Heckler & Koch Shareholders Sued By Investors

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.

Luxurious cabin of a challenger aircraft

Better than business class - this is how arms dealers travel

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

Quite.

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 […]

Oops.

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.

9 comments to Heckler & Koch Shareholders Sued By Investors

  • John McIntyre

    Great article! Well done for the investigation. I will definitely go to the NY County website and read.

  • Jerry Doughty

    Read the lawsuit…wooaaw!

    It seems the 4 funds have about 80% or so of this 150 loan . Why are the 20% of others not joining??? Not agreeing??? Unlikely.

    Shy perhaps??? Then, can only be banks funding the arms trade!!! One that could spring to mind is the B, which was always close to BAE (former owner of HK before the 2 guys)??

    Any other thoughts out there??

  • David Smith

    Jerry: Barclays is not the preferred bank of BAE (it is RBS).

    This being said, the financial instrument used to give those guys their toys is typical of companies who are going to do an IPO, with banks and funds lending money in exchange for the lucrative IPO business (RBS does not do IPO business really). In that context, Barclays makes sense, but you should also add the other investment banks. I would discount Merrill Lynch as the lawsuit does not disclose any position in the bond. I would then have the usual other IPO suspects: JP Morgan, Goldman Sachs and Morgan Stanley on the US side and UBS, Credit Suisse and Deutsche Bank on the European side.

    20% is a lot, and for an IPO you would typically have 2-4 banks in senior positions. But given that this is a European business there would certainly be an european bank, and because the only companies already on the stock market are US, an american bank makes sense. So I would guess more than one of the above names

    The only way to know for sure which ones has it is to call them and challenge them or push them into at least saying that they do not own it, which would eliminate some!!

  • Rob

    This is money loaned to an arms company by investors, and a pair of idiots pissed it up the wall on a jolly?

    Sounds like a much better way of spending it, in my humble. Rock on, Heeschen and Halsey.

  • As I am very interested about HK Germany, which is located some 20 kilometres from my place, I would like to get more information about that court case.

  • I’m so glad that I live in a civilized country where I can actually own HK G3 rifle legally as a civilian. Which I do.

  • You are indeed lucky to live where you do.

    Spare a thought for those who live in countries where repressive governments use weapons to keep their civilian populations in line. Heckler & Koch sell their weapons to these regimes via convoluted schemes to dodge restrictions. You probably know, better than most, what kind of damage a G3 could do if it was pointed at YOUR family.

  • Mjolnir

    Unfortunately, the business of business is business and I’m afraid the Arms Market is about as close to Hades as one can be when one factors in the politics, warfare, genocide, etc.

    Nelson, HK is not alone in this. I think your group would be more successful if you took on the British Crown and it’s Crown Agents (which would include it’s US-based round able groups and lackeys, too) as it is THEY who decide who loses and who wins. HK, FN, Colt, Izmash, etc., while not “innocent” are not the root cause, either.

    Just my take.

    P.S.

    If I had my way HK would be a US-based company sitting in the Appalachian Mountains of one of the Carolinas… 😉

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