K1 Group founder Helmut Kiener, who was convicted in Germany of defrauding investors in a Ponzi scheme, was indicted by the U.S. for his role in a $311 million fraud, the U.S. attorney in Philadelphia said.
Kiener, a German national, was charged today with four counts of wire fraud, two counts of bank fraud and three counts of money laundering based on allegations that he devised a scheme to defraud Bear Stearns Cos. (JPM:US) using hedge funds in the Bahamas and the Cayman Islands. Kiener’s partner John Tausche, 61, of Blowing Rock, North Carolina, was charged with one count of bank fraud and one count of money laundering.
Kiener, 53, was convicted in 2011 and sentenced to 10 years and eight months in prison after confessing to using new investors’ money to make up for losses in the wake of the financial crisis.
K1’s funds are being liquidated in the British Virgin Islands. Kiener’s personal assets were placed in insolvency proceedings in Germany, where he is incarcerated.
Tausche is “cooperating with authorities,” his attorney Joseph Grimes said.
“He’s doing everything he can to make right the harm that was done to investors,” Grimes said in a phone interview.
Between March 2005 and December 2008, Kiener and Tausche allegedly funneled investment funds from Bear Stearns through Oceanus Funds, an entity controlled by Tausche to give the impression that the investments were growing in size, according to today’s indictment.
The men allegedly falsely represented to Bear Stearns officials that the funds were diversified and independently managed. Bear Stearns lost about $82 million, U.S. Attorney Zane Memeger said in a statement announcing the indictment.
Tausche is accused of a similar scheme against Barclays Plc involving K1 funds that led to losses of $137 million, according to the statement. Kiener also allegedly caused more than $100 million in investments from Barclays, Bear Stearns and BNP Paribas to be directed to offshore funds used for his own purposes, according to the statement.
If convicted, Kiener faces a maximum of 200 years in prison and a maximum possible fine of $7.9 million. Tausche faces a maximum of 40 years in prison and a fine of $1.9 million.
The case is U.S. v. Kiener, 13-00062, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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