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Chicago Hedge Fund Manager Indicted in Fraud Schem

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CHICAGO (–Edward Thomas Jung, manager of the defunct Strategic Income Fund, was indicted on wire fraud and securities fraud charges last week.

Fifty-five investors lost more than US$21 million in the fund, which employed a stock option investment strategy. According to the U.S. Attorney’s office, Mr. Jung could serve a maximum of five years in prison and be fined US$250,000 or an alternative maximum fine totaling twice the gross loss to any victim or twice the gain to the defendant, whichever is greater.

The U.S. Attorney’s office for the Northern District of Illinois brought the charges (eight counts of wire fraud and two counts of securities fraud) against Mr. Jung last week, and he will be arraigned at a later date in U.S. District Court in Chicago. According to authorities, Mr. Jung was able to raise US$23 million in cash and pledged securities into his fund from July 1994 to September 1998.

According to the indictment, Mr. Jung told investors that the cash and securities would be used to conduct stock options trading on their behalf. But in reality, government officials say, he misappropriated those assets to collateralize his own securities trading and other securities trading unrelated to the Strategic Income Fund, including paying the expenses of his broker-dealer firm ETJ Partners Ltd.

Allegedly, Mr. Jung also misrepresented his trading performance record to prospective investors by distributing written trading track records that inflated the fund’s performance and did not disclose to investors the adverse impact on the fund. The U.S. Attorney’s office also said in its charges that Mr. Jung prepared and filed false reports with the Securities and Exchange Commission about ETJ Partners and its relationship with his hedge fund. The SEC alleges that Mr. Jung reported ETJ owned all the securities in its accounts and didn’t carry any customer accounts, while Mr. Jung knew that most of the securities belonged to the fund and its investors.

Other Actions

The SEC revoked Mr. Jung’s broker/dealer license last March, after issuing a permanent injunction against him. The agency barred Mr. Jung from associating with any broker, dealer or investment adviser in addition to revoking the broker/dealer registration of his firm Thomas Jung Partners Ltd.

A lawsuit, filed in June 2001 in U.S. District Court for the Northern District Court of Illinois, alleged that Mr. Jung solicited investors for his Strategic Income Fund with false performance reports and deposited their money as collateral for his own personal margin trading and to pay for his broker/dealer’s expenses. That lawsuit at that time was to issue civil penalties against Mr. Jung.

A judgment was made against Mr. Jung on March 14, 2002 giving authorities the power to immediately prosecute in court any future violations of the antifraud provision of the federal securities laws. Mr. Jung and his firm ETJ Partners entered into the judgment without admitting or denying the allegations in the SEC’s complaint.

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