The K1 Group Probe: Phone book ads, Liechtenstein and fraud?
More details are emerging concerning the fraud allegations surrounding the German fund of hedge funds K1 Group.
In late October police in the U.S. and Germany made three arrests in connection with an on-going fraud investigation into the firm.
Additionally, two suspects were arrested by U.S. police in Miami (Stefan Seuss) and Nebraska (Thomas Meyer) in the probe. Both face charges related to money-laundering in U.S. federal court in Philadelphia. Prosecutors say Seuss and Meyer were caught in a sting operation planned by the Federal Bureau of Investigation and Internal Revenue Service. The two men allegedly offered to move money for a software and CD/DVD pirate who turned out to be an undercover federal agent.
According to Finalternatives, German prosecutors said they have another suspect in their investigation, although it is unclear whether that unidentified individual has also been arrested. That suspect is a manager at a German K1 company, according to Bloomberg News. Helmut Kiener’s (a former telephone book ad salesman) arrest came amidst a flurry of activity in Germany as prosecutors from the city of Würburg (in the north of Germany) searched several houses, including Kiener’s, as well as the Swiss offices of Treukapital Treuhandverwaltung AG, K1’s administrator. It is also being reported that firm’s including Barclays, JP Morgan Chase and BNP Paribas may have lost millions in an alleged scheme which furnished Mr. Kiener’s lavish lifestyle including personal spending on planes, a helicopter and luxury properties.
Here is a video from CNCB regarding the investigation:
Reuters is reporting that Aurelia Frick (the justice and foreign minister of Liechtenstein) briefly worked for K1. Ms. Frick sat on the board of K1 Fund Distribution Ltd. from August 6,2008 to December 29, 2008 via her firm financial services firm, Fudaura Trust. Apparently, Ms. Frick resigned from the K1 board when her requests for more information were not met.
During the course of the operational due diligence process it is very advisable to attempt to track not only the size of the board of any fund but also the identity of former board members. This information can sometimes yield very interesting information about a fund’s attitude towards it board and more broadly the type of governance in
place. Clearly Ms. Frick had enough concerns to resign from K1 and likely investors who may have performed their own operational due diligence in detail may have been able to detect some of these concerns via Ms. Frick’s departure.
Bloomberg is also reporting that he K1 Web site says Kiener’s investment system generated an 825% return from 1996 through last June. Here is a link to an interview with Army Yan, head of research with K1 Group in Hong Kong, describing the firm’s investment system. Here is a chart showing this performance:
It was reported earlier this month that the firm has hired Grant Thornton to liquidate the firm. More details are sure to emerge as the investigation continues.
Where was the operational due diligence being performed on them. In my experience people overlook this step too often at the fund of funds level