BeleagueredGerman private film financier VIP Media Group has withdrawn its current fundsVIP 5 and 6 from the market after theoffice of Munich's public prosecutor began investigations this week intoalleged professional fraud and tax evasion.

The authoritiesraided the Munich office and homesof VIP fund chief Andreas Schmid and other senior executives.

The investigations against VIP executivesSchmid, Eduard Wallner and Andreas Grosch and the company's tax consultantscentre on the defeasance structure of the VIP 3 and VIP 4 guarantee funds.According to industry circles, the public prosecutor is arguing that theinvestors' initial loss attributions cannot be recognised in full since thefunds' structure would negate any entrepreneurial risk or an intention to makeprofits.

In its defence, the VIP management expresseditself "aghast" about the investigations "after our tax concepthad been developed with internationally renowned tax and accountancy officesand continually checked and monitored by them and [since] also variouswell-known competitors are working with such a concept."

"After an initial examination we considerall of the accusations by the investigating authorities to beinapplicable," stressed Michael Reinhart, Schmid's legal adviser.

VIP said it will fully reimburse investors in its VIP 5 and 6 funds.

This latest turn of events is another blow forthe former high-flyer after the Commerzbank decided in August to stop marketingthe latest two VIP funds to its clients.

While Schmid had expressed optimism that hewould be able to bring the bank back onboard - the Commerzbank had beenresponsible last year for some 75% of the private equity raised for VIP fromprivate individuals - VIP has had to continue to date without theCommerzbank and had only raised Euros 25m for VIP 5 and 6, according toFondstelegramm.

This in stark contrast to the bullish claimsmade earlier in the month when VIP had forecast that it would continue to be aleading force in 2005 with involvement in an estimated production volume ofEuros 200m (last year, the VIP Media Group had raised around Euro 400m tobecome market leader among the German media funds).

VIP is currently involved in the financing ofTom Tykwer's big-budget adaptation of the best-selling novel Perfume,Paul Verhoeven's Second World War drama Black Book, and the sequel tothe 2004 German comedy 7 Zwerge - Maenner Allein Im Wald, 7 Zwerge - DerWald Ist Nicht Genug.