Prosecutors in Berlin have launched a criminal investigation into Lars Windhorst, the financier whose bonds were at the heart of the crisis at H2O Asset Management.
“The Berlin prosecution office is investigating [Windhorst] over the suspected violation of the German banking act,” prosecutors told the Financial Times, adding that they acted after financial watchdog BaFin filed a criminal complaint.
BaFin declined to comment. People familiar with the matter say regulators are concerned about the activity of an investment vehicle named Evergreen Funding, which is owned by Windhorst.
The FT revealed in 2019 that H2O, a €17bn investment firm, had poured client money into illiquid bonds linked to Windhorst. French regulators last year froze a series of funds at H2O over “valuation uncertainties” on their substantial holdings of the bonds.
Evergreen was set up as part of a plan devised by Windhorst to buy back H2O’s hard-to-sell assets. In June 2020, Evergreen issued a €1.25bn bond, wooing investors with a hefty 12.5 per cent annual interest rate.
However, the Luxembourg-based vehicle’s annual accounts for 2020 show it provided high-interest rate loans worth €272m to Windhorst and held just €263.5m of bonds on its balance sheet.
People familiar with the matter told the FT that BaFin suspected that Evergreen may have engaged in banking activity such as deposit-taking and lending without the necessary licences.
BaFin subsequently froze Evergreen’s bank account in Germany and notified criminal prosecutors in Berlin, where Windhorst’s Tennor Holding has offices. Conducting banking activity without a licence is a criminal offence under German law and can be punished with up to five years in jail.
“We are absolutely certain there is no foundation to the allegations as neither Evergreen Funding nor any of the companies in the group have engaged in regulated banking activities,” a spokesman for Windhorst said, adding that all Evergreen bonds were fully repaid including interest.
He added that the loan listed in the accounts, which was initially granted to Tennor Holding and later transferred to Windhorst, was used to buy back bonds.
Born to middle-class parents in the small town of Rahden in 1976, Windhorst shot to fame as a precocious teenage entrepreneur and was hailed as a wunderkind by then German chancellor Helmut Kohl. But by the time he was 34, Windhorst had weathered the collapse of two companies, personal bankruptcy and a suspended jail sentence.
After that conviction in 2010 for “breach of trust”, the German financier moved to London and began entering into a series of complicated financial transactions involving illiquid debt securities. Several of these deals resulted in litigation, including from billionaire Len Blavatnik and an investment vehicle linked to the former energy minister of Russia.
Despite his legal troubles, Windhorst has continued his frenetic pace of dealmaking, most prominently buying a stake in German football club Hertha Berlin in 2019. He recently joined Twitter in a bid to rebut criticism, noting that “there are always things being reported about my company and me that I cannot and will not leave uncommented”.
H2O still holds more than €1bn of hard-to-sell assets linked to Windhorst and companies in his Tennor group. After the French regulator forced H2O to temporarily freeze its funds last autumn, the asset manager sequestered the troublesome securities into “side-pockets” to the main funds, from which investors cannot redeem.
The furore caused French bank Natixis to dump its majority stake in H2O, cutting ties to a once highly profitable asset management unit.
H2O declined to comment.