As German regulators and the FBI investigate possible fraud at German fund-of-funds K1 Group, reports are emerging that some of the biggest banks are facing losses.
According to Reuters, Barclays plc (NYSE:BCS) may have to kiss goodbye to about $220 million and BNP Paribas SA to about $60 million. French bank Societe Generale SA said it had a "negligible" exposure to K1. Bloomberg adds J.P. Morgan Chase & Co. (NYSE:JPM) into the mix, which inherited exposure to K1 through its acquisition of Bear Stearns.
That these banks all condescended to invest with founder Helmut Keiner, who was arrested Wednesday, is baffling. There were plenty of red flags that should have halted them in their tracks, and would have easily been found had they done any due diligence.
For instance, the fund achieved 825% returns from 1996 through last June, according to Bloomberg. That number is way out of the scope of normal, given the S&P 500 rose 49% during that same period. Not only that, but BaFin, Germany's regulator, had been on Keiner's tail since about 2001, trying to prevent him from soliciting German investors, even taking the firm to court once.
But since that didn't stop the banks from investing, Keiner's past ought to have. Keiner is a trained psychologist who "once sold ads for the Yellow Pages in Germany before moving into the financial sector," Reuters writes. - Sara Behunek
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