Gernot Koch has agreed to accept responsibility for the bankruptcy of discount electricity provider Teldax and cooperate with prosecutors in exchange for a suspended sentence.
The former board member is at the center of one of the biggest cases of bankruptcy in post-war German history. His confession on Monday is the latest chapter in a long saga about a group of executives fudging numbers and exploiting customers.
The story began to unfold when Handelsblatt confronted Mr. Koch on October 19, 2010, with plans to publish an investigative report about him.
Mr. Koch, then Teldafax’s chief operating officer, got up from his chair, buttoned his jacket and took a deep breath. He had spent two hours trying to explain to Handelsblatt editors the inexplicable: a business model that worked like a pyramid scheme.
There were expert reports pointing to bankruptcy and emails on the pending bankruptcy filing. And there were two thick binders of information sitting on the conference table on the sixth floor of Handelsblatt headquarters.
I give you my word: There is nothing illegal going on at Teldafax. Gernot Koch,, former CEO of Teldafax in 2010
Mr. Koch sensed the newspaper would print a devastating article about him the next day. "I am a well-known manager," he said, noting that his reputation was very important to him. "I give you my word: There is nothing illegal going on at Teldafax."
Four years and four months later, on Monday, February 2, 2015 Mr. Koch appeared in the Bonn courthouse. Now 51, he had lost weight. Time hasn't been kind to him. His face was wrinkled, his hair gray and his skin pale. The once self-confident manager seemed a shadow of his former self.
Mr. Koch put on his glasses and read a statement with a key detail he was unwilling to admit for years: In three years as a board member, he never produced a proper balance sheet for Teldafax. He described the chaotic conditions in Teldafax's accounting and customer systems for over an hour. "I assume the responsibility for this," he said. "And I'm sorry about the harm done to customers."
When Teldafax collapsed in June 2011, the management left behind 750,000 creditors and €500 million ($560 million) in debt.
Mr. Koch's involvement with the company began in 2006, as a consultant to Teldafax. He later became the managing director of a subsidiary and, in 2009, was appointed to the executive board. And three weeks before the bankruptcy, he served as chief executive officer.
Mr. Koch had no choice but to come clean. Despite his word of honor in 2010, he confessed that Teldafax was already at risk of bankruptcy in mid-2009. There were outstanding invoices for sums in the double-digit millions that Teldafax was unable to pay, he said, The company, he added, sought advice from one law firm and several consulting firms about the status of the invoices.
The three-week period to file for bankruptcy came and went, according to Mr. Koch who was still a member of the executive board. The situation surprised him at the time, he told court. The consultants offered no solution, and his fellow board members did nothing.
At some point, Mr. Koch said, the crisis appeared to be over – until the media reports about the inner workings of Teldafax. Then chaos erupted.
Mr. Koch did not mention the main reason for Teldafax's collapse – namely that the company was selling electricity at dumping prices. That will be the focus of other hearings.
Mr. Josten was sentenced in 2007 on 176 counts of fraud in another case, but continued to control Teldafax from prison.
Prosecutor Alexander Klingberg made Mr. Koch an offer to testify in exchange for two years on probation. Mr. Klingberg is willing to let one man go to catch two others: Klaus Bath, chief executive from 2007 to 2011, and Michael Josten, the man who, for all intents and purposes, had controlled the company.
Mr. Josten was sentenced in 2007 on 176 counts of fraud in another case, but continued to control Teldafax from prison. Both Mr. Bath and Mr. Josten deny all guilt, and prosecutors expect a tough trial that could last until December.
Nor has Mr. Koch had his last day in court. He could face a wave of civil cases.
As the managing director of Teldafax Service GmbH, which processed invoices for the electricity provider, Mr. Koch accepted upfront payments from customers, even though Teldafax would soon be unable to supply them with electricity. He allegedly deceived the customers intentionally and can be held liable for that.
Thousands of former Teldafax customers have sued him for damages. "A confession helps us in the civil cases," said Florian Dälken of the law firm Bauer, Dälken & Associates. Mr. Dälken alone represents hundreds of injured parties.
This brings the story of well-known manager Gernot Koch to a close. The man who once paid himself a net monthly salary of €17,000 is broke. He paid a high price for his false word of honor.