Jailing Middelhoff A Spectacular Fall from Grace

Once a shining knight of German business, Thomas Middelhoff now faces jail time after a court found him guilty of spending over €1 million of his struggling company’s money on himself.
Thomas Middelhoff in court in Essen on Friday.

One of Germany’s most successful businessmen has been sentenced to three years in prison for misusing company funds.

Thomas Middelhoff, who is perhaps best known outside Germany as the former chief executive of the Bertelsmann media empire, was found guilty on 27 counts of breach of trust, or fraud, and three of tax evasion.

The tough sentence, delivered Friday morning, came as a surprise. The prosecutors had asked for a sentence of three years and three months. His lawyers had asked for him to be acquitted.

Mr. Middelhoff was accused of taking charter flights at the expense of his former company Arcandor, at a cost of more than €800,000 ($996,000) and of using more than €180,000 in company funds for a gift to a friend.

These were mainly chartered flights that, according to the prosecutors, were completely or partly for private purposes, but which his company paid for. The company which had owned the Karstadt department store chain filed for insolvency in 2009.

The 61-year-old denied the charges. The judge was not convinced. After a six-month trial in Essen, the court announced that they were sending him to jail for three years.

Handing down the sentence, the presiding judge Jörg Schmitt said that the defendant had “not been honest with us,” adding that perhaps he was also not honest with himself. The judge said his efforts to explain his actions had been “helpless and fanciful.” Mr. Middelhoff now lives in St. Tropez in the south of France, but he was in court on Friday to hear the judgment.

According to the prosecutors’ office, he had burdened the struggling company with unacceptable extra costs during his period at the helm, between 2005 and 2009.

The flights were often expensive charter flights between London and New York. He also spent €74,000 on helicopter flights between his home in Bielefeld and the Arcandor headquarters some 140 kilometers away in Essen, to avoid traffic jams.

The prosecutors also accused Mr. Middelhoff of using Arcandor funds to pay €180,000 to finance a commemorate publication for his former mentor at Bertelsmann, Mark Wössner, which they deemed a private gift.

The single most expensive tab that Arcandor picked up was a €91,000 chartered flight to attend a meeting of the New York Times board, of which Mr. Middelhoff was a member until earlier this year.

Ironically, Mr. Schmitt said on Friday that the wrongdoings would never have come to light if it were not for the collapse of Arcandor and the appointment of a “nit-picking” insolvency administrator.

During his trial Mr. Middelhoff denied wrongdoing and said he had come to Karstadt to “save the company, and save jobs.” He complained that the prosecutors' investigation, which had lasted five years, had been a nightmare.

Thomas Middelhoff spent €74,000 on helicopter flights between his home in Bielefeld and the Arcandor headquarters some 140 kilometers away in Essen, to avoid traffic jams.

It is a tremendous fall from grace for the former top manager. He served as chief executive at Bertelsmann from 1998 to 2002. As a senior executive at the firm in the 1990s, he had been an early advocate of the importance of the Internet and encouraged Bertelsmann to buy what turned out to be a very lucrative stake in AOL.

Mr. Middelhoff also faces separate legal battles. He is accused of giving false testimony about the demise of the late Leo Kirch’s media group when he testified as part of that company’s civil suit against Deutsche Bank.

Furthermore, his former business partner, Roland Berger, is suing him over a failed joint venture. The dispute centers on BLM Partners, an investment company set up by the two top managers along with Florian Lahnstein in 2008. Mr. Berger claims he raised €20 million on behalf of all three partners for an investment that did not pay off. He now wants Mr. Middelhoff to repay him his part of the deal.

After a court appearance in July to give an oath related to the case, Mr. Middelhoff dramatically jumped out of a window at the courthouse to avoid the press pack.

Mr. Middelhof's legal team can still appeal. However, should the judgement stand, Mr. Middelhoff will likely serve time, as the length of the sentence means it cannot be suspended.

 

Siobhán Dowling is an editor with Handelsblatt Global Edition and covers business and politics from Berlin. To contact the author: [email protected].