Bail plea failure keeps K1 founder in jail

FRANKFURT (Reuters) - The founder of Germany's K1 hedge fund group remained behind bars on Monday after his lawyers failed to convince a judge he was the victim of a witch hunt and had immunity as a diplomat for an African country.

Lawyers for Helmut Kiener denied he committed fraud and sought his release on bail, arguing he was a diplomat for the West African nation of Guinea-Bissau, documents appealing against his arrest showed.

Kiener is suspected of fraud and breach of trust in a case in which Barclays (BARC.L) and BNP Paribas (BNPP.PA) may have lost millions of dollars and which prosecutors say featured lavish personal spending on planes, a helicopter and luxury properties.

"The appeal for release was rejected," said Dietrich Geuder, a spokesman for the prosecutor's office in Wuerzburg, Germany. After a judge at the district court rejected the appeal, the case moves to a state court, the spokesman said.

A court filing dated November 5 said Kiener argued it was inappropriate to accuse him of fraud or breach of trust.

"Mr Kiener is of the view that funds were invested, objects were rented out or chartered, and that the funds are still there," an appeal against his arrest filed by his lawyers showed.

The filing said Kiener had no need to commit a crime because he had a secure financial position. Every year since 1996, he had an annual income in seven figures.

Some of the accusations were based on "misunderstandings," not facts, the filing said, adding accusations against Kiener were possibly the product of a "witch hunt" by banks.

The filing said Kiener, 50, believed the amount spent on a private jet was "absolutely appropriat."

Kiener's lawyers deny accusations that he instructed Stefan Seuss, a wealth adviser arrested in the United States on money-laundering charges, to buy a Bell helicopter via a Cayman Islands-based company called Mezzanine Financing Ltd.

Seuss acted on his own and made the helicopter available for charter, the filing said.

The helicopter generated good profits, although the use of a Piaggio Avanti airplane did not generate such good returns, the document said.

Lawyers said Kiener made use of a house in Delaware Beach that was owned by a fund, but said Kiener paid monthly rent of between 20,000 and 40,000 euros (18,000 and 36,000 pounds).

Kiener's lawyers said there was no danger of him fleeing the country since the centre of his life remained his home town of Aschaffenburg, where he lives with his wife and children.

They asked the court to release him on 500,000 euros in bail.

The embassy of Guinea-Bissau in Brussels had no immediate comment.

(Additional reporting by Eva Kuehnen; Editing by David Cowell)