UPDATE 5-Banker Julius Meinl arrested in Vienna over fraud

Thu Apr 2, 2009 12:15pm EDT

* Meinl Bank chairman accused of defrauding investors

* Alleged fraud by purchasing shares to prop up price

* Unauthorised, non-disclosed buybacks took place in 2007

* Arrest follows more than 18 months of investigations

* Set to be freed Thurs or Fri on 100 mln euros bail

(Recasts with bail, adds lawyer rejects allegations, detail on risk of escape)

By Boris Groendahl and Alexandra Schwarz

VIENNA, April 2 (Reuters) - Banker Julius Meinl V, head of an Austrian coffee-roasting dynasty and chairman of Meinl Bank, posted 100 million euros ($133.5 million) bail on Thursday after his arrest on suspicion of defrauding investors via secretive share buybacks.

The arrest late on Wednesday followed 18 months of investigations by prosecutors and financial watchdog FMA and mainly relates to Meinl's role in the fall of Meinl European Land, a listed real estate firm started by Meinl Bank, Vienna prosecutors said.

Among other crimes, British-born Meinl is accused of having orchestrated a buyback in which Meinl Land bought 1.8 billion euros ($2.4 billion) worth of its own shares to prop up their price, before they suddenly fell off a cliff in July 2007.

"The most serious (accusation) is defrauding investors by buying back shares to prop up the share price," said Michaela Schnell, spokeswoman for Vienna state prosecutors. "He was arrested because there is risk of escape."

Prosecutor spokesman Gerhard Jarosch said Meinl's British passport raised the risk he may try to escape as extradition from Britain could be difficult. The fact that Meinl's private jet waits fully tanked at Vienna airport was also a consideration.

Other allegations include that Meinl Bank damaged Meinl Land shareholders by overcharging for services, and that it wrongly portrayed Meinl Land shares as an almost risk-free investment in several widely advertised share issues during 2005 to 2007.

Prosecutors are still investigating around a dozen other people on the allegations but it was not clear how many of them would be charged or arrested, a spokesman said.

Meinl, a personal friend and business partner of former Austrian Finance Minister Karl-Heinz Grasser, would face up to 10 years in jail if found guilty. Grasser is not a subject in the investigation.

Meinl, Austria's 12th-richest man according to magazine Trend, was set to be freed on Thursday or Friday after posting 100 million euros in bail, prosecutors said.

His lawyer rejected the accusations against his client. Meinl Bank declined to comment on the suspicions but reassured clients that the bank and clients' deposits were safe.

RISE AND FALL

Julius Meinl's arrest marks the nadir for a once proud family that started selling coffee beans in Vienna in 1862, built a retail network, fled from the Nazis to Britain in 1938 and then rebuilt the chain in Austria after World War Two.

Trained at Bear Stearns in the 1980s, Meinl took over the family bank and turned it into the source of the family fortunes, selling off the retail business except for an upscale deli in the centre of Vienna. [ID:nL2634380]

Apart from the bank, which focuses on wealth management and investment banking, Julius used property acquired when he was still running a retail chain as the starting point for Meinl Land, which became a shopping mall developer in emerging Europe.

Meinl Land sold shares to the public in an IPO in 2002 and between 2005 and 2007 raised a total of 4.3 billion euros in several share issues, mostly sold to Austrian retail investors.

While Meinl Bank never officially held a stake in Meinl Land while it was listed, the bank owned the company that acquired and managed Meinl Land's investments for a fee, handled its share issues and IPO and acted as its market maker.

The share buybacks took place between February and July 2007 and were not authorised by and not disclosed to shareholders until they were concluded.

The buybacks buoyed Meinl Land's share price at a time when real estate stocks were falling across the world. When they eventually became public, Meinl Land's share price dropped sharply at the end of July 2007.

The buybacks overlapped with a period in which a vehicle controlled by Meinl Bank was selling 620 million euros worth of the stock in the market, and with initial public offerings of two similarly structured sister companies of Meinl Land.

Meinl Bank does not dispute the buybacks but says it did not need shareholder authorisation and denies it bought back shares directly from Meinl Bank or an affiliate.

Meinl Land was last year taken over by Israeli real estate investment firm Gazit Globe and renamed Atrium European Real Estate ATRV.VI. Gazit Globe said it was not connected in any way to Julius Meinl or his bank.

The two other companies Meinl started -- Meinl International Power MPOW.VI and Meinl Airports International MAIV.VI -- were taken over by rebel shareholders and last week decided to sell all their assets and pay out the funds to shareholders. [ID:nLR442259] (Additional reporting by Sylvia Westall in Vienna and Tova Cohen in Tel Aviv; Editing by Simon Jessop and David Holmes)

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