K1 Group founder Helmut Kiener was convicted of defrauding investors with a 345-million euro ($497 million) Ponzi scheme and sentenced to 10 years and eight months in prison.
Kiener, 52, was found guilty of fraud, forgery and tax evasion by a court in Wuerzburg, Germany. Kiener in April confessed to using new investors’ money to make up for losses in the wake of the financial crisis and to having manipulated some account statements.
Barclays Plc (BARC) and BNP Paribas (BNP) SA lost a combined 223 million euros and private investors lost about 122 million euros, prosecutors said. Dieter Frerichs, the former managing director of two K1 funds in the British Virgin Islands, killed himself last year to avoid being arrested on the Spanish island of Mallorca.
“Kiener’s system only worked as long as he managed to acquire fresh funds,” the court said in a statement. “His investors’ chance to earn any return was almost zero. This case is extraordinary because of its size and the number of cheated investors.”
The fund’s accountant, who can only be identified as Claus Z, was convicted of aiding Kiener and was sentenced to three years and 9 months in prison.
Achim Groepper, Kiener’s lawyer, said he was satisfied with the sentence because it was less than the 12 years and nine months sought by prosecutors. He won’t appeal the verdict.
“My problem was that I didn’t have the courage to end it all earlier,’’ Kiener said after the verdict. “Now I have to pay for it.’’
Kiener used funds from BNP to acquire luxury real estate in Florida and his German hometown of Aschaffenburg that he planned to use for himself, prosecutors said.
Through a network of companies and people, he also bought Mercedes, Bentley, and Maybach cars, two boats, and jet skis with BNP money, while telling the bank the money would be invested in various hedge funds and real estate, according to the prosecutor. The lender lost about 52 million euros, according to the indictment.
K1 Invest Ltd. and K1 Global Ltd. were the two main funds he operated and which took the losses that prompted the trial.
Forged Account Statements
Kiener told the court in May that he began forging account statements for K1 Invest immediately after it was set up. Banks that gave him money had to approve his investment proposals and the funds in which he invested and “could have protested against the investment,” Kiener said in a statement read by his lawyers.
Kiener started K1 in 1995 while still working as an advertising salesman. The firm claimed returns of 825 percent from 1996 through June 2009, according to its website, which was taken down after the disparities came to light. The Standard & Poor’s 500 Index gained 49 percent over the same period. The charges in the trial relate to actions between 2006 and 2009.
Kiener halted his Germany-based operations after the national regulator Bafin investigated them in 2001. He bought a company in the British Virgin Islands which had Bafin operating clearance and renamed it K1 Global Ltd., he told the judges.
A year later he set up K1 Invest Ltd., in the Virgin Islands, Kiener said.
To contact the reporter on this story: Aoife White in Brussels at firstname.lastname@example.org.
To contact the editor responsible for this story: Anthony Aarons at email@example.com.