Wood burns

Green Investors Hit Sour Patch

Lignum Gruppe
More than €65 million was sunk into wood investments.
  • Why it matters

    Why it matters

    About 5,000 small investors stand to join others who have lost huge sums in green investments in recent years.

  • Facts

    Facts

    • Lignum Sachwert Edelholz filed for bankruptcy weeks after the German financial supervisory authority insisted it provide a sales brochure or cease operations.
    • According to Lignum’s website, about 5,000 small investors sank more than more than €65 million, or about $75 million, into “precious wood as an assets building block.”
    • Investors’ money went to huge plantations of precious wood in Bulgaria, Lignum claimed.
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    Audio

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Thousands of investors stand to lose millions in the bankruptcy of Lignum Sachwert Edelholz, which marketed green investments in forests and hardwoods.

The company, part of the Berlin Lignum Group, sold investments under the name “Nobilis.” According to the environmental organization Oro Verde, the investments ran for up to 23 years and promised annual interest payments as high as 11 percent. In that case, an investment of €8,000 could grow to some €88,000, or about $100,000.

The promises were enticing and ecologically minded, like many on today’s green capital market. Lignum pitched high profit potential, all while supporting the environment. The company said on its website the investment offered “protection from inflation through material assets” and “value creation through the natural effect of compound interest.”

Lignum appeared to have continued selling its products in spite of the changed legal situation.

According to Lignum’s website, about 5,000 small investors sank more than €65 million, or about $75 million, into “precious wood as an assets building block.”

But the promises turned sour last month when Lignum Sachwert Edelholz filed for bankruptcy.

Marvin Kewe, of the Tilp law firm in Tübingen, is representing investors. “In recent days,” he said, “dozens of (Lignum investors) have contacted us.”

Consumer protection agencies also report inquiries.

Lignum investors stand to join others who have lost huge sums recently in green investments that went bad — including at Prokon, Solarworld, BKN Biostrom, Green Planet and German Pellets.

In the bankruptcy at German Pellets, which makes wood products used in heating, as many as 17,000 investors are now trying to recoup at least a small part of their money.

In the Lignum case, Rolf Rattunde has been named provisional insolvency administrator. Up to now, the Berlin lawyer has been unwilling to make any public statement because the case is so complex.

It is a matter of not just one, but two insolvent firms. One is called Lignum Sachwert Edelholz, which marketed the forest investments. The other is Lignum Holding, which invested the money.

According to Lignum’s homepage, investors’ money went to huge plantations of precious wood in Bulgaria.

Mr. Rattunde will now have to determine what these trees are actually worth, and whether investors can hope to get back some of their money.

There were earlier indications of problems at Lignum.

Since investor legal protections were tightened last year, the German financial monitoring agency BaFin started requiring sales brochures for so-called direct investments.

In addition to Lignum, the new regulation impacted other German firms that marketed forest investments – including Forest Finance based in Bonn, and Miller Forest in Bavaria. Their websites say both companies have put sales on hold because of a lack of brochures.

But Lignum appeared to have continued selling its products in spite of the changed legal situation. That prompted a March order by BaFin for Lignum to cease marketing.

Shortly thereafter, Lignum filed for bankruptcy.

In a letter to investors obtained by Handelsblatt, the company said it was a victim of the supervisory agency. It accused the governmental authority of illegal actions and of not caring about investors as possible “collateral damage.” There was even talk of possible claims for punitive damages.

The financial monitor strongly denies the accusations.

“There was an obligation since July 2015 to issue a brochure,” said an agency spokeswoman. “Since January of this year at the latest, Lignum would have only been allowed to engage in public marketing on the basis of an authorized brochure.”

If the company met this requirement, “Lignum could resume operations at any time,” said the agency’s spokeswoman.

But that is an unlikely prospect. Even if many details are still unclear, the investors’ lawyer Mr. Kewe said that, “from a consumer perspective, the worst is to be feared.”

“One can only ask why those responsible didn’t print a brochure as required by BaFin,” he said. “The arguments they have offered are scarcely plausible here.”

Attempts to contact Lignum Holding by phone last week were routed to a recording that said “the number cannot be reached at the moment.” Further, an e-mail inquiry had not been answered as of late last week.

 

Heinz-Roger Dohms is a contributor to Handelsblatt. To contact the author: dohms@handelsblatt.com

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