Ponzi schemes in bonds etc. (current case of S&K)

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A commentary and recommendations for action by attorney Dr. Johannes Fiala.

“No, no, dear investor: the money is not gone – it is just that other people have it today”. For intermediaries and advisors, there is not only the risk of losing portfolios and lapse reserves.

15% commission and more: Federal Court of Justice (BGH) forces disclosure

For industry insiders, several initiators, pools, or liability umbrellas are now suspected of supporting any fast-ball schemes. Currently, the media is only talking about such a snowball system. There alone it is supposed to be about three or four digit million amounts, all investments in tangible assets, allegedly perhaps acquired cheaply and brokered or sold with prospectuses of the initiators checked by the Federal Financial Supervisory Authority (BaFin).

No state liability due to BaFin approval
The approval of the prospectus by BaFin is limited to an examination of formalities – according to the case law of the Federal Court of Justice, it is primarily the task of the intermediaries and advisors to examine the tax, legal and economic plausibility. For decades it is known that a de-liability of the selling is possible by different documents, for example a complete performance record, an objection-free folder appraisal for example to closed participation, as well as a tax appraisal, enclosed appropriate contracts before subscription by the investor with the experts. The experts have no interest in informing the consultants and intermediaries about how such information contracts have to be handled in a legally secure manner, because this does not apply to them.
Simple reversal through case law
For investors the option offers itself conceivably simply on back completion to complain, if the sum from internal and external commission was not disclosed, and an order of magnitude of up to more than 15% in the sum was reached. It should be similarly effortless for investors if critical press coverage has been withheld from the investor. Even then, it is sufficient for the investor to claim that he would not have decided in favour of the investment if he had known such details. 
Market shakeout for pools and structural distributors
Financial investment intermediaries are also in the midst of a noticeable market shakeout as a result of the new § 34 f Gewerbeordnung (GewO) . If new Ponzi schemes blow up, one or the other pool will be jointly liable, for example because it belongs to the initiator’s group or because the initiator had allegedly taken on the task of putting the distributed products “through their paces”. For affected intermediaries, the responsibility of pools and liability umbrellas is often a further disaster, because this means that the portfolios and cancellation reserves are often gone for the time being. Very rarely have advisors, intermediaries and sub-intermediaries provided timely and legally effective protection in this respect, for example in the event of pool bankruptcy or asset forfeiture. In most cases it has remained with written promises that the stocks would belong to the intermediary – the insolvency administrator will of course have to investigate the legal validity.
In many cases, consultants, intermediaries, tipsters and sub-intermediaries are not even in possession of the insurance documents with which their activities for some sales etc. are supposed to be insured. Obtaining this from the insolvency administrator first is tedious. In many cases, it is too late to obtain a VSH policy with terms and conditions if the question arises only in the event of a loss as to what is insured and what is not. Because you can’t cover the proverbial burning houses in the event of a claim with another VSH insurance company.
Compensation through property damage liability insurance (VSH)? 

As soon as a claim is even threatened, it is usually appropriate to file a claim with VSH – not just when a client files a claim. Only rarely have VSH insurers undertaken to relieve the intermediary or consultant of the extrajudicial correspondence with the (possibly allegedly) “injured party” and/or to reimburse the pre- or extrajudicial legal costs. The VSH insurer usually has the last word when it comes to the question of whether the lawyer selected by the agent is suitable for legal representation at all. Some VSH conditions require for VSH cover that there was a prospectus audit opinion and/or that the prospectus for the closed investment was handed over to the customer before subscription.

If the contact with the VSH insurer takes place without thorough preparation and evaluation of the files of the advisor and/or mediator, it can damage itself in the doubt only, “above all if is not known like the VSH with the covers usually umgehet and which insurer had not covered the fund at all”, knows the VSH expert and VSAV executive committee Ralf Werner Barth. Agents, advisors and sub-agents are usually faced with questionnaires from the VSH insurers, with fine pitfalls, i.e. questions that you can write yourself out of your mind if you answer them.
Mass allegations with different recourse claims
The lawyer of the adviser and/or mediator will ask itself just like the “investor protection lawyer” whether the initiators are still liable, all the same whether they stand in the folder – or not. The BGH usually sees all initiators as responsible, but this is limited to a few years, so that some recourse claims will become time-barred. Advisers and intermediaries may well be liable for longer:

The Federal Court of Justice (BGH) ruled (judgement of 08.07.2010, file no. III ZR 249/09) that an investor does not act with gross negligence if he has not read the prospectus of a closed-end investment. Thus an investor can possess regularly still after up to 10 years since the switching and/or consultation not statute-barred requirements – not only because of consulting deficits but also with folder errors.

Liability of the trade press?

It is also a delicate matter for publishers and publishing houses if they have allowed themselves to be unfairly drawn into the advertising of the investment object. Commercial paid covert advertising by trade journals or editors leads, in the worst case, to the accusation of involvement in broker and investor deception, which is tantamount to initiator liability. If, for example, an overhead was paid similarly to a distribution partner, personal (private) liability as with the training manager is usually also a possibility, namely due to intentional immoral damage – in addition to additional liability of the distribution and/or publishing company.

Liability of appraisers, rating agencies & Co.?
Also the usually switched on and paid “certifiers” and/or Rating agencies, can stand also in the responsibility, for instance if the examination of a closed participation was so unprofessionally accomplished that a snow ball system should have been recognized. Other organisations and appraisers who value real estate or evaluate sales contracts could at the same time be liable to intermediaries or advisors as well as investors. After all, it is often their task to generate confidence among investors and to make it easier for the intermediaries or advisors to carry out plausibility checks, if not – only allegedly – even to relieve them of them.
Conclusion of an industry expert
“If I don’t know what’s in an investment in terms of risks and side effects for me and my clients , I’d better not touch it at all.”
As far as the child has fallen into the well, it will be advisable for advisors and/or mediators to let analyze the case first for itself, and perhaps afterwards in the individual case also together with the investor and/or customer to work off, instead of waiting only once whether someone files complaint – because up to that own recourse claims could be barred by time, or the responsible persons – so far they still freely run around – over all mountains disappeared. 
Avoidance of breaches of obligations in VSH
Therefore, if an impending claim were not already reported, the VSH insurer could  later deny coverage. Before answering any questionnaire following a VSH claim, the adviser’s or broker’s files should be checked carefully, as some correct answers to such questions, as well as incorrect answers, can lead to the loss of VSH cover.

Dr. Johannes Fiala

With friendly permission of

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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