K1 fund

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 presently estimated by administrators Grant Thornton that liquidated funds able to be returned to investors are zero. It is presently suspected by German regulators BaFin to be a ponzi scheme.

History

After Dieter Frerichs relocated back to Germany from Spain in the early 1990's, 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.

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.

After investigation by German federal authorities, BaFin and co-operation from the FBI, Kiener was arrested and placed in detention in October 2010, while an Interpol-authorised arrest warrant issued for Frerichs on February 23, 2010. Both faced 15years in jail in Germany if extradited and convicted at the financial court in Würzburg.

Helmut Kiener

Helmut Kiener received a psychology degree from Johann Wolfgang Goethe University, Frankfurt 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.

Dieter Frerichs

Dieter Frerichs (1938 - July 3, 2010), was raised and lived his early life in Munich, where he invested in clubs and bars. In the 1980s, he sold real estate in Ibiza, Spain, where according to Stern he was prosecuted by Spanish national authorities in 1986 for fraud, after numerous counts of selling the same villa's multiple times to different buyers.

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. During his pre-trial extradition hearing, Frerichs defence attorney claimed that he had suffered a heart attack. The Spanish judge therefore released Frerichs from custody, allowing him to remain at a registered address, but he subsequently went on the run.

On July 3, Spanish police found Frerichs relaxing on a beach close to his home in Mallorca. As they tried to arrest him, Frerichs fled towards a cliff and then into the sea, shouting "I rather die than going to jail." He placed a gun to his head but it miss-fired due to the ingress of sea water. He tried shooting it a number of times in the air, and after it fired shot 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.

Initial reports of the shooting by Frerichs step-daughter Fiona Ferrer Leoni, told the Spanish media that the police had shot Frerichs, and she questioned the police account of him sunbathing with a gun. Ms. Ferrer, who is a prominent television personality and model in Spain, is married to tycoon Jaime Polanco, whose family controls media group Prisa, whose assets include the newspaper El País.