K1 Group Investigated For Fraud

10-29-2009 | Source: emii.com

K1 Group, a German hedge fund firm, is being investigated for possibly foisting about $400 million in losses on several major banks, Bloomberg reports.

The international criminal investigation is trying to determine whether K1 deceived Barclays, JPMorgan Chase, BNP Paribas and others when borrowing money to increase investments. K1 is suspected of using circular transactions to create the illusion of having greater available capital to backstop loans. The German manager of funds of hedge funds reportedly advertised an 825% return from 1996 through June 2009 on its website. The firm had nearly $1 billion under manager, a K1 Group executive in Hong Kong told HedgeWeek in February.

Prosecutors in Germany are investing K1 Founder Helmut Kiener for fraud and breach of trust. German regulator BaFin has had its eye on Kiener and companies since 2001, when it attempted to keep him and his companies from getting money out of German investors. In 2003 and 2004, the regulator issued orders against K1 companies in Germany and the British Virgin Islands over claims that they did not have the right authorization.

Barclays and BNP said they are cooperating with law enforcement officials. JPMorgan, whose exposure came via their acquisition of Bear Stearns, did not comment when contacted by Bloomberg. No statement has been released yet by K1. The details of the probe have not been made public.

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