5 Min Read
* Firm collapses only months after IPO in late October
* Former CEO denies fraud
* Shares fall 78 pct to 0.76 euro, IPO price 15.50 (Adds detail, comments from former CEO, shareholder advocate)
By Christiaan Hetzner
FRANKFURT, Feb 13 (Reuters) - German street light maker Hess filed for insolvency on Wednesday, just months after its stock market debut, saying a fraud investigation had scuppered its chances of raising urgently-needed funds.
Its shares slumped 78 percent to 0.76 euro, a fraction of the company's IPO price of 15.5 euros. Small investors and financial institutions had invested 36 million euros ($48.47 million) in the flotation in late October.
Hess's supervisory board sacked its management last month and said it had called in external auditors and lawyers to probe a possible fraud that had been going on for a "remarkable period of time" - allegations that its sacked chief executive Christoph Hess has flatly denied.
The IPO prospectus included a table with audited figures showing the group made annual net profits of more than 1 million euros in 2009, 2010 and 2011.
But the new management said Hess had spent more than it earned every year since 2009 and had used a variety of methods to plug the financing gap - first it used bank loans before tapping private equity firms and lately institutional investors.
In a statement on Wednesday, the new management said it had concluded that Hess was illiquid and over-indebted and there was "no positive prognosis" for the group as a going concern.
"Because of uncertainties with regard to possible (lawsuits) of investors, there are no sufficient chances for acquisition of new equity or debt capital from investors," said the statement written in English.
The spectacular fall of Hess is reminiscent of scandals that rocked Germany's market for smaller, high-growth companies, the Neuer Markt, around the dotcom bubble collapse of 2001 and led many German small investors to shun the stock market.
For some, Hess's story is even more dramatic.
"Considering its extremely brief period of time on the stock exchange, we have not witnessed a scandal like this even during the Neuer Markt," said Klaus Nieding of German shareholder advocacy group DSW.
He said DSW was examining whether to claim damages, possibly as early as July, on behalf of 16 shareholders including one institutional investor.
If there is evidence that Hess's IPO prospectus was falsified, Nieding said, investors could also demand compensation from the banks, legal firms and tax accountants that signed off on the document.
Germany's Landesbank Baden-Wuerttemberg (LBBW), which accompanied Hess to the stock market, said it would examine the case carefully, but denied any suggestion that it had been negligent in its duties.
It hinted it may withdraw entirely from helping private companies with initial public share offerings (IPOs), preferring to stick to secondary issues.
"We will continue to help companies in the future to secure capital via the stock exchange. We will, however, decide on the basis of the results (of our internal examination) whether we accompany IPOs and, if so, in which cases," the bank said in a statement to Reuters.
Hess designed the lighting for San Francisco International Airport and the marina in Monaco.
The company said it was forced to file for insolvency after its parent group - owned by sacked chief executive Christoph Hess - failed to honour liabilities estimated at 1.35 million euros to the now illiquid firm and participate in a financial rescue.
Christoph Hess issued a statement in which he said he and his father Juergen Hess had offered aid in the same quantity to pay the salaries of its 380 staff. The two sides dispute, however, whether the 1.35 million euros is actually owed to the now insolvent company.
In January, state prosecutors in the German city of Mannheim said they had raided the offices and residence of the two management board members on suspicion that they had falsified Hess's books.
The prosecutors said at the time that they had expanded their investigation after coming to suspect that the company's stock market prospectus was falsified.
"The supervisory board under chairman Tim van Delden still has not listened to my response to the allegations," Christoph Hess said in his statement on Wednesday.
"I would not have been able to say anything substantive regarding the accusations, however, since I have not been able to gain access to either the original records that could exonerate me or even their copies," he added. ($1 = 0.7427 euros) (Additional reporting by Alexander Huebner, Ed Taylor and Andreas Kroener; Editing by Tom Pfeiffer)