UPDATE 1-Germany uncovers multi-million euro pyramid fraud scheme

Tue Feb 19, 2013 11:42am EST

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FRANKFURT, Feb 19 (Reuters) - Frankfurt prosecutors on Tuesday said they are investigating two companies based in Hamburg and Frankfurt on suspicion of involvement in a multi-million euro investor fraud scheme.

Around 1,200 investigators searched premises in the federal states of Hesse, Bavaria and Hamburg and six suspects were arrested, the prosecutor said in a statement. Around 50 people are under investigation, the prosecutor said.

The prosecutor's office declined to name the companies or the people involved.

A person close to the investigation said one of the companies was real estate group Deutsche S&K Sachwert AG in Frankfurt and the other was Hamburg-based United Investors Treuhand.

S&K did not respond to requests for comment. United Investors Treuhand also did not respond to requests for comment.

The scheme involved the fraudulent acquisition of investor funds as part of a so-called "snowball investment scheme," the Frankfurt prosecutor said, using the German term for a pyramid scheme.

The mismanaged funds served to support an "extremely excessive lifestyle" on the part of the accused, the prosecutor said. Investor funds were transferred to companies controlled by the accused managers and to their family members.

(Reporting By Edward Taylor, Arno Schuetze and Jonathan Gould; Editing by Martin Zwiebelberg and Jane Merriman)

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