The Monroe Street Journal

Issue date: 11/9/09 Section: News

After facing losses up to $400 billion, major banks such as Barclays Plc, JP Morgan Chase & Co and BNP Paribas SA turned to K1 Hedge Fund for answers. The German Hedge fund firm has been charged with an international criminal investigation while a chief manager of the company has been taken into custody this past Thursday, October 28th, 2009.

Given a great deal of responsibility, the firm manages the reserves of hedge funds across the world. European and American officials hope to discover if K1 engaged in circular transactions with various investment firms across the U.S., the U.K, and other countries in order to paint a façade that the firm had more money at their disposal to backstop loans from banks. From 1996 through this past June, K1 recorded that the founder, Helmut Kiener, set up a system which generated an 825 percent return.

U.S. government officials have gotten involved with the situation, with agents at the Federal Bureau of Investigation working with administrators in Germany. More specifically, investigators at the Internal Revenue Service and Immigration and Customs enforcement are also playing a part, and have made inquiries since the beginning of the year. Since the investigation is private, no names of official suspects have been released as of yet.

JP Morgan Chase & Co. became exposed to the fund manager after absorbing Bear Stearns Co. last year, which did business with K1 Hedge Fund. David Wells, a JP Morgan spokesman refused to comment. Barclay's projected a $220 million loss of funds that they invested with K1. Daniel Hunter, a spokesman from London-based Barclay's told press, "We are fully cooperating with law enforcement."

In terms of who is responsible for this financial catastrophe, all fingers are pointed towards Helmut Kiener at this point in time. However, the company's founder has not released any statements, and all attempts to contact him have been ignored.

In light of the investment scandals that occurred with Bernie Madoff and Allen Stanford, officials have hit the ground running in order to get to the bottom of the situation in a timely manner. Just earlier this month, accusations were made against billionaire Raj Rajaratnam for corrupt practices of inside trading between hedge funds. Rajaratnam and Stanford have denied all accusations while Madoff pled guilty.

K1 Hedge Fund's website quotes their founder's success, "By his far-reaching contacts all over the world he has succeeded in building up a value-consistent investment portfolio with successful and well-known money managers." However, things seem to be playing out differently for Kiener while world-renowned banks suffer immense losses.

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