It’s one of the biggest financial scandals in German history – depending on who you ask.
A court in Dresden on Monday sentenced the founder of financial services firm Infinus, Jörg Biehl, to eight years in prison for fraud. Four other managers from the Infinus empire received sentences of between five years and four months to six years and 10 months. Another employee was given 4 1/2 years for abetting fraud.
Prosecutors accused the managers of running a Ponzi scheme, whereby returns for older investors are covered from the money of new investors. It’s a fraudulent business model that is doomed to fail over time. Yet many investors have disagreed and sided with defense attorneys, who argued that the company would have survived if the police hadn’t come knocking.
Mr. Biehl, 56, and the other defendants were charged with defrauding 22,000 investors to the tune of €320 million ($375 million). That’s only a fraction of the suspected losses, though. Overall, more than 50,000 investors are believed to have invested up to €2 billion in the 22 companies of the Infinus group. To prevent the trial getting too complicated, prosecutors focused only on part of the intricate web of companies surrounding Infinus AG and Future Business KG.
The court heard testimony from 220 witnesses in the trial that started back in November 2015. The prosecutors summarized their evidence in 757 pages, quite an achievement given that their files ran to 60 folders with 15,000 pages.
In the end, the judge ruled that the company was unsustainable because it could not have generated the promised returns.
A success story in the making
Infinus started out in 2001, buying up life insurance policies and offering the owners improved surrender values. The sellers then invested their freed-up money in new financial products offered by Infinus, such as fixed-interest bonds, registered bonds and profit participation rights with attractive interest rates.
The court was convinced that, after a time, the managers could only keep on paying out the returns by tapping fund inflows from new investors and finding inventive ways to conjure up new liquidity, such as arranging big new life insurance policies for subsidiaries and employees that immediately generated millions of euros in new income.
While everything was going well, the company managed to attract celebrities such as soccer greats Franz Beckenbauer and Oliver Kahn, and ice-skating legend Katharina Witt to annual parties to honor the best salesmen and women.
But then, in November 2013, the empire collapsed following police raids and suspicions that it was defrauding investors. During the trial, Mr. Biehl said Infinus had been a success story that “some people had disliked.” Prosecutors argued they had to intervene to prevent bigger losses.
Ready to appeal
Not surprisingly, the defendants plan to appeal. That means the verdict will have to be reviewed by the Federal Court of Justice, Germany’s highest court in all matters of criminal and civil jurisdiction.
Defense attorneys said the court ignored evidence, including a report by the Dresden financial authority, which had declared in 2017 that Infinus had “a sustainable business model from a fiscal point of view.” It was the authority’s argument for rejecting a claim by one of the group’s insolvency administrators for the repayment of €17 million in tax.
“The court didn’t want to hear anyone from the financial authority as a witness,” said Ulf Israel, Mr. Biehl’s defense attorney. “You can’t have that.”
Getting money back
The court’s verdict is bad news for many investors who put money in profit participation rights sold by Infinus subsidiary Prosavus. But it strengthens the case of insolvency administrator Frank-Rüdiger Scheffler, who is waging some 800 lawsuits demanding the return of up to €15 million in interest paid to investors. He says the earnings-related interest should never have been paid out because the company wasn’t generating any real earnings.
That spells trouble for people like former broker Raymond Neumann, an investor who traveled to Dresden for the verdict but who couldn’t get into the packed court. “They want €68,000 back from me too,” he said.
Gertrud Hussla covers finance and pension planning for Handelsblatt in the Düsseldorf bureau. Lars-Marten Nagel is an investigative reporter for Handelsblatt. To contact the authors: firstname.lastname@example.org and email@example.com