Two ethnic Korean fraudsters used a morning radiobroadcast to encourage investors from California’s Korean community to invest $4.5m through phantom securities firms operated by the men, US regulators charged on Wednesday.
The case is the latest example of what the Securities and Exchange Commission calls “affinity scams”, where the victims – and often the perpetrators - are members of a specific ethnic or religious group.
The SEC accused Hyun Soo Jang and Kangsam Kim of controlling two securities firms that they held out as legitimate, regulated securities businesses.
Between 2003 and 2005, the men attracted investors by broadcasting morning stock reports hosted by the men and aired on Korean-language stations.
After being contacted by would-be investors, Mr Jang and Mr Kim “did not use investor funds to purchase securities as promised”, an SEC complaint alleged.
The SEC alleged the two misrepresented PeopleN Investment Corp, Mr Jang’s San Francisco-based brokerage firm, as a broker registered with the New York Stock Exchange.
Both men were also accused of holding out Unus Capital Management, Mr Kim’s Los Angeles-based investment advisory firm, as a legitimate business even after the firm had withdrawn its registration with the California Department of Corporations. Mr Jang is a naturalised US citizen whose whereabouts are unknown. Mr Kim is a Korean citizen believed still to be in California.
The SEC says that, because of the “tight-knit structure” of many ethnic groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam.
“Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment,” the SEC says in a briefing on affinity scams on its website.
Randall Lee, director of the SEC’s pacific regional office in Los Angeles, said the Korean case provided “an unfortunate example of the dangers presented by those seeking to exploit the trust of members of their own community. Such schemes are reprehensible, and the SEC is committed to vigorously prosecuting those who betray that trust for their own profit.”