K1 hedge fund founder arrested in fraud probe

By Patricia Uhlig and Peter Dinkloh

FRANKFURT (Reuters) - German authorities placed Helmut Kiener, founder of Germany's K1 hedge fund group, under arrest on Thursday in a multi-million-dollar corruption probe of a Caribbean-registered fund he ran.

His arrest warrant said Barclays (BARC.L: Quote, Profile, Research) and BNP Paribas (BNPP.PA: Quote, Profile, Research) may have lost millions of dollars in the case, which prosecutors say spanned the Atlantic and featured lavish personal spending on planes, a helicopter and luxury properties..

FBI agents in Miami also arrested a German wealth consultant and Kiener business partner on money-laundering charges..

Authorities are investigating Kiener, 50, over allegations of fraud and breach of trust, Dietrich Geuder, chief prosecutor in the southern German city of Wuerzburg, told Reuters.

"There is a suspicion that the 50-year-old suspect did not comply with investment guidelines agreed with an English and a French bank among others and has used several millions in funds contrary to agreements," prosecutors said in a statement.

The case centres on the K1 Global Sub Trust hedge fund run by Kiener, a psychologist by training who once sold ads for the Yellow Pages in Germany before moving into the financial sector.

Barclays may have lost most of the nearly $220 million (133 million pounds) it invested with the fund, authorities said.

"If Barclays had known of the suspect's plans, it would not have provided the K1 Global Sub Trust any funds for investment between 2006 and 2009," the arrest warrant seen by Reuters says, adding the funds "are mostly lost as far as we now know".