K1 auditor says would be "bold" to conclude fraud

By Edward Taylor

FRANKFURT (Reuters) - An auditor for German hedge fund K1 Global Ltd said that "liquidity of K1 is apparently scarce", temporarily preventing payouts to banks and clients, but it would be "bold" to conclude this stemmed from fraud.

"Until now nothing has been proven," Professor Josef Augustin Becker said in an e-mailed response to questions about K1, a hedge fund company whose founder, Helmut Kiener, was arrested this week amid a probe of possible fraud and breach of fiduciary trust prosecutors say may have cost banks millions.

Becker, a professor of finance and accounting at the University of Applied Sciences in Ludwigshafen and who is listed on the fact sheet for the K1 Global Ltd Participation Rights Class A as being its auditor, said on Saturday K1's target funds were restricting the flow of money.

"For some months now the liquidity of K1 is apparently scarce," he said in the e-mail. "Reason is: the target funds are not liquid and are limiting payouts."

According to K1 Global Ltd's Participation Rights Class A fact sheet, the fund allocates assets to a portfolio consisting of several target hedge funds which "reflect the whole spectrum of hedge-fund strategies".

Some strategies employ frequent trading whereas others are based on medium- and longer-term positions. The managers of the target funds take both long and short positions, the sheet said.

Becker said headlines about the investigation were attracting unwanted public scrutiny of K1.

"The countless press reports can destroy the credibility of a fund, with the consequence that the investors need to wait a long time for repayment," Becker said in the e-mail.