Indicting Greed Low Times for a Pair of High Rollers

Prosecutors in Germany have indicted the management of the S&K investment group in Frankfurt, detailing their taste for luxury and the highlife.
Making a splash with investor cash.

The managers of the Frankfurt-based S&K property group could afford luxury cars, scantily clad women and an elephant as a birthday party guest.

Now they face up to 15 years in prison for fraud and embezzlement after German public prosecutors presented their damning assessment on Tuesday.

The investigators evaluated 100 terabytes of e-mail for their 3,000-page indictment.

“The case is absolutely out of the ordinary from what we usually handle in Frankfurt,” said senior public prosecutor, Albrecht Schreiber.

That’s an assessment that many investors in S&K may agree with, but for other reasons. The heads of the firm, Stephan Schäfer and Jonas Köller, promised them yields of up to 12 percent. Instead, the money reportedly primarily went to paying for the out-of-control lifestyles of Mr. Schäfer, Mr. Köller and five others.

The lion’s share of the investors’ money reportedly went to financing the luxurious lifestyles of those accused

In February 2013, investigators put an end to the dealings of S&K with a raid on the business. Six of the accused have been in detention awaiting trial since then, with another one free on bond. So far, they have not commented publicly on the charges. According to prosecutors, they have not confessed.

The authorities estimate that there were 11,000 victims of fraud, and according to the indictment, investors lost about €240 million ($278 million). But that is reportedly just the tip of the iceberg.

“It can certainly be assumed that there will be much higher total damages,” said Mr. Schreiber. The investigations have not yet been concluded.

In their indictment, the investigators describe how two real estate brokers rose to become the heads of a business empire worth millions. According to the document, Mr. Schäfer and Mr. Köller at first dealt with junk real estate, which they acquired through foreclosures and then sold at higher rates. In order to raise fresh capital, they founded closed-end funds, in which 6,200 investors invested about €140 million.

Then the S&K heads reportedly found a new source of money: according to the indictment, they led customers to cancel their life insurance policies and entrust S&K with the money. They also reportedly took control of other investment companies to siphon off their funds. According to the indictment, the companies Midas, DCM and SHB were affected.

A portion of the funds raised reportedly went to old investors, in a classic Ponzi scheme. But the lion’s share of the investors’ money reportedly went to financing the luxurious lifestyles of those accused.

The greed involved becomes apparent looking at the list of confiscated assets: Stephan Schäfer did not have just one, but eight Rolex watches. And his co-head Jonas Köller fancied among other things a motorcycle costing €100,000. In addition, the two had at their disposal several properties and various accounts in which a total of more than €1 million was parked. As impressive as the numbers sound, those assets probably account for just fraction of the total losses. In all, the investigators confiscated valuables worth €55 million.

“Quite a number of investors will likely come away empty-handed,” said prosecutor Andreas Hohmann.

A portion of the money could have flowed abroad, he said. If and when there will be a verdict remains unclear. First, the court in Frankfurt dealing with business crimes must accept the indictment.

Should it come to a trial, it could take several days to read out the massive indictment. But prosecutor Mr. Homann is unperturbed by the prospect: “We will have to sit through it. But we will take turns.”

 

Michael Brächer covers investments in Frankfurt for Handelsblatt. To contact him: [email protected]