Ponzi-like scheme allegedly took in millions from California to Houston
He allegedly stole from firm, immigrants
Over at least the past four years, federal investigators say Stephen Young Kang took millions of dollars from Korean clients who asked him to invest their money and instead used it for his own expenses or paid other victims in a Ponzi-like scam stretching from Orange County, Calif., to Houston.
This week a California federal grand jury indicted Kang, who lives in Newport Beach but has a law office in the Galleria. The 46-year-old is charged with 20 counts of wire fraud and five counts of money laundering, though investigators say evidence suggests more victims exist in Texas, California and South Korea and urged them to come forward.
The complicated case centers on a financial dispute between Kang and Ottogi America, a California distributor of Korean food products. The company hired the lawyer in 2012 after it was accused of fixing ramen noodle prices in Korea, according to Los Angeles state court documents. It sued him last year on allegations of fraud and malpractice. In response, Kang charged executives of hiring him to conceal assets from its shareholders, including diverting funds from real estate to oil and gas ventures. The civil suit is ongoing.
In the federal complaint filed last month, however, investigators say it was Kang who made off with the money. They said Ottogi hired him in 2012 to buy property near its distribution centers, and over the next year and a half, the company transferred about $3.7 million to a trust account in Houston so Kang could buy the real estate. Instead, Kang deposited most of that money in accounts he controlled, using it for personal expenses like his children's private school tuition, a house in Newport Beach and for a Mercedes-Benz, according to the complaint.
Federal investigators also say Kang used money from Ottogi to pay other victims he defrauded, including a South Korean couple seeking green cards through an investor visa program known as EB-5. Created by Congress during a recession in 1990, foreigners obtain green cards if they invest at least $500,000 in a U.S. business creating 10 local jobs. Though the couple wired more than $1 million to Kang in 2011, he didn't invest it as promised, according to the indictment, using it for his own expenses and to pay other investors. When they demanded a return, Kang allegedly concealed the scam by using money he took from Ottogi.
Kang's attorney, James Spertus, called the federal allegations ridiculous and said Ottogi's own executives are to blame for the missing funds.
"The government has told a sliver of the story involving the dispute between Kang and Ottogi," Spertus said. "Mr. Kang has reputable evidence in the civil case that Ottogi's CEO stole this money, not Kang. This will be a dogfight."
An attorney for Ottogi could not immediately be reached.
Federal investigators wrote in the complaint that they believe Kang's claims in the civil suit are false. They note large amounts of Ottogi's funds were diverted to Kang or his wife's bank accounts, that he hasn't filed any tax returns since 2008, and that he owns a home in Seoul, to where he may also have been diverting money.
The federal investigation, conducted by the FBI and Internal Revenue Service, is the latest instance of the government more aggressively targeting fraudulent schemes committed under the auspices of the EB-5 investor visa program. Interest in it has skyrocketed from about 600 visas issued in 2008 to more than 5,100 last year, the most ever, with the majority of applicants coming from China, followed by South Korea, according to federal statistics.
But critics say the program is unregulated, poorly overseen and ripe for scams. Last month, a Government Accountability Office report found that U.S. Citizenship and Immigration Services, the agency overseeing the program, can't accurately assess fraud. Legislation authorizing EB-5 is set to expire this month, but Congress is likely to temporarily allow it to continue as it ponders a more substantial overhaul.
Kang, meanwhile, was arrested at the Los Angeles International Airport last month after buying a business-class ticket to Seoul just three days before the flight's departure. Investigators said he was trying to flee the country. But his attorney said he was going to file a lawsuit against Ottogi executives in South Korea. He was released on a $750,000 bail.
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