Barclays among losers amid fraud inquiry at German fund

Date: Thursday, October 29, 2009
Author: Telegraph.co.uk

K1 Group, founded by German psychologist Helmut Kiener and which claimed returns of 825pc from 1996 until last year, is being investigated by European authorities and the FBI in the US.

The investigation of the fund of hedge funds is focused on whether K1 deceived banks, including Barclays, JP Morgan Chase and BNP Paribas, into lending it money which it then used to leverage its investments.

It is thought that developments in the investigation into K1, which earlier this year was said to have almost $1bn under management, may be announced this week by prosecutors in Germany and the US.

A spokesman for Barclays said: “We are fully co-operating with law enforcement.”

However, sources close to the British bank which invested in the German fund through investment banking arm BarCap, said the bank had been aware of concerns for some time and had written off its exposure to K1 in the first half of the year.

“The figure was not material to the company,” the source said.

The investigation is believed to centre on whether K1 pursued circular transactions with a network of investment firms in the UK, the US and other countries to suggest it had more money available to pay off loans.

German prosecutors said they were investigating Mr Kiener for suspected fraud and breach of trust and his home near Frankfurt was reportedly raided yesterday and documents taken away.

It is thought the FBI has been working on the case with its German counterpart since at least the early part of this year.

BaFin, Germany’s financial regulator, has tried since 2001 to prevent Mr Kiener, 50, who picked investments using statistical analysis, and companies associated with him from soliciting German investors.