(See below for update)
The scamsters behind a sophisticated solar-power fraud scheme exposed by Phoenix New Times finally have been held accountable in a U.S. court.
Last month, Arizona U.S. District Judge David Bury handed down a $3.1 million judgment against the men behind Matinee Energy — a group of swindlers who include a former Clinton administration official.
The ruling follows a complex, four-year legal battle between Matinee Energy and the scam's victims, members of three South Korean companies: Jes Solar, Hankook Technology, and Airpark Co., Ltd.
But the fake solar-power company isn't giving up: With its high-powered Arizona lawyers funded by the victims' money, Matinee Energy filed a new motion for reconsideration last week, and at least one defendant already has announced he'll appeal Bury's ruling.
In any case, it's going to be difficult to collect from the legally savvy defendants, Tong Soo Chung, Sungchin Kim, John Lee, and Paul Jeoung. Another defendant, Chun Rae Kim, Lee's son-in-law, was dismissed from the case in 2014.
Chung's the most prominent figure in the Matinee scam. He's an attorney who used to live in the United States and now lives in South Korea — but he's no run-of-the-mill lawyer: He once served as counsel to former South Korean President Lee Myung-bak, and is the former head of Invest Korea, the country's "trade-investment promotion agency." In his bio for the Los Angeles law firm he founded in 1986, Chung describes his positions at the head of three U.S. Department of Commerce trade programs he ran as a "political appointee in the Clinton administration" from 1994 to 2001.
From 2010 to 2012, Matinee Energy was a high-powered South Korean scam centered in southern Arizona that at times was reminiscent of fictional con games from movies like Matchstick Men or The Grifters. One of its former principals, Christopher E. Pannos, is a known fraudster who ran a boiler-room operation with his brother in the 1980s, conning investors out of millions of dollars with empty promises of riches from a Phoenix-area gold mine.
The company employed dozens of people over time, many of whom didn't know they were working for something that wasn't quite real. It held bogus "groundbreakings," staged photographs, and worked with both legitimate companies and shadowy or even fictitious firms. From its office in the posh Catalina Foothills of Tucson, Matinee worked to fool the rural town of Benson so that it could in turn deceive its overseas Asian victims and cheat them out of millions.
A Tucson mother hired to do "basic marketing" for Matinee for three months in 2011, Chita Stevenson, told New Times in 2012 that the experience was like a “sitcom.” Ten thousand square feet of office space had been rented by the company, but the place had no computers of its own, just one phone line and was typically staffed with only three or four people.
The company advertised on Internet help-wanted sites for various IT, web design, and office-help positions, and brought in people regularly for job interviews. But the man in charge of the Tucson office, David Lee, often was “rude” to the applicants, Stevenson said, causing them to sometimes leave the office in tears. Stevenson and the other Tucson residents who worked there were baffled.
"We never saw anything illegal," she said. "But our brains were telling us something's not right."
As Bury concluded in various rulings over the last four years, and after holding a two-day bench trial in November, Matinee Energy and its representatives acted fraudulently. That much had been decided a few months after the victims filed what Bury deemed a "well-pleaded" complaint in August 2012, because Matinee Energy defaulted in the civil case by not showing up for court hearings.
Yet before damages could be decided, Kim and Chung's Tucson lawyers — from the respected firms Quarles & Brady LLP for Chung, and Snell & Wilmer LLP for Kim — appeared on their behalf and began filing motions.
As one of Bury's previous rulings puts it, the defendants "evaded service, failed to answer and appear until after default was entered against them, then filed motions to set aside the defaults, followed by motions for reconsideration."
The case grew into a behemoth, ultimately involving more than 300 court filings that contained mind-numbing titles like "Plaintiff's Response to Defendant's S. Chin Kim's Motion for Leave to File Supplemental Memorandum in Support of Motion for Reconsideration." Yet with the issue of culpability settled by the default, the sole issue to be determined was how much money the victims were owed.
Had he found that the plaintiffs didn't really have much of a case, Bury could have ruled against them or awarded them a minimal amount. His ruling and award of $3.1 million came after hearing testimony and arguments from each side, plus the "proofs offered by the parties."
Arizona attorneys Daniel Ho and David Greene of the Law Offices of Ho & Greene, PLLC, interviewed by New Times last week, say it was the most complicated case they've ever handled.
"The defendants threw the kitchen sink at us," Ho says. "We're obviously very pleased for our clients. They're committed to this. They feel very strongly they were wronged."
"The next phase is collection," he says.
That's going to be another challenge.
The lawyers can go after Chung's U.S. assets, if he still has any. Chung's defense that he was a "stateless citizen" who couldn't be sued in the Arizona court failed when Ho and Greene found evidence that while living in Maryland, Chung had voted in the 2004 presidential election. But Bury ruled that the lawyers couldn't delve into the finances of Chung's two adult daughters, who still live in the United States.
None of the defendants' lawyers returned messages from New Times except Tucson attorney Jeffrey Willis, who represents Chung.
Chung isn't talking, but Willis says his client denies any and all allegations that he committed fraudulent acts and claims Chung didn't receive "one thin dime" from the scheme. In fact, records show that, at the least, Chung's Los Angeles law firm was paid $36,000 for legal fees. But the original complaint and other facts in the case make it clear Chung had deep involvement in Matinee's activities.
Sungchin Kim, Matinee's president, lives in Alpine, New Jersey, and remains the subject of a lawsuit by Jes Solar filed in January in New Jersey U.S. District Court. It alleges that Kim tried to hide $650,000 in assets from debts he believed he would incur from the Matinee lawsuit, and also from a wrongful-death lawsuit filed against him from a fatal mishap at his home. In April 2013, an article on NorthJersey.com details, a man named Sung K. Paik, 60, of Union City was playing golf with Kim's brother when he hit a ball into Kim's backyard, which is adjacent to the course, and was killed by a branch from a tree being trimmed by workers Kim had hired.
Kim is the suspected mastermind of the operation, though in court testimony he tried to claim that Jeoung was the ringleader of the fraud, and that he — Kim — also was a victim. Kim "used to work on Wall Street," Ho says. "He was apparently quite successful and had his own hedge fund."
The Matinee members had extensive connections and knew how to schmooze. They persuaded Hyundai Heavy, the world's largest shipbuilder, to consider using them as a deal maker at one point. The South Korean heavyweight company issued a news release in summer 2010 that it would build billions of dollars worth of solar-power plants in California and Arizona with Matinee. Had it been real, the deal would have easily been one of the largest solar-power operations in this state.
A week after that news release was published, New Times reported that, along with Kim, the principals of Matinee Energy included Christopher E. Pannos, the former bogus gold-mine operator, and one of his brothers, Michael Pannos. That fact alone would have been troubling to any would-be investor. New Times also described how Matinee didn't have a professional website or business phone, and that its principals didn't appear to have backgrounds in the energy industry.
The article was seen by thousands of people at the time. But the principals of Hankook Technology and Jes Solar didn't see it until late 2011 — and by then it was too late for them, because they'd already given big bucks to Matinee.
After more spurious "groundbreakings" in Benson in late 2011 and early 2012, New Times published several articles about Matinee Energy, including an April 2012 cover story, "The Sunshine Salesmen," which concluded that the operation was a likely fraud. The groundbreakings, for example, celebrated no real progress. Matinee claimed it was acquiring land and had obtained the necessary permits for various solar projects.
In reality, it had no major financial backing, no land, and no construction permits. It never submitted a request to build a power plant with the Arizona Corporation Commission, as required. The local power co-op in the Benson area announced it wouldn't buy Matinee's power even if plants were built. There were no transmission lines near Matinee's alleged construction sites to carry power to the grid.
Because the lawsuit went into default, no extensive discovery of evidence was required by the South Korean companies to prove their case against Matinee, meaning that many details remain hidden concerning how and why the scam occurred. But court filings help answer some of the mysteries that New Times found in its 2012 investigation.
For the lawsuit plaintiffs, the con began in July 2010 when Yong Bin Kim, the CEO of Hankook, and his partner, Jae Gab Seo, flew from Seoul to meet with Matinee representatives in Las Vegas. Paul Jeoung and John Lee told them the company was building $5 billion worth of projects with Hyundai Heavy and that it had financial backing from JPMorgan Chase and Company, which was a lie. They demanded that Hankook pay them $500,000 if they wanted in on the potentially lucrative deal.
Hankook paid the money, which Matinee was supposed to use for "geotechnical investigations," public-relations management for imagined coverage from the Wall Street Journal and other major publications, and to maintain a "relationship" with JPMorgan. Hankook agreed to perform "pre-construction services" that company officials thought they needed to win Matinee's approval for a solar-plant construction contract.
During the dealings, Hankook kept asking for proof of JPMorgan's support. Matinee stalled repeatedly over several months as the Hankook officials flew back and forth from Korea and made other expensive preparations for the venture, thinking they were onto something big. In December 2010, Chung assured them at his office in Seoul that "the Matinee Project was proceeding as planned." But Hyundai Heavy had dropped out of the deal, and Matinee was little better than a shell company at the time. The address for its Nevada office was the modest home of a friend of the Pannos brothers.
A reputable Korean company that Hankook had partnered with during its negotiations with Matinee, L.S. Industrial Systems, inadvertently helped the fraudsters by introducing them to Jes Solar.
In early 2011, when Hankook's representatives bailed from Matinee in disgust, Matinee performed a new song and dance for Jes Solar and its CEO, Jae Kyung Choi.
Records state that Kim claimed Matinee had 15 solar plants operating at the time worth about $600 million, and that it expected to secure $1.3 billion in subsidies from the U.S. government for a massive solar project in Benson.
Matinee encouraged Choi and Jes Solar representatives to fly to Arizona in October 2011 for a ground-breaking event in Benson. Chung's pictured pouring champagne for guests at the outdoor ceremony in a photo obtained by New Times. Sungchin Kim "sobbed and hugged [Chung] and engaged in other theatrics to express their enthusiasm and gratitude for the solar plant project" at the ceremony, records state.
Jes Solar, in partnership with Airpark Co., contributed $1.6 million directly to Matinee or its agents. In return, the Jes/Airpark consortium would build a solar plant near Benson for Matinee, which would supply finances and management services.
Yet every time Matinee was required to show proof it was ready to launch the project in earnest, the victims were met with "repeated excuses and delays." By December 2011, the principals of Jes Solar and Airpark had found New Times' article, and with that and other evidence they'd discovered, they realized Matinee was a "complete fraud scheme," records state.
Matinee continued its fiction as Jes Solar and Airpark pulled out. Another groundbreaking for solar projects that would never happen was held with Benson City Council members and local boosters in February 2012, and in early March of that year, said it had teamed up with a company called Zentric Inc. to build a Benson solar-power farm. It had "awarded" Zentric an engineering contract that would have a construction budget of up to $444 million, a news release announced. Yet Zentric's only asset was stock in another worthless company.
About that time, New Times visited Matinee's Tucson office and was told by David Lee that Matinee owned and operated 15 solar plants in Europe and Asia, a story similar to the one told before. But Lee declined to disclose their locations. Lee kicked out New Times following questions about the Pannos brothers.
Before Matinee could ensnare new victims, it suddenly closed up shop. Matinee was evicted from its office for unpaid rent, and David Lee and Paul Jeoung fled town, stiffing employees like Chita Stevenson for thousands in unpaid wages.
A few months later, Jes Solar and Airpark filed their first complaint in federal court; they were joined later by Hankook.
(Matinee also was sued in 2012 by Chinese solar-panel marker Lightway for failing to pay for $4 million worth of panels shipped to Tucson in 2011, but the company — which got its panels back — later dropped the suit. Lightway apparently wrote off $300,000 in storage costs for the panels incurred by Matinee and never repaid.)
Bury agreed in his ruling that the South Korean victims were owed more than simply that which they paid to Matinee and never got back — the companies also spent hundreds of thousands of dollars for airfare, travel expenses, and various other actions and preparations for the supposed billion-dollar project. Hankook was awarded $936,533.07, and Jes Solar and Airpark were awarded $2,124,028.39.
Matinee and the named defendants are on the hook for the total of $3,068,561.46, which can be collected from any one or more of the defendants.
Bury ruled that Matinee must also pay the attorneys' fees of the victims, which according to paperwork filed by Ho and Greene comes out to more than $200,000.
Trouble is, Matinee still has the resources to keep fighting — thanks to its victims.
"The Court notes that the defendants ... have had the advantage of using money that belongs to the plaintiffs, while plaintiffs have struggled financially to survive," Bury wrote in one of his orders.
As mentioned, Chung's lawyer, Willis, denies Chung received any money in the deal and denies that Chung is paying his legal fees with the victims' cash. Willis notes that because of the default, Chung never got his "day in court" that would supposedly prove he's no fraudster. Asked about the judge's remarks that Chung and other defendants "evaded service," Willis claims that Chung wasn't served properly with notice of the 2012 complaint.
Chung won't talk to the news media or answer questions, Willis says. Asked why Chung was at one of the fake groundbreakings pouring champagne, Willis says this doesn't mean Chung knew a fraud was occurring.
Even if the fight goes on for a while longer, last month's court victory bodes well for the victims.
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See below for Bury's February 17 ruling. Below that, an update with response from Sungchin Kim's lawyer:
UPDATE March 17: Deanna Conn, a partner at Quarles & Brady, got back to New Times after publication of this article with the following statement on behalf of Sungchin Kim:
"Mr. Kim has not had an opportunity to defend himself on the merits. If given that opportunity, Mr. Kim will establish his innocence as he had no knowledge that another defendant, Paul Jeoung, intended to defraud Plaintiffs. Mr. Kim himself was a victim of Jeoung's fraud. Mr. Kim lost hundreds of thousands of dollars that he loaned to Matinee, believing the company was legitimate. Not only did Mr. Kim lose that money, he was never compensated by Matinee. Mr. Kim never obtained any money from the Plaintiffs and he denies any wrongdoing whatsoever. Mr. Kim will be filing an appeal of the default judgment that has been entered against him and he has multiple grounds for appeal.
"No further comment is appropriate while this matter remains pending on appeal."