Fraud investigation
October 30, 2009
Prosecutors believe a 50-year-old German man has defrauded international banks of hundreds of millions of euros. Helmut K. reportedly misstated the assets of his K1 hedge fund in order to obtain loans from banks. Media estimates say losses could be as high as 200 million euros ($294 million).
"This is a major inquiry," senior prosecutor Dietrich Geuder told the dpa news agency Thursday.
Helmut K., founder of the K1 hedge fund group, is being investigated for allegedly engaging in fraud and breach of trust.
Living large
Helmut K., whose last name is being withheld in accordance with German privacy guidelines, is a psychologist who formerly sold ads for the German Yellow Pages before entering the financial sector. Reportedly extremely wealthy, Helmut K. lives in an exclusive neighborhood of Aschaffenburg, near Frankfurt.
A spokeswoman for the Munich law firm Lutz Libbertz said Helmut K.'s lawyers would appeal his arrest.
"The man has two children and is married. He had a private audience with the Pope this year and has a 60-million-euro jet at Frankfurt airport. This man is not insignificant," the spokeswoman told Reuters.
The firm reportedly had nearly $1 billion under management, the trade publication Hedgeweek reported in February.
Hedge firm under scrutiny
This is not Helmut K.'s first run-in with the law. Germany's financial watchdog, BaFin, accused the founder of K1 of administering investments without authorization in 2001. BaFin reportedly launched previous investigations as well, according to Bloomberg.
“It's absolutely embarrassing that this happens in Germany, which has always wanted to be tough on hedge funds,” Jacob Schmidt, founder of Schmidt Research Partners Ltd., a London- based hedge fund advisory firm, told Bloomberg.
At a summit of world leaders in 2007, Germany proposed stricter controls on the $1.4 trillion hedge fund industry. While leaders did not act at that time, several high-profile hedge fund scandals have increased calls for tighter regulation.
International probe
Some of Helmut K.'s funds were registered in the British Virgin Islands, a tiny territory in the Caribbean.
It appears that the probe has extended beyond Germany. Two German nationals were arrested in the United States on Thursday. The Miami Herald newspaper, quoting unnamed sources, said the US arrests were connected to the K1 investigation. Bloomberg said an unnamed source had also confirmed the involvement of at least one of the men in the K1 fund.
The Germans were reportedly caught in a sting by US law enforcement and tax agents. The men allegedly agreed to set up an off-shore company and foreign bank account for an undercover agent.
th/Reuters/dpa/AP
Editor: Chuck Penfold