Germany vows reform after investors hit by wind park insolvency

FRANKFURT Thu Jan 23, 2014 12:11pm EST

FRANKFURT Jan 23 (Reuters) - Germany's justice minister has promised tougher regulation of niche investment products after the insolvency of Prokon, a wind park group that lured investors with aggressive ad campaigns on prime-time television, in buses and commuter trains.

The company of 1,300, which operates 50 wind parks in Germany and Poland, had raised 1.4 billion euros ($1.9 billion) by touting profit-participation rights and promises of returns of at least 6 percent a year.

Consumer groups had long warned that the company, founded in 1995, was not spelling out the risks to investors.

After German media reports questioned whether Prokon's generous pay-outs were backed by actual profits, investors began asking for their money back, and the company ran out of funds.

"The Prokon case shows once again that we must regulate the grey capital market," said Justice Minister Heiko Maas. "We have to create transparency where consumers are struggling to protect themselves."

The insolvency deals a blow to thousands of retail investors who had hoped to profit from Germany's shift from nuclear to renewable power, such as wind and solar.

To encourage investment in renewable energy projects, the German government introduced incentives that guarantee producers fixed prices over a 20-year period. But the sector has grown faster than intended, prompting the government to scale back so-called feed-in tariffs.

In recent years, Germany has seen a wave of insolvencies of solar power companies which went from boom to bust, including Q-Cells, Conergy and Solon. Renewable energy accounted for more than 23 percent of Germany's power generation last year, with wind power as the top contributor at nearly 8 percent.

Prokon founder Carsten Rodbertus, speaking at the company's headquarters in Itzehoe near Hamburg on Thursday, admitted to making mistakes but vowed to stick to his business model and continue operations. He said he had already begun talks on the sale of individual wind parks.

Marc Tuengler of DSW, a lobby group for private shareholders, and Michael Kemmer, head of the German banking association, both called for changes in the way niche investment products like those sold by Prokon are regulated.

The banking association is calling for Bafin, the financial regulator responsible for supervision of German banks, to be given responsibility for such products as well.

But Michael Meister, a senior official in the German finance ministry, cast doubt on whether new rules were the answer.

"Retail investors ultimately carry the responsibility for their decisions," he said.

The profit-participation certificates that Prokon sold offer high interest payments but investors face a hit if the company makes losses. Unlike shares, the securities do not give holders any say in the company.

Prokon investors are in the dark about whether they may get some of their money back. As the company has not published detailed financial results since 2011, it may take time for insolvency administrator Dietmar Penzlin to sort through its finances.

"Only then can it be determined what value Prokon's assets have and whether the holders of the profit-participation rights can hope to recover something," said experts at investor rights group SdK.

($1=0.7372 euros) (Writing by Noah Barkin; Additional reporting by Jan Schwartz, Anneli Palmen, Ludwig Burger, Christoph Steitz)