In a spectacle that promises to put a smile on the face of Shut Down H&K supporters everywhere a group of bigwig investors are taking the owners of arms company Heckler & Koch (Andreas Heeschen and Keith Halsey) to court in New York. Heckler & Koch has an international sales office in an unmarked unit on a Nottingham industrial estate.
The main allegation is that Heeschen and Halsey “loaned” themselves over 100 million euros from the company account and promptly spent it on playboy luxuries such as mansions, aircraft (including a $12 million Bombardier and a $5 million Challenger) and a yacht.
These investors loaned over €150 million to Heckler & Koch Beteiligungs (HKB – the parent company of Heckler & Koch) for the usual business development purposes but were spooked when KPMG‘s financial statements for 2008 flagged up that around €30 million had been loaned directly to the shareholders, with nothing to guarantee that it would ever be paid back.
As the complaint against Heeschen and Halsey wryly notes:
[…] the purported €30 million in “loans” have no loan term and the shareholders are not required to make any payments. A “loan” that never matures and requires no payments is not a loan
After concerns were raised by KPMG, the investors started looking into HKB’s affairs with more than a little interest. Here’s a few highlights of the allegations contained in the complaint:
Soon after the borrowed money hit the corporate borrower’s (HKB’s) bank account, however, Heeschen & Halsey, instead of using the money for HKB’s business purposes as mandated, caused that money to be transferred to themselves, and they used it for a personal spending spree that shocks the conscience. They bought mansions for over €40 million, personal jets, a helicopter, a yacht, and more, leaving HKB with insufficient funds to repay the loan. This type of misuse of the borrowed monies was explicitly prohibited by the loan agreement, not to mention any concept of corporate propriety.
And they didn’t stop there:
HKB made no fewer (and likely more) than €108 million in “loans” to its shareholders (or their controlled entities) that are not in compliance with the Loan Agreement. Considering that the original principal of the Loan was €l00 million, the current outstanding balance is approximately €151 million, and HKB has only €96,000 remaining in cash after its distributions to shareholders […]
Reading through the plaintiff’s submissions (case number 603522-2009 in New York County, if you’re interested), it’s hard to come away with anything other than the impression that Heeschen and Halsey are a pair of playboys who forgot the law still applied to them. The opening salvos in the case were a series of letters and meetings where the lenders repeatedly asked for clarification and Heeschen and Halsey effectively said “we’re allowed to do this, go away”. They even made a PowerPoint presentation to that effect:
[…] HKB did little more at the meeting than regurgitate its July 30, 2009 conclusory contentions, only this time via a PowerPoint presentation instead of a letter.
Presumably with some nice animated transitions between slides, to really add weight to their argument.
One of the most interesting documents is the description of the poor chap trying to serve Andreas Heeschen with papers. It seems that poor Mr Heeschen repeatedly avoided meeting the solicitor, and apparently pretended not to be at home in the naive hope that the whole thing would just go away. That’s certainly not going to happen and, whoever wins this one, either the investment bankers or the arms dealers are going to lose.