SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17041 / June 20, 2001
Securities and Exchange Commission v. Edward Thomas Jung and E. Thomas Jung Partners, Ltd., also d/b/a ETJ Partners, Ltd., (U.S.D.C. N.D. Illinois, Eastern Division, Civil Action No. 01-C-4645, filed June 19, 2001).
The Securities and Exchange Commission announced that on June 19, 2001, it filed an action in the United States District Court for the Northern District of Illinois against Edward Thomas Jung, a resident of Chicago, Illinois, and his broker-dealer, E. Thomas Jung Partners, Ltd., also doing business as ETJ Partners, Ltd ("ETJ Partners"), a market-maker at the Chicago Board Options Exchange. The Commission's complaint alleges that Jung, manager of an unregistered, private hedge fund, Strategic Income Fund, L.L.C., engaged in a scheme to defraud the fund's investors resulting in the loss of more than $21 million in investor assets.
The complaint also alleges that from July 1994 to February 1998, Jung was responsible for issuing a series of false performance reports that were used to solicit investors in the fund that materially overstated his prior trading record and that of the fund. In addition, from January 1995 to September 1998, Jung falsely stated that investor assets would be used solely to conduct the fund's business and to collateralize trading on behalf of the fund. Instead, Jung, acting through his broker-dealer, placed the fund's assets in ETJ Partners' account and used the fund's assets to collateralize his own personal margin trading and to pay the expenses of running ETJ Partners. Jung's personal trading resulted in substantial losses, but Jung covered up his losses by sending investors false quarterly statements that materially overstated the current value of their investment in order to lull them into a false sense of security. Eventually, in September 1998, ETJ Partners' clearing firm seized control of its account and liquidated the Fund's assets to cover ETJ Partners' margin call. Jung's misappropriation resulted in the loss of more than $21 million invested by 60 investors.
The Commission's complaint seeks an order enjoining Jung and ETJ Partners from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Section 15(c)(1) of the Exchange Act of 1934 and Rule 15c1-2 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint also asks the court to impose appropriate civil penalties.http://www.sec.gov/litigation/litreleases/lr17041.htm