted of fraud in February 2004 for falsely
    promising to invest his hedge fund customers' money in stock options.

    The 60-year-old Jung was sentenced by U.S. District Judge Milton Shadur to
    109 months in prison and ordered to repay as many as 60 investors, said
    Assistant U.S. Atty. Ed Kohler in Chicago.

    Gregory Adamski, Jung's attorney, said his client was appealing his
    conviction. Jung's investors were told that he was making trades
    collateralized with their assets, and they could lose money, said Adamski.

    "Jung didn't do a good job of trading," Adamski said. "His position is that
    everything he did was fully disclosed and upfront, and that he has no
    criminal liability."

    Jung was indicted on securities and mail fraud charges in February 2003 as
    the Securities and Exchange Commission increased scrutiny of hedge funds,
    loosely regulated private investment pools generally open to wealthy
    individuals and institutional investors.

    "The length of the sentence is appropriate for the crime and should send a
    message to the investment community," Kohler said.

    Steve Fanady

    Before the
    Release No. 45669 / March 28, 2002
    Release No. 2025 / March 28, 2002

    File No. 3-10745


    In the Matter of

    and E. THOMAS JUNG
    PARTNERS, LTD., also d/b/a



    ACT OF 1934 AND SECTION 203(f) OF THE


    The Securities and Exchange Commission ("Commission") deems it appropriate in the public interest that public administrative proceedings be instituted against Edward Thomas Jung ("Jung") and E. Thomas Jung Partners, Ltd., also doing business as ETJ Partners, Ltd. ("ETJ Partners"), pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") and, as to Jung, Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act").


    In anticipation of the institution of these administrative proceedings, Jung and ETJ Partners have submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except as to the Commission's jurisdiction over them and the matters set forth herein, and except as to the Commission's findings set forth in Paragraphs III.A, III.B and III.D, which are admitted, Jung and ETJ Partners consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions ("Order").

    Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 15(b) of the Exchange Act and, as to Jung only, 203(f) of the Advisers Act be, and hereby are, instituted.


    On the basis of this Order and Jung and ETJ Partner's Offer, the Commission finds that:

    A. Jung is a resident of Chicago, Illinois and, from 1986 to the present, was associated with, owned and controlled ETJ Partners, a broker-dealer registered with the Commission. From July 1994 until October 1998, Jung acted as an investment adviser in that among other things, he, for compensation, acted as manager of a private, unregistered hedge fund known as Strategic Income Fund, L.L.C ("the Fund"), advised it as to which securities it would invest in.

    B. ETJ Partners is a broker-dealer registered with the Commission from 1986 to the present. ETJ Partners originally registered with the Commission as E. Thomas Jung Partners, Ltd., but filed an amendment to its Form BD in 1995, changing its name to ETJ Partners, Ltd. ETJ Partners traded on the Chicago Board Options Exchange and was a market-maker there.

    C. On June 19, 2001, the Commission filed a Complaint ("Complaint") against Jung and ETJ Partners in SEC v. Edward Thomas Jung and E. Thomas Jung Partners, Ltd., also d/b/a ETJ Partners, Ltd., Case No. 01-C-4645 in the United States District Court for the Northern District of Illinois. The Complaint alleged that Jung, individually and acting through his broker-dealer, ETJ Partners, engaged in a scheme to defraud investors in the Fund. Beginning in July 1994 and continuing to February 1998, Jung was responsible for issuing a series of false performance reports used to solicit investors for the Fund that materially overstated his prior trading record and that of the Fund. In addition, from January 1995 to September 1998, while falsely stating that investor assets would be used solely to conduct the Fund's business and to collateralize trading on behalf of the Fund, Jung, acting through ETJ Partners, placed the Fund's assets in ETJ Partners' account and used the Fund's assets to pay the expenses of running ETJ Partners and to collateralize his own personal margin trading. Jung's personal trading resulted in substantial losses and, in September 1998, ETJ Partners' clearing firm seized control of the account and liquidated the Fund's assets to cover ETJ Partners' margin call. This misappropriation by Jung and ETJ Partners resulted in the loss of more than $21 million invested by 60 investors. Throughout this period, Jung also sent false quarterly statements to the Fund's investors that materially overstated the current value of their investment in order to lull them into a false sense of security.

    D. On March 14, 2002, the United States District Court for the Northern District of Illinois entered a Judgment of Permanent Injunction And Other Relief As To Edward Thomas Jung and E. Thomas Jung Partners, Ltd., pursuant to their consent and without admitting or denying the allegations of the Complaint, enjoining: Jung and ETJ Partners from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder; ETJ Partners from violating, and Jung from aiding and abetting violations of, Section 15(c)(1) of the Exchange Act and Rule 15c1-2 promulgated thereunder; and Jung from violating Sections 206(1) and 206(2) of Advisers Act.


    Based on the foregoing, it is in the public interest to impose the sanctions specified in the Offer submitted by Jung and ETJ Partners.

    Accordingly, IT IS HEREBY ORDERED that:

    A. Edward Thomas Jung be, and hereby is, barred from association with any broker or dealer or investment adviser.

    B. The registration of E. Thomas Jung Partners, Ltd., also doing business as ETJ Partners, Ltd., as a broker-dealer registered with the Commission be, and hereby is, revoked.

    By the Commission.

    Jonathan G. Katz


    Making an appeal because, "...everything he did was fully disclosed and upfront... no criminal liability"...!!

    Well, with 9 years (less time off for good behavior), and $21M to repay, maybe he can sell some of his former investors on backing a continuous In-House Convicts-Only No-Hold'Em Poker Tournament, with episodes to be shown exclusively on ESPN2 - beginning after the airing of next year's Texas Prison Rodeo Finals (some really bad boys biting the dust)...

    Jung, you can hedge your penitentiary poker bets, but, no cheatin', now - 'ya hear?
  3. It seems they are getting really serious this time, by sending just only One into prison, and telling the Others that's a message. :confused:
  4. this thread should be headed "hedge fund CRIMINAL bites the dust". this guy is a con man, pure and simple.
  5. man


    agreed. i always wonder how easily you can do things of that kind within a weak structure. a serious administrator, prime broker, bla bla bla would be reluctant to do so. sure you find a shop that accepts every transfer of risks between accounts, but i think it is not that easy with the big names. too much reputational risk for them. remember "manhattan"?

    nevertheless. 60 yr old guy going behind for years ... that is a message.
  6. bkk

    bkk Guest

    why is it that the people who complain the most about hedge funds are the ones that don't even make enough to invest in one?

    i think financial journalists who criticize hedge funds are disgusting. their newspapers are obviously supported by mutual fund advertising, and they themselves can't afford to invest.

    shouldn't it be the customers complaining vs the people who don't even qualify?
  7. Banjo


  8. Nice commentary -- and remember that those not in the hedge fund business who post such articles or spread rumors have a vested interest in doing so...