K1 fund
Encyclopedia
The K1 fund was a British Virgin Islands
based hedge fund
, initially marketed to and invested in by mainly German
-based private investors, and latterly a series of global banks. With an estimated size of $378million/£249million and $1Bn under management, it collapsed in 2008. It is estimated by administrators Grant Thornton
that liquidated funds able to be returned to investors are zero. It is suspected by German regulators BaFin
to be a ponzi scheme
.
in the early 1990s, he contacted his friend, qualified psychologist
Helmut Kiener, to establish a financial partnership.
Together they persuaded 10,000 small investors and banks to invest in an investment fund, founded in 1996 via the Kiener Company as the K1 fund. As neither Kiener nor Frerichs held suitable licenses to run the fund, they appointed ex-banker Michael Smolek to run the fund under the United Kingdom
-registered private limited company Nitro Ltd from London
.
The business prospered, and by 1999 Kiener claimed to have made 13million Deutsche Marks for 100 investors. However in 2001, after the German federal financial authority BaFin
prohibited further investment in the fund, the company split into two shell companies named K1 and K1 Global Investments, based in the British Virgin Islands. However, actual control was via Frerichs office in Mallorca
, Spain, marketed to German customers via a telephone line sited in a friends flat in Munich.
Although further warnings and prosecutions were issued by BaFin with regards the two K1 funds (K1 Global and K1 Invest, a hedge fund), investigations have shown that since 2006 K1 had subscribed a further 300million Euro's of investment from both private German investors, as well as banks including Bear Stearns
(acquired by JP Morgan), BNP Paribas
, Barclays and Hypo Group Alpe Adria. K1 claimed a return on its investments of 825% from 1996 to 2008.
An investigation was started by German federal authorities and BaFin, with the co-operation of the FBI, the United Kingdom's Financial Services Authority
, and regulatory bodies in the British Virgin Islands, France
, Hong Kong
, Liechtenstein
and Switzerland
. Authorities presently suspect that much like the ponzi-schemes run by Bernie Madoff and R. Allen Stanford
, that monies were serially transferred between overseas bank accounts to make the whole fund look bigger and more stable than it actually was.
Kiener was subsequently arrested and placed in detention in October 2009, while an Interpol
-authorised arrest warrant was issued for Frerichs on February 23, 2010. Both faced 15years in jail in Germany if convicted at the financial court in Würzburg
.
in 1987. He claims during this period that his studies included “statistical chance theory,” which lead to the K1 funds K1 Asset Allocation Method. Kiener claimed to have developed what K1 later described as a “semi- automatical allocation system” using statistics
to help pick hedge-fund investments. He lived near Germany's financial centre, Frankfurt
.
on Frerichs close to his home in Mallorca. Frerichs was found outdoors on a nearby beach. According to a police spokeswoman, Frerichs ran away from the police, and displayed a firearm. Police indicated that Frerichs fired the gun twice, shooting himself in the head. Police recovered him from the sea, and although taken by emergency ambulance to the Hospital Son Dureta in Palma, he died after a few hours. Members of Frerich's family initially alleged that police officers had shot at Frerichs, however, the New York Times and the Daily Telegraph reported the death as an "apparent suicide" and "suicide" respectively.
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
based hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
, initially marketed to and invested in by mainly German
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
-based private investors, and latterly a series of global banks. With an estimated size of $378million/£249million and $1Bn under management, it collapsed in 2008. It is estimated by administrators Grant Thornton
Grant Thornton
Grant Thornton LLP encompasses the U.S. operations of Grant Thornton International, the largest accounting organizations outside of the Big Four . The member firms of Grant Thornton International comprise a global network of 27,000 employees and 2,207 partners in more than 110 countries...
that liquidated funds able to be returned to investors are zero. It is suspected by German regulators BaFin
BaFin
The Federal Financial Supervisory Authority better known by its abbreviation BaFin is the financial regulatory authority for Germany. It is an independent federal institution with headquarters in Bonn and Frankfurt and falls under the supervision of the Federal Ministry of Finance...
to be a ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
.
History
After Dieter Frerichs relocated back to Germany from SpainSpain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
in the early 1990s, he contacted his friend, qualified psychologist
Psychologist
Psychologist is a professional or academic title used by individuals who are either:* Clinical professionals who work with patients in a variety of therapeutic contexts .* Scientists conducting psychological research or teaching psychology in a college...
Helmut Kiener, to establish a financial partnership.
Together they persuaded 10,000 small investors and banks to invest in an investment fund, founded in 1996 via the Kiener Company as the K1 fund. As neither Kiener nor Frerichs held suitable licenses to run the fund, they appointed ex-banker Michael Smolek to run the fund under the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
-registered private limited company Nitro Ltd from London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
.
The business prospered, and by 1999 Kiener claimed to have made 13million Deutsche Marks for 100 investors. However in 2001, after the German federal financial authority BaFin
BaFin
The Federal Financial Supervisory Authority better known by its abbreviation BaFin is the financial regulatory authority for Germany. It is an independent federal institution with headquarters in Bonn and Frankfurt and falls under the supervision of the Federal Ministry of Finance...
prohibited further investment in the fund, the company split into two shell companies named K1 and K1 Global Investments, based in the British Virgin Islands. However, actual control was via Frerichs office in Mallorca
Mallorca
Majorca or Mallorca is an island located in the Mediterranean Sea, one of the Balearic Islands.The capital of the island, Palma, is also the capital of the autonomous community of the Balearic Islands. The Cabrera Archipelago is administratively grouped with Majorca...
, Spain, marketed to German customers via a telephone line sited in a friends flat in Munich.
Although further warnings and prosecutions were issued by BaFin with regards the two K1 funds (K1 Global and K1 Invest, a hedge fund), investigations have shown that since 2006 K1 had subscribed a further 300million Euro's of investment from both private German investors, as well as banks including Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
(acquired by JP Morgan), BNP Paribas
BNP Paribas
BNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...
, Barclays and Hypo Group Alpe Adria. K1 claimed a return on its investments of 825% from 1996 to 2008.
Collapse and investigation
During the financial crisis of 2008, the K1 hedge fund like other investments collapsed. After their appointment in November 2009, liquidators Grant Thornton found that the two highly leveraged funds had a combined 421 million euros ($529 million) of liabilities, and have projected that prospects for the money are poor.An investigation was started by German federal authorities and BaFin, with the co-operation of the FBI, the United Kingdom's Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
, and regulatory bodies in the British Virgin Islands, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Liechtenstein
Liechtenstein
The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...
and Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
. Authorities presently suspect that much like the ponzi-schemes run by Bernie Madoff and R. Allen Stanford
Allen Stanford
Robert Allen Stanford is a former prominent financier and sponsor of professional sports who is in prison awaiting trial on charges his investment company was a massive Ponzi scheme and fraud. Stanford was the chairman of the now defunct Stanford Financial Group of Companies. A fifth-generation...
, that monies were serially transferred between overseas bank accounts to make the whole fund look bigger and more stable than it actually was.
Kiener was subsequently arrested and placed in detention in October 2009, while an Interpol
Interpol
Interpol, whose full name is the International Criminal Police Organization – INTERPOL, is an organization facilitating international police cooperation...
-authorised arrest warrant was issued for Frerichs on February 23, 2010. Both faced 15years in jail in Germany if convicted at the financial court in Würzburg
Würzburg
Würzburg is a city in the region of Franconia which lies in the northern tip of Bavaria, Germany. Located at the Main River, it is the capital of the Regierungsbezirk Lower Franconia. The regional dialect is Franconian....
.
Helmut Kiener
Helmut Kiener received a psychology degree from Johann Wolfgang Goethe University, FrankfurtFrankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...
in 1987. He claims during this period that his studies included “statistical chance theory,” which lead to the K1 funds K1 Asset Allocation Method. Kiener claimed to have developed what K1 later described as a “semi- automatical allocation system” using statistics
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
to help pick hedge-fund investments. He lived near Germany's financial centre, Frankfurt
Frankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...
.
Dieter Frerichs
Dieter Frerichs (1938 - July 3, 2010), was director for two of the K1 funds controlled by the K1 group founded by Kiener. Following the collapse of K1 and issue of the Interpol arrest warrant, on April 13, 2010, Frerichs was arrested at his home in Palma, Mallorca, and later conditionally released. In May, prosecutors in Germany sought to question Frerichs , and obtained an extradition order. On July 3, Spanish police attempted to serve an extradition warrantEuropean Arrest Warrant
The European Arrest Warrant is an arrest warrant valid throughout all member states of the European Union . Once issued by a member state, it requires the receiving member state to arrest and transfer a criminal suspect or sentenced person to the issuing state so that the person can be put on...
on Frerichs close to his home in Mallorca. Frerichs was found outdoors on a nearby beach. According to a police spokeswoman, Frerichs ran away from the police, and displayed a firearm. Police indicated that Frerichs fired the gun twice, shooting himself in the head. Police recovered him from the sea, and although taken by emergency ambulance to the Hospital Son Dureta in Palma, he died after a few hours. Members of Frerich's family initially alleged that police officers had shot at Frerichs, however, the New York Times and the Daily Telegraph reported the death as an "apparent suicide" and "suicide" respectively.