Middelhoff’s Millions Following the Money

Thomas Middelhoff, the former high-flying German executive who became a symbol of corporate greed, was once rich but now says he’s broke. Where are his millions? Many trails lead to his lawyer.
Mr. Middelhoff and his lawyer Hartmut Fromm.

Last autumn was a stormy time for Thomas Middelhoff. The disgraced German executive faced several years' imprisonment on criminal charges. His former business partner Roland Berger set a court collector loose on him. Real-estate fund Gewobag had his wristwatch impounded. Financial institutions such as Sal. Oppenheim and Sparkasse Köln-Bonn demanded millions.

On October 13, Mr. Middelhoff transferred the majority of his family financial dealings to the Berlin Libra 3 GmbH. It was the final step in a long game of hide-and-seek the former head of Bertelsmann and Arcandor had played with his creditors. Mr. Middelhoff was convicted four weeks later. Shortly after came his private insolvency. He claimed to be broke.

But another individual simultaneously experienced a wondrous increase in wealth. In some instances, this man became a shareholder or even a general partner in this or that company, sometimes another legal construct was invented. The consistent results of these shifts: What was formerly ascribed to Mr. Middelhoff was now controlled by Hartmut Fromm, Mr. Middelhoff's lawyer.

Mr. Middelhoff's income was common knowledge. At Bertelsmann, he once received a bonus of €40 million, or $45 million, for a single deal, and he also received a huge severance package from the media company. He is said to have pocketed more than €40 million from the London financial firm Investcorp. His salaries at the trading company Arcandor and at Bertelsmann were also sky-high.

Big T, as he was called by friend and foe, was a high-profile extrovert. The Villa Aldea in Saint Tropez, the former Oetker estate in Bielefeld, the Bentley along with driver, the expensive watches — nothing was hidden.

For many years, a real-estate mogul named Joseph Esch managed Mr. Middelhoff's assets. Mr. Esch juggled with real-estate funds and tax-avoidance schemes, managed the yacht Medici, planned private flights, helped with the search for real estate. In late 2011, Mr. Middelhoff and Mr. Esch parted ways. Another individual drew closer and closer to Mr. Middelhoff: Mr. Fromm.

The two have known each other since 2000. Back then, Mr. Middelhoff was the widely acclaimed head of Bertelsmann, and Mr. Fromm had a mandate at the company headquarters. The lawyer worked there for the patriarch Reinhard Mohn. After the Arcandor bankruptcy in 2009, Mr. Middelhoff became one of Mr. Fromm's clients. The company’s insolvency administrator demanded that Mr. Middelhoff return millions in allegedly excessive severance payments and bonuses. Mr. Fromm defended Mr. Middelhoff in that case and other disputes.

The lawyer-client relationship gave rise to a business relationship.

Before embezzlement charges were brought against him, Mr. Middelhoff signed a “contract of assignment.” He transferred all dividend payments and sales revenues from real-estate funds Braunschweig Ackerstrasse, Köln-Ossendorf VII and Potsdam Brandenburger Strasse to Libra 3 GmbH — with the participation of Pyrite Holding from The Netherlands.

Insolvency law shows no clemency to those who hide their assets

Mr. Fromm became Libra 3’s managing director in February 2014. The management company is a subsidiary of Vermar GmbH, which for its part belongs to Vermar AG in Zurich, set up by Mr. Fromm in 1983. Pyrite Holding is also administered from Mr. Fromm's law offices.

Thus it wasn’t surprising that the Libra deal simultaneously covered open liabilities of Pyrite Holding. The contract states Mr. Middelhoff and his wife along with their so-called “Family Office” have liabilities with the Dutch holding company worth €6 million. The debts basically arose out of obligations toward Sal. Oppenheim, Oppenheim-Esch-Fonds, Josef Esch and the Sparkasse Köln-Bonn. A further “collateral-promise contract” states that in case these participations should yield more than €6 million, the money is to be paid to Cornelie and Thomas Middelhoff “50 percent respectively.”

In response to an inquiry from Handelsblatt, Mr. Fromm confirmed the agreement. Mr. Middelhoff himself leaves questions unanswered “for health reasons.” According to his lawyers, the 61-year-old suffers from an autoimmune disease.

No other place better symbolized the luxurious life of the former manager than Villa Aldea, his extravagant estate in southern France. There, Mr. Middelhoff held glittering parties. He also relaxed there even as the public prosecutor's office was demanding he be imprisoned for three years on embezzlement charges.

Rumors circulated about a sale of the Villa Aldea. A realtor became involved. The villa was reportedly worth anywhere from €33 million to €44 million. Each announcement stirred up the hopes of creditors. But any sale proceeds likely won’t go to Mr. Middlelhoff or his many creditors — with one exception.

The magnificent building is in the possession of the French company SCI Aldéa. This firm essentially belongs to Centurion Asset Management KG, which Mr. Middelhoff participated in as majority shareholder. But his shares were impounded in 2014 by Sal. Oppenheim. Mr. Middelhoff's provisional liquidator Thorsten Fuest: “Investigations are currently being conducted as to how much the shares are worth and to what extent the attaching of the shares and of the thereby arising claims is excluded from the estate in bankruptcy.”

Hence possible revenues that Mr. Middelhoff receives for his share would first accrue to Sal. Oppenheim. Mr. Middelhoff is in litigation with the institution involving many millions. What is interesting here is whom the remaining shares in Centurion, and thereby indirectly the Villa Aldea, belong to. Once again, a single name emerges: Mr. Fromm.

He confirmed Libra 3 has taken over the administration and management of the former Middelhoff company. Pyrite Holding, administered by Mr. Fromm's legal offices, is also involved in Villa Aldea. The holding company managed the debts charged to that piece of real estate. In addition to the mortgage of €6 million claimed by Pyrite Holding itself, the French bank Crédit Agricole has also imposed a lien of €14 million on the property.

Even the Family Office of the Middelhoffs is under the control of Libra 3 and Vermar, which are linked to Mr. Fromm. For years, Middelhoff & Cie Asset Management were at the heart of the circulating money. The revenues flowed in like oxygen and were then pumped into the Middelhoff lifestyle and, at the end, also to pay the substantial lawyers' fees.

The Rise and Fall of Middelhoff-01

 

Since October, shortly before Mr. Middelhoff was convicted, Libra 3 has taken over 50 percent of the shares through a recapitalization. Vermar GmbH (15 percent) and Mr. Middelhoff's son Jan (35 percent) hold the other shares. Mr. Middelhoff has departed from his Family Office. A “buyout of the co-partner,” as Mr. Fromm puts it.

Buyout? The term “sell-off” is making the rounds among Mr. Middelhoff's creditors. They complain Mr. Fromm is getting his hands on almost everything of any value. Upon scrutinizing the ownership structures, they wonder whether Mr. Middelhoff is any longer the master of his possessions or is instead doubly dependent: on the at-least 50 creditors on his heels and especially on Mr. Fromm.

The Berlin lawyer rejects this surmise, stating he works in close consultation with the Middelhoffs: “The financial participations are initiated at the request of the clients. Past that, there are no commercial interests.”

The liquidator, Mr. Fuest, will examine this assertion. If it turns out that Mr. Middelhoff deliberately unloaded the assets in order to protect them from being accessed by creditors, Mr. Fuest can challenge the deals — even if they are 10 years in the past. Mr. Middelhoff's goal of achieving a quick release from remaining debts would be in danger. Only someone who credibly does everything in his or her power to satisfy creditors can hope for a cancellation of remaining debts. Insolvency law shows no clemency to those who hide their assets.

 

Video: Mr. Middelhoff all smiles at his trial last December.

 

Massimo G. Bognanni is an investigative correspondent for Handelsblatt. To contact him: [email protected]