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German lender called to justice for misleading investors

German prosecutors have filed criminal charges against the former chief executive and the former management board of Hypo Real Estate, accusing them of misleading investors in 2008 during what proved to be the country’s most costly bank failure.

Georg Funke, the former chief executive of the Munich-based lender, and seven former management board members are accused of misleading investors about risks facing the bank ahead of its collapse in September 2008.

The office of the Munich public prosecutor, however, said it had decided not to pursue charges of fraud in Hypo Real Estate’s acquisition in 2007 of Depfa, a bank in Ireland that played a major role in the parent bank’s collapse.

The failure of Hypo Real Estate led to by far the biggest taxpayer-financed bailout in Germany during the financial crisis. The government supplied 9.8 billion euros, or $12.4 billion, in capital and issued €124 billion in guarantees for debt issued by the bank, which was nationalized.

The German economy suffered far less from the financial crisis than other European countries, but its banks played a prominent role in the global crisis.

Depfa was known for financing infrastructure projects including the Channel Tunnel between France and Britain and an expansion of the Capital Beltway in suburban Virginia. Depfa also lent to the Metropolitan Transportation Authority in New York.

Adding to their troubles, Depfa and Hypo Real Estate had invested heavily in subprime real estate assets in the United States and lent to national and local governments like Greece and Portugal that later had severe problems repaying their debts.