K1 auditor says would be "bold" to conclude fraud
* Auditor says funds hold up pay, lack liquidity
* Liquidity scarce "for some months"
* Auditor says negative publicity hurts credibility
By Edward Taylor
FRANKFURT, Oct 31 (Reuters) - An auditor for German hedge fund K1 Global Ltd said that "liquidity of K1 is apparently scarce", temporarily preventing payouts to banks and clients, but it would be "bold" to conclude this stemmed from fraud.
"Until now nothing has been proven," Professor Josef Augustin Becker said in an e-mailed response to questions about K1, a hedge fund company whose founder, Helmut Kiener, was arrested this week amid a probe of possible fraud and breach of fiduciary trust prosecutors say may have cost banks millions. [ID:nLT702092]
Becker, a professor of finance and accounting at the University of Applied Sciences in Ludwigshafen and who is listed on the fact sheet for the K1 Global Ltd Participation Rights Class A as being its auditor, said on Saturday K1's target funds were restricting the flow of money.
"For some months now the liquidity of K1 is apparently scarce," he said in the e-mail. "Reason is: the target funds are not liquid and are limiting payouts."
According to K1 Global Ltd's Participation Rights Class A fact sheet, the fund allocates assets to a portfolio consisting of several target hedge funds which "reflect the whole spectrum of hedge-fund strategies". here
Some strategies employ frequent trading whereas others are based on medium- and longer-term positions. The managers of the target funds take both long and short positions, the sheet said.
Becker said headlines about the investigation were attracting unwanted public scrutiny of K1.
"The countless press reports can destroy the credibility of a fund, with the consequence that the investors need to wait a long time for repayment," Becker said in the e-mail.
The fact that "U.S. subjects" had alerted U.S authorities to help track down their funds is "self evident," he said.
Becker declined further comment, saying his duty of confidentiality prevented him from commenting in detail but pledging to cooperate with the investigation.
Kiener's arrest warrant said Barclays (BARC.L) and BNP Paribas (BNPP.PA) may have lost millions of dollars in the case, which prosecutors say spanned the Atlantic and featured lavish personal spending on planes, a helicopter and luxury properties.
Barclays may have lost most of the nearly $220 million it invested with the fund, authorities said. [ID:nWEA7731]
The investigation centres on the K1 Global Sub Trust hedge fund run by Kiener, a psychologist by training who once sold advertising for the Yellow Pages in Germany before moving into the financial sector.
Kiener has been unavailable for comment.
His lawyers said they would file an appeal against his arrest and detention in a Wuerzburg jail.
(Reporting by Edward Taylor, Editing by Michael Shields)
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