Brian Kim '97, founder and chief investment officer of the investment firm Liquid Capital Management, was indicted on Feb. 15 for running a Ponzi scheme that led to the theft of $4 million and involved at least 45 investors, according to a press release from Manhattan District Attorney Cyrus Vance, Jr.
Kim was charged with 26 felony counts, including grand larceny in the first and second degrees, scheme to defraud, falsifying business records in the first degree and violations of New York's securities fraud statute. Grand larceny in the first degree a Class B felony is punishable by up to 25 years in prison, according to the press release.
Kim, a fugitive, "is overseas and will not return to the [United States]," a spokesperson at the New York County District Attorney's Office said in an e-mail to The Dartmouth. Kim failed to appear in a New York State Supreme Court Trial on Jan. 4 for separate charges of grand larceny and forgery. He had been accused of stealing $430,000 in June 2008 from the condominium complex where he resided, according to the release.
The District Attorney's office does not have Kim's defense attorney information, as he has not been apprehended, processed and arraigned, the spokesperson said.
Kim began operating the scheme in January 2003, according to the release.
"The defendant induced his clients to make risky and speculative investments by portraying himself as an accomplished trader and money manager," Vance said in the release. "This is just the latest example of our need for stronger legislation to prosecute these types of financial crimes, including a strengthened Martin Act, which will help deter fraudulent conduct and protect investor trust."
Kim who began developing Liquid Capital Management's investment strategies in 2002 assured investors that his securities were consistently profitable while diverting large sums of money to himself and concealing his scheme with fake monthly performance statements. These statements, sent to investors, contained fake account balances and inflated gains that covered up his trading losses, according to the release.
The United States Commodity Futures Trading Commission filed a separate lawsuit against Kim and Liquid Capital Management on Feb. 15 for the fraudulent solicitation of $2.1 million, according to a press release on the Commission's website. Liquid Capital Management lost over $293,000 during 2010, the release said.
Kim, who worked as a CNBC derivatives expert in December 2009, spent more than $800,000 of investors' money on purchases at luxury retailers including Barney's New York and Coach. Kim also indulged in trips to Vermont and Atlantic City, N.J., according to a complaint filed by the United States Commodity Futures Trading Commission in the case.
Kim majored in economics and minored in art history at Dartmouth, according to The Aegis. Kim worked for The Dartmouth and participated in the Entrepreneurship Society Finance Club and Japan Society, according to his self-reported accomplishments published in the 1997 yearbook. Kim also fenced for the College, The Dartmouth previously reported.
Economics professor David Blanchflower said a Ponzi scheme is "the classic scam" in which an investment company pays off rates of return to investors using money loaned by another set of investors.
"People very often think that they're going to make a fortune and it's all too good to be true and it usually is," Blanchflower said. "It's often people who are economically nave or they see something seemingly great at the end of the rainbow. They don't realize that the returns aren't real."
Many Ponzi schemes have been discovered as a result of the recent economic downturn, Blanchflower said.
"Things are absolutely fine when the markets are booming," Blanchflower said. "Then Ponzi schemes turn as you go into downturns."
