Golfers stung as hedge fund collapses

THREE well-known professional golfers are among the super-rich victims of losses at a Palm Beach hedge fund that has collapsed amid accusations of massive fraud.

Investigators from the FBI, the US Department of Justice and the Securities and Exchange Commission have descended on the millionaires' resort to find out what happened to the $200m-$300m (£104m-£157m) assets KL Financial Group was managing.

One of the fund's partners, Ron Kochman, a Palm Beach lawyer who steered clients to the fund and invested himself, said: 'I'm going through a very tough time. My clients and I have lost everything.'

Gary Klein, a Boca Raton attorney who represents 20 KL investors with $15m to $20m in the fund, said: 'A lot of people in this town lost serious money.'

Some of the richest people in the US have homes in Palm Beach including Donald Trump, Malcolm Glazer and Rod Stewart. The collapse is the talk of the Palm Beach Country Club, the haunt of the resort's nouveau riche, where many of the investors are members.

People there told the Wall Street Journal that there had been huge losses. At least one investor in the fund lost $25m, another $12m, they said, but refused to name the golf professionals. Gary Klein said his clients had invested between $15m and $20m in the fund and that the monthly statements sent to KL investors demonstrating excellent profits were fraudulent.

KL Financial's annual investment returns, reportedly 67% and 40% the last two years, were fictitious. 'The $250m question' that investigators would answer, he said, was whether the money was lost trading or whether it was stolen. Two principals of the company were now overseas, he added.

KL was started in 1997 by two Korean-born traders, John Kim and Won Lee. Kim is refusing to give interviews but, according to Klein, he was meeting investors at his home to try to explain what had gone wrong. The lawyer described the reasons as 'not credible'.

William Donaldson, chairman of the SEC, has pushed for more regulation of hedge funds, especially as the lure of windfall returns has broadened their appeal to less savvy investors. Some minimal safeguards regarding the registration of the funds and their traders will come into effect in 2006.

Hedge funds have soared in popularity, wealthy and institutional investors pumping in billions of dollars. But many of the funds have borrowed heavily to leverage their bets.