Oct. 25 (Bloomberg) -- Ex-Bawag PSK Bank Chief Executive Helmut Elsner and Wolfgang Flottl, who traded on the bank's behalf, were among nine people charged by Austrian prosecutors over 1.44 billion euros ($1.8 billion) in failed hedge-fund investments.

Elsner, 72, faces charges of improper use of funds, fraud and accounting violations, while Flottl, 51, is charged with involvement in the improper use of funds, Walter Geyer, a spokesman for the Vienna-based public prosecutor, said today. Seven others, including ex-KPMG auditor Robert Reiter and ex- supervisory board head Guenter Weninger, are also charged.

Bawag, Austria's fourth-largest bank, has been put up for sale as part of an effort to cut more than 2 billion euros in debt stemming from investments made between 1998 and 2000. The lender in May agreed to pay creditors of Refco Inc. at least $683 million for its role in the bankruptcy of the U.S. futures broker. Bawag has neither disputed nor admitted creditor allegations that it helped Refco defraud investors.

``Nine people lost money in an irresponsible manner and later tried to hide the losses by improper accounting measures,'' Geyer said in a telephone interview.

Fighting Extradition

Elsner is currently fighting extradition to Austria from France. His lawyer, Wolfgang Schubert, on Sept. 29 said that the former executive is ``medically in no good condition'' to be extradited. He denied that Elsner has committed any crime.

Flottl told Austrian weekly magazine News in April that all investments on behalf of Bawag were authorized by Elsner.

Lawyers for Flottl and Elsner couldn't be reached for comment when called by Bloomberg News today.

Christine Enzi, a spokeswoman for KPMG, said Reiter left the company in 2004. KPMG has no doubt that Reiter's approval of Bawag accounts were in compliance with Austrian laws, Enzi said.

The other defendants in the case are former board members Johann Zwettler, Peter Nakowitz, Christian Buettner, Hubert Kreuch and Josef Schwarzecker, according to the prosecutors' office.

Bawag, under CEO Elsner, in 1995 hired Flottl to invest money on behalf of the bank. While making profits in the first 3 years, the investments went sour between 1998 and 2000, mainly because of wrong bets on the Japanese Yen and interest rate movements.

The bank later shifted the losses to offshore accounts on Caribbean islands to keep them off the bank's books, according to the indictment. A draft of the indictment was published by News magazine last month. Geyer today said the indictment is identical to the draft apart from some minor editing changes that don't alter the content.

Geyer said prosecutors expect to bring the nine defendants to trial next year.

Under Austrian law, people who are convicted for improper use of funds face as long as 10 years in prison.

To contact the reporter on this story: Matthias Wabl in Vienna at mwabl@bloomberg.net

Last Updated: October 25, 2006 11:39 EDT