It has emerged that failed German asset manager Phoenix Kapitaldienst GmbH failed to obey a court ruling in 2002 to keep investors' assets in segregated accounts. 30,000 investors stand to lose up to Euros 700m in the scandal.
10 days ago, Frankfurt-based Phoenix, which has run the alternative investment Phoenix Managed Account since 1992, was instructed by German regulator BaFin to stop trading. New management at the firm is said to have discovered what BaFin calls “irregularities” concerning an account with a London broker. BaFin said: “There is a danger that a three-figure million damage developed for the investors.” The Frankfurt am Main district court has opened a provisional insolvency procedure over Phoenix’s assets, at BaFin’s request.
Investors are being represented by Tuebingen-based law firm Steinhübel & von Buttlar, which specialises in bank, stock exchange and management law, by Tilp Rechtsanwaelte, and by Nieding & Barth. The latter firm represents the interests of a third of Phoenix's investors, who invested more than 100 million euros via Innofinanz GmbH and ProIndex GmbH, financial services companies that specialize in alternative investments.
It seems that few if any institutional investors are among Phoenix's clients, raising worries that Germany's investor protection laws have signally failed to protect the most vulnerable group of investors. Lawyers are saying that the legislation will need to be tightened.
Although there is a German compensation fund, the EdW, which repays 90% of a lost investment, or up to a maximum of 20,000 euros, this applies only to German investors (until the European Court of Justice gets hold of it!) and probably does not cover losses resulting from criminality, which is by now seeming highly likely in this case.
However, investors could seek civil damages from management, auditors, and intermediaries who placed funds with Phoenix.
This one will run and run.
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