There's nothing like going shopping with someone else's money, and there's no one like Thomas Kramer, the German financier who has sunk millions into South Beach real estate, to teach South Florida how it ought to be done.
The 38-year-old self-described asset manager has been buying chunks of prime property since his arrival in Miami Beach with his newlywed wife in late 1991. Within months he had plunked down $40 million, purchasing luxury homes in the exclusive enclaves of Indian Creek Village and Star Island, and gobbling up parcels of South Pointe, a rundown but picturesque neighborhood at the tip of Miami Beach. Kramer now controls about 45 acres of real estate in South Beach, worth at least $100 million, according to his development company, the Portofino Group. In October the City of Miami Beach approved a momentous land swap with Kramer, which would allow the mogul to fulfill his vision of converting South Pointe into a community of luxury highrises that will dwarf the surrounding cityscape -- mammoth buildings to match the tycoon's financial clout.
From the outset, Kramer's bout of unprecedented conspicuous consumption made headlines. And from the outset the press was asking, Where did all that money come from?
Kramer, who had racked up deutschemarks by the million as a commodities trader in Munich, was broke by late 1991. A trading company he founded while working under the auspices of the New York investment firm Shearson Lehman Brothers had gone belly-up in 1990, along with an investment fund he had begun in Germany for the purpose of buying East German property. Things were so bad, he told the German press at one point, that he and his wife -- Catherine Burda, daughter of publishing magnate Franz Burda -- intended to apply for that country's welfare program.
As he went about the business of buying Miami Beach, Kramer told inquiring reporters that the miraculous restoration of his liquidity was due to the sale of various valuable personal possessions, fabulous luck as a commodities trader, and the generosity of his wife's relatives. In particular he made vague allusions to the beneficence of Catherine Burda's stepfather, billionaire Siegfried Otto.
The match seemed a strange one: The conservative Otto owns the Munich-based Giesecke & Devrient GmbH, a company founded in 1852 that has contracts to manufacture half of Germany's bank notes, as well as the currencies of 60 other nations worldwide. Kramer, on the other hand, has a reputation as a mercurial playboy with a proclivity for scandal that has been chronicled in New Times since December 1992. He and Catherine Burda were divorced in 1995.
Given Kramer's track record -- especially that sorrowful foray into East German real estate -- why would Siegfried Otto bankroll Kramer's capricious development fancies in faraway Miami Beach? The question has nagged the German media for years.
Now a profusion of overseas reportage has more than compensated for the journalistic drought. Beginning a few days before Thanksgiving, the German press -- from an obscure financial newsletter to a sensationalist tabloid to mainstream dailies and weeklies -- readdressed those old questions with a vengeance.
On November 27 Czerwensky Intern, a Frankfurt-based economic newsletter, reported that Siegfried Otto had turned himself in for tax evasion. According to the newsletter, the 80-year-old billionaire had failed to pay taxes on an estimated 195 million marks (equivalent to $139 million in U.S. currency) over a time span of twelve years. By voluntarily disclosing his dereliction -- one of the largest cases of tax fraud in German history -- to the German Ministry of Finance, Otto avoided criminal prosecution. He was, however, forced to pay a civil penalty of 100 million marks ($71.4 million), and has voluntarily stepped down from overseeing the day-to-day operations of his bank-note-printing company, Giesecke & Devrient. Similar stories were subsequently published in the sensationalist Hamburg tabloid Bild Am Sonntag, the mainstream weeklies Stern and Der Spiegel, and the prominent business daily Frankfurter Allgemeine Zeitung.
Otto's admission dates back to the summer of 1993, but it had never been made public before the Czerwensky Intern story. "We are investigating this case, and we are under enormous psychological pressure," wrote the newsletter's editors, citing "usually reliable" sources who maintained that Otto was struggling to reclaim an estimated 300 million marks he had given to Kramer to invest in Florida real estate. A week after the first story was published, the newsletter reported in a followup that the sum was closer to 350 million marks.
A spokeswoman at Giesecke & Devrient refuses to confirm or deny the allegations. But the company faxed New Times a statement signed by Otto and printed on his personal letterhead. "Mr. Siegfried Otto several years ago gave Mr. Thomas Kramer a very large amount of money from his [personal] holdings to administer," reads the statement, written in German and dated November 26, 1995. "Because of Thomas Kramer's actions, there was a critical loss of money. Some of the money has been returned [by Kramer]. Mr. Siegfried Otto is seeking the return of the remainder."
According to a woman who answered the phone at his Star Island residence, Kramer was traveling and unavailable for comment. The offices of the Portofino Group were closed for the holidays; messages left seeking comment for this story were not returned.
Herbert Unewsky, a reporter for the mainstream German weekly Stern, says his sources have told him the bulk of the money Kramer invested here is derived from the profits of a Swiss-owned company called Security Printing; Kramer has denied that connection, he adds.
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"Otto and his lawyers say they gave the money to Kramer to work with and later pay back," Unewsky explains. "But Kramer told me several months ago that a lot of his money comes from bank loans."
The overseas publications report that the Swiss company was originally owned in part by Giesecke & Devrient, but that firm sold its shares to Otto after a 1972 change in German tax laws. Although Otto has filed income tax returns each year, he has never reported his ownership in Security Printing, the stories state. Security Printing reportedly sold currency-manufacturing equipment to Eastern European countries, and vehicles and luxury items to Africa. Stern also reported that Security Printing may have trafficked in dual-use chemicals -- substances that can be used to manufacture chemical weapons -- an allegation German authorities are said to be looking into. (Otto has denied any involvement in weapons trafficking.)
German officials are not likely, however, to pursue Thomas Kramer's alleged involvement in the tax-evasion scheme; once Otto paid his fine, that matter was closed.
When told of the reported arrangement between Otto and Kramer, a tax expert at the German Embassy in Washington, D.C., said German law generally holds only the actual owner of a property A Otto, in this case A liable for tax purposes. "Whatever I say is an opinion," cautions tax attache Dieter Eimmermann. "In a complex case like this, you can't be sure. But there was obviously an [agreement] between these two people that the developer [Kramer] would invest the money, probably in his own name, but on behalf of the other person [Otto].