K1 Hedge-Fund Probe Yields Two More Arrests, Raids

Date: Friday, April 16, 2010
Author: Bloomberg

The German probe into K1 Group, a hedge fund at the center of an international investigation, yielded two more arrests, prosecutors said.

The managing director of K1 Global Ltd. and K1 Invest Ltd., the group’s funds based in the British Virgin Islands, as well as the managing director of a trustee company were arrested, Dietrich Geuder, the spokesman for the Wuerzburg Prosecutors’ Office, said in an e-mailed statement today.

“So far the investigation has shown that these investment companies were Ponzi schemes with no intention to make profits,” Geuder said. Prosecutors suspect investors lost more than 90 million euros ($122 million), he said.

K1 Group is at the center of an international criminal probe after saddling banks including Barclays Plc, JPMorgan Chase & Co. and BNP Paribas SA with losses. European and U.S. authorities are examining whether K1 founder Helmut Kiener, who helps manage funds of hedge funds, deceived the banks when he borrowed money.

Dieter Frerichs, the managing director of the two British Virgin Island-based funds, and David Zuendorf, who worked with the funds’ administrator Treukapital Treuhandverwaltung AG, were arrested on April 13, Geuder said by phone today. Frerichs was arrested outside Germany, he said.

K1 Global and K1 Invest have both filed for liquidation. Their liquidator Grant Thornton (British Virgin Island) Ltd. didn’t reply to a message left outside of regular office hours. A number for Goeschenen, Switzerland-based Treukapital was disconnected.

Total Damage

Prosecutors said they expect the total damage incurred by the scheme to be about 300 million euros, according to the statement. This includes harm done to investors and banks.

Kiener, who was arrested in October, may have used his business relations with the banks to channel their money to K1 Global and K1 Invest via a net of funds and sham companies, said Geuder.

It’s unclear when prosecutors will conclude their probe and bring charges against Kiener, Geuder said today.