By Jack Ewing
Eight months before the indictment, Kim Schmitz saw it coming. As German authorities closed in on the one-time hacker and Internet entrepreneur, he threw one last blow-out party in May, 2001 -- immortalizing the revelry with digital photos posted on his Web site. Schmitz and entourage headed off to Monaco from Munich in a fleet of rented sports cars, booked a pair of huge yachts, and invited a bevy of attractive women in bikinis to join them. The champagne alone cost $40,000, Schmitz boasted on his Web site.
It was all very much in character for the self-described "330-pound loudmouth" (see BW Online, 3/7/01, "The Ex-Hacker Who Would Be Tech King"). Yet, in a rare moment of contemplation, Schmitz, 28, headed to the top of a mountain overlooking the Mediterranean and posed for the digital camera while gazing from the window of an abandoned stone hut. He explained on his Web site that the grim stone structure could be his next office -- except the bars were missing.
PUMP AND DUMP?
Not anymore. Since January, when German authorities finally tracked Schmitz down and extradited him from Thailand, he has been sitting in jail near Munich awaiting trial on insider-trading charges. As you might expect from a guy who says his goals include forming his own political party and starring as the evil genius in a James Bond movie, these aren't just any insider-trading charges.
Munich prosecutors allege that Schmitz bought shares worth $327,000 in letsbuyit.com, a retail site where buyers pool their purchasing power in a kind of online cooperative, on the same day he told the company he was ready to put up money to help it avoid insolvency. When the letsbuyit.com made Schmitz's pledge public a day later, prosecutors say, the shares shot from 25 euro cents on Frankfurt's Neuer Markt to 60 cents. Schmitz then sold his stake for a profit of some $1 million -- a sum that probably makes it the largest insider-trading case in German history, authorities say.
Granted, it's a pretty short history: Insider trading was legal in Germany until 1995. Convictions are rare, and no one has ever done prison time for an insider-trading conviction, though defendants have received suspended sentences.
DAY IN COURT.
Could Schmitz be the first? That's an interesting question. Last year, a German TV journalist was acquitted of insider trading after he recommended that viewers buy a stock he had himself purchased days earlier. But the judge ruled there was no proof the journalist planned in advance to recommend the shares. Schmitz is likely to rely on similar legal theory when he faces trial, set for late April, 2002, or early May. Schmitz's lawyer, Thomas Pfister, argues that his client's actions were no different than banks that deal in the shares their analysts recommend.
Judges rarely imprison defendants on the first offense. But Schmitz isn't a first-time offender. He was detained in 1994 on charges stemming from accusations that, among other things, he and accomplices used stolen AT&T and MCI phone-card numbers to make hundreds of calls to bogus offshore "chat services" they operated themselves. The chat services collected a portion of the phone tolls, which were billed to unsuspecting AT&T customers, authorities say. Convicted of computer fraud, Schmitz received a suspended two-year sentence.
Whatever the judicial outcome of Schmitz's latest legal troubles, it has temporarily stalled his entrepreneurial career, such as it was. It was never totally clear how seriously to take his various business ventures, which included a company that equips cars for mobile Internet access.
In fact, Dusseldorf lawyer Klaus Dittke is pursuing a separate complaint that accuses Schmitz of using false pretenses in an alleged effort to lure investors for a startup incubator he called Kimvestor. The complaint, on behalf of an investor-advocacy group, claims that among other things, Schmitz falsely advertised that Kimvestor's supervisory board included top executives from DaimlerChrysler and Dresdner Bank, who in fact weren't involved. (Schmitz, through his lawyer, disputes the accusations, saying they are unfounded.)
Schmitz has, however, been remarkably successful at building his own cyber-legend -- portraying himself as a hacker who made a fortune advising others how to avoid becoming victims of computer crime. He staged elaborate parties around the world, which were documented by the likes of RTL, one of Germany's leading TV networks. Some in the country's press corps took him half-seriously. He was once termed a "super-brain" by Finanzen, a German finance magazine. "He's a highly intelligent young man. It's really brilliant what he has achieved," says Pfister, Schmitz's Munich-based defense lawyer.
Still, there has always been an element of farce in Schmitz's antics. His Web site (www.kimble.org), which is still operating, veers between self-promotion, self-pity, and self-parody. On the same page that Schmitz seeks salesmen for the Kimvestor Equity Fund he also invites girls (legal age) interested in experiencing his "humor, charm, lifestyle, and friendship" to write him at his e-mail address.
Schmitz can be mawkish, too. He has made public threats of suicide. In January, around the time of his latest indictment, he issued a "farewell letter" in which he claimed that Germany was hostile to geniuses such as himself and announced that he would be leaving the country. He was arrested in Thailand and extradited to Germany on Jan. 21.
As he waits for trial behind bars, Schmitz's braggadocio seems to be intact. He has told visitors that he won the warden's twin daughters in a poker game. And he has writing his memoirs, provisionally entitled, Life in the Passing Lane.
If Schmitz achieved one thing, it may have been to take the absurdity inherent in the dot-com craze and elevate it to high comedy. That may explain why some Germans still consider him a folk hero. "He's as famous as the Chancellor. He has really achieved something in life," raves Sascha Wemmel, a 29-year-old mobile-phone salesman from Hanover who operates a fan site (www.kim-schmitz.de). Just don't lend Schmitz your credit card.
Ewing covers the European technology scene from BusinessWeek's Frankfurt bureau
Edited by Douglas Harbrecht