Hedge fund founder charged in $311 million Ponzi scheme

The founder of several hedge funds, already serving 10 years in a German prison for defrauding investors of nearly $500 million, is now facing similar charges in Philadelphia.

Helmut Kiener, 53, controlled a number of hedgefunds including K1 Global Limited, Oceanus, Mezzanine and K1 Invest. According to federal prosecutors, Kiener misappropriated $311 million in an elaborate Ponzi scheme that he used to pay for a luxurious lifestyle.

Among Kiener's alleged victims: Bear Stearns which lost $82 million to Kiener for three years until the financial institution went belly up in 2008; Barclays Bank which lost $137 million and BNP Paribas which lost $13.4 million.

Kiener, a former psychologist, allegedly spent most of the money on himself. He bought a $21 million oceanfront estate in Delray Beach; several cars including a Bentley, a Mercedes and a Maybach; two luxury watercraft; and over $8 million in improvements to his other properties.

With several of his purchases, only the sky was the limit. He bought a Bombardier executive jet in July 2007 for $37.1 million; a Bell helicopter in November 2007 for $4.8 million; and a short-range aircraft purchased in July 2008 for $4.5 million.

In his scheme, Kiener convinced the banks to invest at least $100 million in two offshore funds. Rather than putting the money to work, Kiener allegedly funneled it through a third-party which routed the money back to K1 Global, creating the impression that the funds were generating significant returns, according to the indictment which was unsealed today.

A German court last year found Kiener guilty of fraud, forgery and tax evasion for his running the scheme. Several associates also received prison time, one committed suicide rather than face arrest.

"My problem was that I didn't have the courage to end it all earlier," Kiener said after the German verdict, according to Bloomberg News. "Now I have to pay for it."

In Philadelphia today, Kiener was charged in an information with four counts of wire fraud, two counts of bank fraud, and three counts of money laundering. An information usually indicates that a defendant will not contest the charges and that a plea deal is in the works.

The charges were filed in Philadelphia because of its connection with another major money laundering scheme, prosecutors said.

If found guilty, Kiener faces a maximum sentence of 200 years in prison, restitution, and a maximum possible fine of $7.936 million.

An associate, John C. Tausche, 61, also was charged in an information today. Tausche of Blowing Rock, N.C. faces one count of bank fraud and one count of money laundering, based on his alleged involvement in the scheme.