Alexander Falk

Falk convicted of attempted fraud, gets four years

German businessman Alexander Falk was convicted of fraud and sentenced to four years in prison by a German court for inflating the value of Ision Internet AG before he sold the company in 2000.

Falk and four other men were convicted of attempted fraud after a trial lasting more than three years, the Hamburg Regional Court said in a statement. Falk, who inherited a map-publishing fortune as a child, has denied wrongdoing.

The trial echoes the collapse of the Neuer Markt, a stock exchange for startups that was created in 1997 as Germany's answer to the Nasdaq and closed five years later. Reduced earnings forecasts and allegations of misstated accounts shattered investor confidence in the Neuer Markt. “The defendants assumed the manipulated sales reports would increase Ision's value and that it could be sold for this faked market value,” the court said.

“The defendants knew that the buyer of the Ision shares would be harmed in the amount he overpaid for them.”

 Falk's attorney, Gerhard Strate, didn't immediately return a call seeking comment. The ruling can be appealed.

In 2000, Ision's books were manipulated to include faked sales of 6.3 million euros ($9.8 million), the court said. The scheme misled Energis Plc, which acquired the company.

In December 2000 Energis, then Britain's largest carrier of Internet traffic, bought 75 percent of Ision for 812 million euros in cash and shares. It acquired the rest in 2001.

Other Charges

Because the trial didn't “reliably” establish the value of the shares that were exchanged in the acquisition, Falk was convicted of attempted fraud instead of completed fraud, the court said. He was also found guilty of improper financial reporting, including a false release to the stock exchange, and falsifying balance sheets.

Falk inherited Falk Verlag, Europe's largest mapmaker, with his sisters at the age of nine. His father founded Falk Verlag at the end of World War II. Falk became a member of the company's board in 1992 while studying business administration and politics in Hamburg and Cape Town, South Africa.

Ision filed for insolvency in 2002. Its asset were purchased by rival Easynet Group Plc. Cable & Wireless Plc, the U.K.'s second-biggest phone company, acquired Energis in 2005.

(Published by Bloomberg 9, 2008)