JPMorgan finds a nasty surprise (Sydney Morning Hearld)

[icymist]

JPMorgan Chase found an unsettling fact buried in the books of newly acquired Bear Stearns last year: The brokerage had loaned millions of dollars to a German money manager for bets on hedge funds no one had ever heard of.

JPMorgan's efforts to follow Bear Stearns's money, described by a person familiar with the matter, helped spur an international probe of K1 Group that led to the arrest of its founder, Helmut Kiener. JPMorgan, one of at least three banks that loaned to K1, faces about $US100 million ($109 million) of the $US400 million in losses, the person said. The case, if proven, may be among the biggest hedge-fund frauds to target banks, said Thomas Newkirk, a partner at Jenner & Block in Washington and former US Securities and Exchange Commission enforcement official.

``When the economy is flourishing, money is easy'' for hedge funds, said James Ratley, president of the Association of Certified Fraud Examiners in Austin, Texas. A scheme can be ``hidden just beneath the paperwork. It's the skin of truth stuffed with a lie.''

Accounts of people with knowledge of the inquiry and a German warrant for Kiener's arrest offer the clearest picture yet of what authorities suspect K1's funds, which invest in other hedge funds, did with money borrowed from banks on two continents. Kiener, who hasn't been charged, remains in jail after prosecutors in Wuerzburg, Germany had his home and offices raided last week. His firm has yet to announce what will become of his two British Virgin Islands-based funds, K1 Global Ltd. and K1 Invest Ltd.

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[napi21]

1. Can't thery get a lot of the money from Kiener?

We all know guys like him aren't in the game for fun...they make tons of $$ for themselves!

[avaistheone1]

2. Does mean we U.S. taxpayers are on the hook for this too?

If so, I am furious.