German Hedge Fund Faces Fraud Probe Over Leverage

Oct 28 2009 | 3:34pm ET

A German fund of hedge funds group may find itself in trouble on both sides of the Atlantic for allegedly misleading banks to win greater leverage for its fund, leading to about US$400 million in losses.

K1 Group, which manages nearly than US$900 million, is the subject of a joint U.S.-German investigation into whether the firm used circular transactions to artificially inflate the amount of collateral it had. German authorities raided K1 founder Helmut Kiener’s home near Frankfurt today, and prosecutors in both Germany and the U.S. could announce the first charges in the case this week.

K1’s alleged malfeasance may have left its lenders, including Barclays, BNP Paribas and JPMorgan Chase, with losses of about US$400 million, Bloomberg News reports. JPMorgan’s potential losses come from Bear Stearn’s exposure to K1.

Kiener, a psychologist who founded K1 in 1995, faces a probe for fraud and breach of trust by German prosecutors. The U.S. Federal Bureau of Investigation have been working with German authorities on the K1 case since earlier this year. Both the U.S. Internal Revenue Service and Immigration and Customs Enforcement are also participating in the investigation.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...