$3.6M from 'insider lottery win' sent offshore

Members of a Toronto-area family who allegedly stole a $12.5-million lottery ticket rushed to transfer millions of dollars in winnings to offshore accounts after an ombudsman’s report on "insider wins" highlighted their case, police records show.

Jun-Chul Chung, 61, and his son, Kenneth Chung, 29, are accused of stealing the winning ticket from unsuspecting customers at a Chung-managed convenience store in Burlington, Ont. The ticket was then allegedly given to Jun-Chul's daughter, Kathleen Chung, 30, to claim the prize. All three face money laundering and other charges.

The Chung case was highlighted as the most shocking example in a slew of so-called insider wins examined by Ontario Ombudsman André Marin in a 2007 report that accused Ontario’s lottery agency of turning a blind eye to unscrupulous retailers claiming stolen prizes.

The report didn’t name the Chungs, but mentioned numerous details about the case.

A month after Marin’s scathing review of the Ontario Lottery and Gaming Corporation (OLG), the Chungs began sending money to South Korea and New York City, according to a partially-redacted police affidavit obtained by CBC News. None of the document's allegations have been proven in court.

More than one quarter, or about $3.6 million, of the $12.5-million lottery win was transferred out of the country over the course of a year, the documents suggest.

The majority, $3.2 million, was sent in a series of 17 bank transfers to accounts in Seoul, South Korea, the affidavit says. Most of those accounts were in the name of the father, Jun-Chul Chung.

About $433,000 went to a New York-based online internet foreign exchange trading provider.

The OLG is seeking to recoup $12.5 million from the Chungs and has filed a civil lawsuit against them, but experts warn that a complex web of accounts will make recovery a difficult task.

In her statement of defence, Kathleen Chung denies stealing the ticket or benefiting from it and argues the two-year limitation period for the OLG to sue her ran out years ago. The lawsuit is on hold while criminal proceedings are underway.

Though Kenneth and Jun-Chul Chung face charges for allegedly stealing the $12.5-million ticket, documents suggest the OLG suspect it wasn’t the first ticket stolen at the Chung-managed convenience store.

The OLG suspected that more than 125 instances of separated tickets – when one of several free play tickets won by a customer is stolen by the retailer – took place at their Variety Plus store in Burlington over a 10-month period in 2003 and 2004, the police affidavit says.

The figure was based on an OLG-ordered study in 2008 about inappropriate ticket transactions.

The police affidavit also reveals other details about the OLG and police investigation into the Chung family's $12.5-million lottery claim.

Ontario's lottery agency first grew suspicious about Kathleen Chung after she denied having a brother and then denied any relation to her brother, Kenneth Chung, during a series of interviews in early 2004.

When she couldn’t remember the location where she purchased the original ticket, she told the OLG investigators that she travelled widely in southern Ontario selling a Viagra-like Korean herbal product for her father's side business, the documents say.

Though the Chungs assured the OLG that the Lotto Super 7 ticket was validated by Kathleen Chung on Dec. 27, 2003, police say her phone records show she was at least 40 kilometres away from the store at the time.

After a 10-month investigation, and despite its suspicions, the OLG awarded Kathleen Chung $12.5 million in late December 2004.

Shortly after receiving the cheque, Kathleen Chung deposited it into a new CIBC chequing account in Mississauga, police documents show.

Soon after, the money was transferred in a complex "flow of funds" via 39 transactions to dozens of bank accounts across the Greater Toronto Area, the police affidavit says.

"The OLG proceeds flowed through these various accounts and were reconciled into both personal and business accounts held at the Korea Exchange Bank in the name of Kathleen Chung, Kenneth Chung, Jun-Chul Chung, Hi Ok Chung in Trust and INGKO Trust 101," the police affidavit states.

Some of the money was traced to the purchases of two homes, commercial property, five luxury vehicles and $86,000 worth of jewelry.

However, a total of $6.4 million eventually ended up in two Korea Exchange Bank of Canada accounts for which Jun-Chul Chung, the father, has sole-signing authority. Then a series of electronic transfers moved several million dollars into a South Korea bank account held by Jun-Chul Chung.

"The transfer of monies to the Korea Exchange Bank account in South Korea began on April 12, 2007, shortly after the Ontario ombudsman released the March 26, 2007, report outlining details of several suspicious wins, including Kathleen Chung’s $12,500,000 win," the police affidavit says.

According to the affidavit, about $2.8 million of the prize money was also invested in Portus, a Toronto-based hedge-fund company that ran into legal troubles in 2005. Company owners were accused of diverting investors' cash into their own domestic and offshore accounts. Police recovered some funds, but the status of the Chung investments is unknown.

About $352,000 of the lottery win-related funds were placed in two life insurance policies for Jun-Chul Chung and his wife, Young Ja Chung.

In 2009, $78,000 was transferred to Jung Ho Park Dentistry, an account held by Kathleen Chung’s husband, who works at five dentist offices in the GTA, the police affidavit says. Jung Ho Park is also being sued by the OLG. In his statement of defence, Jung Ho Park has denied ever knowingly receiving funds traceable to the alleged lottery theft.

The Chungs are free on bail while they await trial.

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