The Life and Death of Dieter Frerichs – The K1 Group Saga Continues….
Dieter Frerichs is unfortunately dead.Mr. Frerichs was the director of two hedge funds, K1 Invest and K1 Global, controlled by Helmut Kiener, the founder of the K1 Group. With his death we may never learn the real story of what happened at the K1 Group. Mr. Freirichs had been under public scrutiny of late due to allegations of fraud at the K1 Group. In fact, he had already been arrested in the probe. As I outlined in a previous post, Freirichs had been a
rrested along with David Zuendorf, who worked with the funds’ administrator Treukapital Treuhandverwaltung AG. These arrests were the follow up to a series of arrests I discussed in a different previous post, by U.S. police in Miami (Stefan Seuss) and Nebraska (Thomas Meyer) in the probe.
Echoing shades of the deceased Jeffry Picower and Rene-Thierry Magon de la Villehuchet in the Madoff scandal, Mr. Frerichs proved to be an interesting character in the K1 scandal whose full story will never be revealed. He
Mr. Frerichs, 72, died of a gunshot wound on Saturday after police officers went to his home in Palma, Majorca to serve a warrant for extradition to Germany, the Spanish police said Monday.
According to a police spokeswoman, three officers went to Mr. Frerichs’s home on the island at 11:30 a.m. on Saturday and found him sunbathing nearby on rocks overlooking the sea. When the officers identified themselves, they said, Mr. Frerichs took a gun from a bag that was lying beside him and leapt into the water.
Mr. Frerichs fired two shots, the spokeswoman said. The first, presumably to test the gun, the authorities said, was fired in the air; with the second, he shot himself in the head. Mr. Frerichs was picked up by a rescue boat and taken to the Son Dureta hospital in Palma. He died not long after arrival.
According to the New York Times, the case has sent shock waves through Spain, where Mr. Frerichs’s stepdaughter, Fiona Ferrer Leoni, initially told the media that the police had shot Mr. Frerichs. She also questioned the police account of him sunbathing with a gun.
Ms. Ferrer, a prominent television personality and model, is married to Jaime Polanco, a Spanish tycoon whose family controls Promotora de Informaciónes, or Prisa, the media group, whose assets include the newspaper El País.
She also told the Spanish news media that Mr. Frerichs had been sought only for his relationship to K1 Group executives and that he was innocent of any fraud.
The police spokeswoman, who cannot be identified because of department policy, denied that officers had fired at Mr. Frerichs. She said his weapon had been retrieved and would be used, along with an autopsy, to determine the exact circumstances of his death.
“It is not normal to be sunbathing with a bag that has a gun,” the spokeswoman said. “But that’s what he did.”
Dietrich Güder, the state prosecutor in Würzburg, declined to comment beyond confirming that the Spanish police had informed him of the events.
Lutz Libbertz, a lawyer in Munich for Mr. Kiener, argued in a November court filing that Mr. Kiener could “at the most be accused of making bad investment decisions, but not of actions constituting breach of trust.” Mr. Libbertz declined to comment on Monday, saying through an associate that “he had nothing to add to what’s already been said.”
Mr. Kiener promoted the power of his “K1 Fund Allocation System,” and is accused of taking advantage of lax lending oversight by banks during the credit boom. He claimed his investments had returned more than 700 percent from 1996 and the end of 2008.
Mr. Kiener, K1′s founder, is equally interesting. He was a former telephone book salesman and psychologist (who graduated from Johann Wolfgang Goethe-University in Frankfurt, Germany in 1987) who founded a seemingly successful and large asset management organization.
The case has been an embarrassment for Germany, as BaFin, the market regulator, had several times sought to stop Mr. Kiener’s activities because of significant legal questions but had its enforcement overturned on appeal.
Mr. Kiener has been in custody in Würzburg, Germany, since October on suspicion of operating a pyramid scheme, defrauding thousands of privat
e investors and banks including JPMorgan Chase, Barclays and BNP Paribas of more than 300 million euros, or $375 million. The F.B.I. is also investigating the group; so are authorities in the British Virgin Islands, Liechtenstein and Switzerland.
The two highly leveraged funds had a combined 421 million euros ($529 million) of liabilities when the accounting firm Grant Thornton was retained in November to liquidate them. The authorities say the prospects for recovering most of the money are poor.
Hedge Fund Operational Due Diligence: Corgentum Study Finds Madoff Ponzi Effect Influences Investor Due Diligence
Corgentum Consulting, the preeminent provider of the industry’s most comprehensive hedge fund operational due diligence reviews for investors, today announced the results of a new study focused on investor due diligence trends. This research shows that as a result of recent frauds and Ponzi schemes, a Madoff Effect has developed, altering the nature and scope of investor due diligence. The data also shows that in anticipation of stricter hedge fund regulation fund of hedge funds are focusing the bulk of their due diligence efforts on legal, compliance and regulatory risks.
The study, ‘The Madoff Effect – An Analysis of Operational Due Diligence Trends’, is available for download at www.Corgentum.com or directly here.
For this study Corgentum collected data from over 200 global hedge fund allocation organizations including fund of hedge funds, endowments, foundations, corporate pensions, family offices, large independent financial advisory practices, ultra high net worth investors and private banking organizations. “The data shows that frauds such as Madoff are an important, but potentially misleading guiding light around which investors tend to focus their due diligence on hedge funds” said Jason Scharfman, Managing Partner.
Investors, influenced by recent hedge fund failures, have refocused their due diligence efforts on operational risk areas where leading operational red flags were present. In particular, since the Madoff scandal broke, this study shows that the number of fund of hedge funds reviewing hedge funds cash management policies and controls increased by almost 60%. Other operational risk areas covered in the Corgentum study that have realized double-digit increases in attention from investors include transparency in reporting and the role of service providers such as auditors and administrators.
Corgentum’s analysis also demonstrates that certain operational risk areas continue to be dangerously neglected during the investor due diligence process. Less than 2% of the fund of hedge funds included in this study considered the independence of a hedge fund’s board of directors during the due diligence process. Other frequently overlooked operational risk areas included information technology infrastructure, personnel turnover and the quality of overall operations management.
“Investor’s must not only understand historical red flags, but be prepared to anticipate new ones. By incorporating proprietary benchmark studies of hedge fund fraud and models of operational inefficiency into our evolving operational due diligence process, Corgentum’s approach ensures investors keep up with the changing nature of hedge fund operational risk” said Scharfman. “Corgentum will continue to partner with fund of hedge funds, pensions, family offices and other investors to create tailored comprehensive hedge fund operational due diligence and ensure that their operational due diligence reviews are not misguided by fraud.”
Opalesque, published an article regarding the study . The article is entitled, “Madoff Effect continues to see investors focus more on fraud risk than operational risk” and is available at www.Opalesque.com or via direct link here (subscription required). Additionally, the press release regarding this study is available here. HedgeCo.Net and HedgeWeek also covered the study in this post.
Madoff Prison Pics (Sort of)…. And Ezra Merkin’s Fellons
While no pictures have been released of Madoff (aka prisoner No. 61727-054) in prison here is a photo/illustration of what New York magazine thinks it would look like:
In their article on Madoff’s prison life, New York magazine also provides insight into how other inmates view Bernie with this sketch by fellow inmate (and convicted bank robber K.C. White):
The article goes on to quote Madoff in prison as follows:
“F— my victims,” he [Madoff] said, loud enough for other inmates to hear. “I carried them for twenty years, and now I’m doing 150 years.”
Oh by the way, here is a video that sort of flew under the radar, J. Ezra Merkin allegedly employed a convicted felon named Victor Teicher who reportedly advised Merkin from jail in 1994 not to invest with Madoff. These allegations came out of New York University’s lawsuit against him:
