Helmut Kiener (pictured) was born in the German town of Wernberg in 1959. After studying statistics at a local technical college, and doing his national service, he studied at various universities, eventually graduating with a diploma in psychology. After briefly working as a social researcher, in 1988 he set up an investment fund, Kiener Company (later named K1 Group), with his friend Dieter Frerichs. This “fund of funds” used money raised from institutional and private investors to invest in other hedge funds, based on their past performance.
What was the scam?
What happened next?
As early as 2002, German regulators were demanding that the fund be shut down due to a lack of official documentation. In response, Kiener simply re-registered the fund in the British Virgin Islands. In the summer of 2008, however, his major institutional investors started to demand the return of their money. In 2009 investigators at JPMorgan, who had taken over Bear Stearns, one of Kiener’s investors, spotted irregularities and complained to the authorities, who shut him down. Despite claiming that he was immune from prosecution as a diplomat for the African country of Guinea-Bissau, Kiener was eventually sentenced to more than ten years in jail.
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Lessons for investors
At the fund’s peak in 2008, Kiener claimed that the fund had assets of around $900m, though actual investor losses have been put at around $500m. He was dubbed “Germany’s mini-Madoff” by the press. Amazingly, much of the money flowed after the original attempts to shut the fund down were widely reported in the media. As with Bernie Madoff’s Ponzi scheme, the stability of the fund’s performance should have been a big red flag. It had reported only a handful of losing months between December 2002 and August 2009.
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