April 14, 2011 / 1:13 PM / 8 years ago

K1 founder confesses to setting up Ponzi scheme

FRANKFURT (Reuters) - Helmut Kiener, founder of German hedge fund group K1, confessed to having set up an elaborate Ponzi scheme that prosecutors say cost investors 345 million euros ($496.7 million).

“I truly regret this,” Kiener said in a two-hour defense plea his lawyer read out in a German court on Thursday, where he is being charged with fraud, forgery of documents and tax evasion.

Kiener was arrested in October 2009 as authorities said Barclays (BARC.L) and BNP Paribas (BNPP.PA) may have lost millions of dollars in the case, which prosecutors said spanned the Atlantic and featured lavish personal spending on planes, a helicopter and luxury properties.

Prosecutors have said that investors were duped into investing in funds K1 Global Ltd and K1 Invest Ltd by pretending the funds were posting significant profits and would continue to do so, even though both of them had posted losses.

The 51-year-old German, a trained psychologist, said on Thursday he had not planned to build a pyramid scheme but had become more deeply entangled in the face of mounting losses and obligations to investors.

“I just did not have the courage to give up and shut down the funds after making losses,” Kiener said on Thursday.

He put part of the blame on Barclays and BNP Paribas. Barclays, which lost 171 million euros on deals with Kiener, had set up funds that invested in his funds, ratcheting up the pressure, he said.

(Reporting by Alexander Huebner; Writing by Maria Sheahan)

$1=.6945 Euro

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