Nov. 6 (Bloomberg) -- Helmut Kiener, the K1 Group hedge- fund founder arrested in Germany on suspicion of fraud, argued he had diplomatic status in a motion seeking his release from jail.

A court in Wuerzburg will now review the motion, Dietrich Geuder, a spokesman for prosecutors in the German city, said in an interview today.

“Among other arguments, Mr. Kiener claims diplomatic status,” said Geuder, who declined to comment further on the filing. “We don’t expect that the court will rule on his motion before next week.”

K1 Group is embroiled in an international criminal probe after saddling banks, including Barclays Plc, JPMorgan Chase & Co., and BNP Paribas SA, with about $400 million of losses, people with knowledge of the probe said. European and U.S. authorities are examining whether K1, which manages funds of hedge funds, deceived the banks when borrowing money to ratchet up investments, according to the people, who declined to be identified because the investigation isn’t public.

Kiener’s lawyer, Lutz Libbertz, wasn’t immediately available to comment, a woman taking calls to his office said.

Kiener may have duped Barclays out of as much as $220 million and BNP Paribas out of $60 million, according to the arrest warrant in the case. Funds were diverted through a network of Cayman Island-based companies and part of the money was used to acquire properties in Miami and aircraft.

‘Only Avenue’

“If we’re really talking about an alleged $280 million worth of damage, claiming diplomatic status may in fact be the only avenue to get someone out at this point,” said Kai Hart- Hoenig, a former prosecutor who is now a criminal defense lawyer in Wiesbaden, Germany.

The Wuerzburg court said in an Oct. 20 arrest warrant that Kiener must be put in pretrial detention because he may flee the country, citing his international contacts, his access to aircraft and the property in Florida.

“Courts tend to say that the suspect is likely to flee given the stiff sentence he may face,” Hart-Hoenig said.

The motion for release may be risky at this stage because any ruling is based on summary proceedings, including any decision on bail.

“What you want to avoid is getting an early ruling against your client that sort of predetermines the judges’ views,” he said. “This same court may have to rule again and again during the probe and may eventually also be hearing the trial.”

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net.

Last Updated: November 6, 2009 09:09 EST