Barclays at a loss after K1 hedgie fraud

BARCLAYS may have lost up to $240m (&pound;146m) in a case involving a German hedge fund founder arrested following a corruption probe into a caribbean-registered fund he ran.<br /><br />The bank is among a number of institutions affected by the case, in which German and US authorities are investigating Helmut Kiener, 50, who founded Germany&rsquo;s K1 hedge fund group, over allegations of fraud and breach of trust.<br /><br />Prosecutors say the affair spanned the Atlantic and featured lavish personal spending on aircraft, a helicopter and luxury properties.<br /><br />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.<br /><br />Kiener may have channelled almost $220m from Barclays to funds he controlled contrary to investment agreements, while a separate deal with Barclays generated about $20m of management fees for Kiener.<br /><br />&ldquo;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,&rdquo; prosecutors said in a statement.<br /><br />A Barclays spokesman declined to comment on the specifics of the case.<br /><br />&ldquo;We are co-operating fully with the authorities in their investigation and as such it is inappropriate for us to comment,&rdquo; he said.<br /><br />Kiener&rsquo;s lawyers have said they would file an appeal against his arrest and detention in a prison in Wuerzburg, southern Germany.<br /><br />Regulators are working on stricter supervision of the hedge fund industry following high-profile scandals such as the conviction of Bernard Madoff and the current probe into the Galleon hedge fund case.