North Carolina Man Sentenced for Role in Global Hedge Fund Fraud Scheme
|U.S. Attorney’s Office September 23, 2013|
PHILADELPHIA—John C. Tausche, 62, of Blowing Rock, North Carolina, was sentenced today to 54 months in prison for his role in a multi-million-dollar investment fraud scheme. U.S. District Court Judge John R. Padova also ordered Tausche to pay $114,995,446 in restitution to victim Barclays Bank. Tausche was a hedge fund business manager and an associate of Helmut Kiener, 53, of Aschaffenburg, Germany, who was charged separately. The charges alleged that the two engaged in a scheme to defraud institutional investors and caused collective losses of more than $311 million. Tausche pleaded guilty November 6, 2012, to one count of bank fraud and one count of money laundering. Kiener, who is currently incarcerated in Germany, is charged by indictment with four counts of wire fraud, two counts of bank fraud, and three counts of money laundering.
Kiener controlled several hedge funds—including K1 Global Limited and K1 Invest—which he marketed to international investors. Tausche controlled several offshore hedge funds collectively called the Oceanus Funds. According to the charges, between March 2005 and December 2008, Kiener allegedly devised a scheme to defraud Bear Stearns entities by representing to Bear Stearns that, under Kiener’s management, Bear Stearns investment funds would be diversified and independently managed. However, the indictment alleges that Kiener actually funneled Bear Stearns money from K1 through the Oceanus Funds and back to K1, so as to give the false impression that the funds were growing in size and were viable investments. Kiener and Tausche, it is alleged, knowingly and intentionally fostered the false appearance that the K1 Funds were increasing in value, in order to induce Bear Stearns to continue to invest in the K1 Funds. Both defendants allegedly provided false and misleading information to Bear Stearns in response to inquiries regarding the K1 and Oceanus Funds, repeatedly and falsely representing that the funds were diversified and independently managed. The indictment alleges that, as a result of the scheme, Kiener earned sales agent fees all while Bear Stearns invested and lost approximately $82 million.
Tausche pleaded guilty to a similar scheme involving Barclays Bank, the K1 Funds and the Oceanus Funds, which caused losses to Barclays Bank totaling approximately $137 million.
In addition, according to the indictment against Kiener, in 2007, Barclays Bank, Bear Stearns, and BNP Paribas (BNPP) also invested more than $100 million with Kiener in two offshore funds named Consistent Return Ltd. and Mezzanine Financing Ltd. According to the indictment, Kiener represented that both Consistent Return Ltd. and Mezzanine Financing Ltd. were legitimate investment funds when he actually directed a third party to create these offshore funds and then used the funds for his own purposes including, but not limited to, the purchase of oceanfront real estate in Delray Beach, Florida valued at over $21 million; a Bombardier executive jet; a Bell helicopter; luxury cars such as a Bentley, a Mercedes, and a Maybach; two luxury watercraft; and over $8 million in upgrades to his real estate.
The case was investigated by the Foreign Corruption Investigation Group, Homeland Security Investigations - Miami Field Office, the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigations, and the German police force Kriminalpolizeiinspektion Unterfranken, with assistance from Barclays Bank, BNP Paribas, and Bear Stearns/JP Morgan Chase Bank. The Office of International Affairs in the Justice Department’s Criminal Division also provided valuable assistance in this matter. It is being prosecuted by Assistant United States Attorneys Jennifer Arbittier Williams and Suzanne Ercole.