FRANKFURT -- German authorities placed Helmut Kiener, founder of Germany's K1 hedge fund group, under arrest on Thursday in a multi-million-dollar corruption probe of a Caribbean-registered fund he ran.
His arrest warrant said Barclays and BNP Paribas may have lost millions of dollars in the case, which prosecutors say spanned the Atlantic and featured lavish personal spending on planes, a helicopter and luxury properties..
FBI agents in Miami also arrested a German wealth consultant and Kiener business partner on money-laundering charges..
Authorities are investigating Kiener, 50, over allegations of fraud and breach of trust, Dietrich Geuder, chief prosecutor in the southern German city of Wuerzburg, told Reuters.
"There is a suspicion that the 50-year-old suspect did not comply with investment guidelines agreed with an English and a French bank among others and has used several millions in funds contrary to agreements," prosecutors said in a statement.
The case centres on the K1 Global Sub Trust hedge fund run by Kiener, a psychologist by training who once sold ads for the Yellow Pages in Germany before moving into the financial sector.
Barclays may have lost most of the nearly $220 million (133 million pounds) it invested with the fund, authorities said.
"If Barclays had known of the suspect's plans, it would not have provided the K1 Global Sub Trust any funds for investment between 2006 and 2009," the arrest warrant seen by Reuters says, adding the funds "are mostly lost as far as we now know".
The warrant for Kiener, dated October 20, said France's BNP Paribas invested $60 million with K1 between 2007 and 2008.
Barclays has said it was cooperating fully with authorities, while BNP Paribas declined to comment. French bank Societe Generale said it had a "negligible" exposure to K1..
The arrest warrant identifies Ulrich Mittendorf, whose X1 investment management company worked for K1, as a suspect in the case. Contacted by Reuters, Mittendorf denied any wrongdoing.
Regulators in the United States and Europe are working on stricter supervision of the hedge fund industry following high-profile scandals such as the conviction of Bernard Madoff and the current probe into Rajakumara Rajaratnam, the billionaire founder of the Galleon hege fund who has been charged in a wide-ranging insider trading case. He is free on bail and plans to fight the charges in court.
FOUNDER UNDER SCANNER
Kiener and K1 could not be reached for comment.
His lawyers said they would file an appeal against his arrest and detention in a Wuerzburg jail.
"The man has two children and is married. He had a private audience with the Pope this year and has a 60 million euro jet at Frankfurt airport. This man is not insignificant," a spokeswoman for Munich law firm Lutz Libbertz told Reuters.
Kiener, 50, earned a degree in psychology at Johann Wolfgang Goethe University in Frankfurt in 1987. He studied statistical probability theory and the perception of "effect mechanisms that are too coincidental", according to his website. (www.helmut-kiener.com/)
He worked in market research and advertising before managing a hedge fund in 1995, according to his website, which adds he has advised hedge funds since 2001. He developed the "K1 Fund Allocation System", which the website describes as a "semi-automated asset allocation system for hedge funds based on correlation and statistical parameters".
Juergen Weismueller, head of payroll management at Yellow Pages publisher Trias, said Kiener had worked out contracts with customers from 1988 to 2000.
"He was an average salesman, not outstanding," Weismueller recalled. "He followed the crowd. He was normal, and didn't stand out. I don't remember much about him, so he cannot have made much of an impression."
The warrant links Kiener to Stefan Seuss, the wealth adviser arrested in the United States on money-laundering charges.
It says Kiener pumped $56 million into a company Seuss and his wife set up in the Cayman Islands that bankrolled the purchase of two airplanes, a Bell helicopter and two properties in Miami "that were available for (Kiener) to indulge his luxurious lifestyle".
German financial markets regulator Bafin referred all inquiries to prosecutors. It said on Wednesday it banned Kiener from financial portfolio management in Germany in 2001.
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