Manfred Schmider was born in 1949 in the German city of Karlsruhe. From a young age he was interested in business, and started out selling life insurance and then used cars. In 1986 he set up FlowTex with Klaus Kleiser in order to sell and rent out machines that used a special technology, licensed from America, which it was claimed allowed utility companies to drill and lay lines and cable without the need to dig up the ground above, thus greatly reducing disruption. By 1999 the apparent success of the company had made Schmider a multimillionaire and one of the most respected entrepreneurs in the region.
What was the scam?
Initially FlowTex raised money legitimately from investors and banks. But when the technology proved impractical, Schmider turned to fraud, inventing sales figures and inflating the number of machines it owned more than tenfold. He then used the forged statistics to borrow more money from banks and leasing companies, in many cases switching licence plates on the machines to fool banks and auditors. Some of the money was used to make interest payments; the rest was squandered on buying multiple villas around the world, a fleet of luxury cars, and even a helicopter to enable him to fly to work. He become known as the “Sheikh of Karlsruhe”.
What happened next?
Schmider’s status as a business success and his lavish parties helped ensure that questions raised by the tax authorities and prosecutors as early as 1996 went ignored for several years. However, by 2000 the interest payments on the loans FlowTex had taken out grew so large that he was not able to raise enough money to pay them. Schmider was arrested on charges of money laundering in February 2000. His firm folded, and he was eventually sentenced to up to 12 years in prison.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
The losses from the fraud have been estimated at as much as €2.2bn. Schmider’s lawyer speculates that lenders were blinded by his apparent success, as well as the hospitality that he insisted on lavishing on them every time they visited. Indeed, not only would he give them a ride on his helicopter and invite them to his yacht, but he also insisted on treating them to alcohol-fuelled “liquid lunches”, which may have further clouded their judgement. It’s important to remain focused (and sober) when making important investment decisions.
-
Investing in defence as the world rearmsAs countries in Europe and worldwide increase military spending amid mounting geopolitical tensions and risks, investors are taking a fresh look at defence companies
-
Older savers dangerously unprepared for financial shocks in retirementMost over-50s haven’t factored in the cost of care when planning for retirement, or other financial hurdles like long-term illness. We share four tips to boost your financial resilience.
-
Trump picks Scott Bessent to lead Treasury – will he succeed?Hedge fund manager Scott Bessent is an odd pick for Donald Trump’s Treasury secretary, but he is seen as the more reasonable and pragmatic of the candidates
-
Justin Sun: China’s revolutionary crypto visionaryJustin Sun, founder of the Tron blockchain and cryptocurrency made his fortune young from bitcoin trades. Now he wants to change the world
-
Rouble hits two-year low against the dollar – what does it mean for Russia's economy?New US sanctions have plunged the rouble to its lowest level since 2022. Why are investors spooked and how will this affect Putin's economy?
-
Why Gary Lineker's Match of the Day exit mattersFormer England captain Gary Lineker is stepping down from hosting the football programme Match of the Day, after 25 years.
-
Henry Keswick: the plutocrat who fell for ChinaProfile Henry Keswick, a scion of the Jardine Matheson trading company, rebuilt the firm's fortunes after the upheavals of the 1990s. He died aged 86.
-
Has Javier Milei succeeded in transforming Argentina's economy?Javier Milei won an election last year on an “anarcho-capitalist” platform, promising to take a chainsaw to the overbearing and bloated state. How’s it going?
-
Brazil booms – but why do investors remain wary?Brazil is booming, but you wouldn’t think so from looking at the stock market. What's behind the market paranoia?
-
Elon Musk enters the White House – what happens now?Elon Musk has achieved the seemingly impossible many times before in the business world. But will he be able to cut the US government down to size?
