Investment fraud in the billions, investor deception through false yield information

Published on 03.08.2006

by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de )
The Stuttgart public prosecutor’s office, white-collar crime division, assesses investor deception through misleading yield information according to the internal rate of return method, also known as IRR yield, as an objective offence of capital investment fraud according to § 264 a StGB (German Criminal Code).
The opinion was first published in February 2005. More and more investors are being motivated to invest their money and capital in closed-end funds and investment companies. In the last few years, investors have been increasingly deceived by initiators, financial advisors and investment brokers.
In concrete terms, glossy brochures quote a return that is completely unrealistic. This yield indication is then designated in the small print as ?internal interest rate yield? or ?IRR yield? The enormous deception potential becomes clear with the example of a straight placed television production fund, with which from 0,53% annual distribution an IRR net yield of 6,6 to 7,1% p.a. becomes.
The investor should be aware that advertising with such yield statements is deceptive and misleading. Numerous German courts have already established this with legal effect (see also www.ANLEGERSCHUTZAUSKUNFT.de).
For the investor, this means that various persons are liable for giving incorrect advice. For example, this includes the prospectus auditor. The allegations made by deceived investors may be subject to competition, liability and criminal law. Here, there is a liability potential in the billions that is not yet time-barred. Investors can usually get their money back from placing banks and financial service providers, because the majority of claims from recent years are not yet time-barred. In addition to the financial sales companies or banks, the advisors are also regularly personally liable to the aggrieved investor.