Fund of Funds Fraud – Helmut Kiener’s K1 Saga Continues With Barclays Lawsuits Germany’s so-called “mini Madoff” Helmut Kiener is back in the news. You may remember Mr. Kiener as being the founder of a fund of funds operation called the K1 Group. The K1 Group was a Ponzi scheme, and Mr. Kiener was convicted and jailed. Specifically, the court sentenced Kiener to 10 years in jail based on a conviction of 86 counts of falsification of documents, and 10 counts of fraud and tax evasion. In addition to being a fraud, this story received a great deal of attention at the time the scam was revealed. Kiener’s co-conspirator Dieter Frierchs killed himself when Spanish police tried to extradite him back to Germany. As more people began to investigate Mr. Kiener it was also revealed that before founding the K1 Group he had worked as a telephone book salesman and as a psychologist that had studied something he called, “statistical chance theory.” He claimed that this theory allowed him to develop a “semi-automatical allocation system” using statistics to help pick hedge-fund investments. A K1 discussed the supposedly sophisticated allocation system used applied, “stochastic and statistic parameters.” This begs the question if any operational due diligence checks were supposedly being performed or whether then entire hedge fund selection process was supposed to be model driven? Apparently the answer to this question didn’t really matter to many people as a number of large banks including JPMorgan Chase, Barclays and BNP Paribas lost client money of more than 300 million euros, or $375 million in the K1 scheme. Investors are now suing these bank to try to recover some of their losses. A recent case which received media attention is the Germany based class action lawsuit brought by a conglomeration of German law firms called ProtectInvest Alliance. According to media reports, a Barclay’s spokesperson stated, “German courts have found in Barclays’ favour in all decisions to date and there has been recognition that Barclays is also a victim of the Kiener fraud.” So if Barclay’s plays the “we were all fooled” standard defense and German courts agree (despite having reportedly banned K1 from marketing the funds in Germany) then, as is typically the result in these cases, investors are left with no viable options for recourse since Mr. Kiener is broke and in jail. This is an example of the type of situation where operational due diligence and background investigations (regardless of who performed it) could have gone a long way to cutting off money flowing into this type of fraud before it went out of control.
Originally posted on the Corgentum Consulting blog at www.Corgentum.com/blog
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