The founder of the K1 Group, a German fund-of-funds manager, was arrested on October 28th as part of a joint US and German investigation. Helmut Kiener faces charges of fraud and breach of trust in German courts after evidence amounted that he may have deceived the likes of Barclays, BNP Paribas, JP Morgan Chase & Co. and Societe Generale into lending a combined $400 million to facilitate fraudulent investments and supporting his lavish lifestyle. From Bloomberg:
“The money was initially used to buy stakes in an array of funds, including at least one managed by a firm Kiener controlled. At least $100 million was ultimately routed to a pair of British Virgin Islands-based K1 funds, while other money supported his lifestyle, financing aircraft and Florida real estate.”
A twist of fate: Although US and German authorities are praising the international regulatory cooperation in this case, it is likely that the purchase of Bear Stearns failing business by JP Morgan Chase & Co. uncovered the scheme. From Dealbreaker:
“when JPM swooped in to buy the collapsing Bear Stearns, they learned a lot about their erstwhile competitors. Like the fact that Bear had been giving money to a German psychologist-turned-money-manager who had a penchant for investing in hedge funds no one had ever heard of. About $100 million, as it turned out. So JPM did what no one else bothered to: a little digging. And wouldn’t you know it, it had never heard of the ‘hedge funds’ that Kiener was investing with, and giving most of his money to. After their investigation, there were seven suspicious firms, three of which were apparently run by the totally-believably-named Oceanus Asset Management.”
Although formal charges have not been filed to date, it will be interesting to see how this plays out across the international jurisdictions….as Kiener attempts to claim Diplomatic Status with German courts.
