VIENNA (Bloomberg) ? A Vienna prosecutor started an investigation into Bawag PSK Bank's ties with Anguilla-based companies that held unregistered bonds for the lender.

"We are trying to determine whether Bawag was duped or whether Bawag managers had knowledge about the transactions," Walter Geyer, a spokesman for the prosecutor, said in an interview. "We're working with the Financial Markets Authority and waiting for a detailed report from them."

Bawag wrote down investment losses of about 430 million euros ($522 million) in recent years through the bonds, Austrian newspaper Kurier reported yesterday. The losses stem from investments in the late 1990's and were booked with the Anguilla companies, according to the daily newspaper.

A US investigation into Refco Inc.'s collapse last October found as much as $525 million in securities with identification numbers that don't correspond to registered bonds, according to four people with direct knowledge of evidence gathered in the probe. Refco held the bonds for Bawag and a hedge fund known as Liquid Opportunity, the people said.

KPMG LLP signed off on the Anguilla-transactions and is preparing a report for Austria's financial-market regulator, Kurier said. Hans Zoechling, an accountant in charge of Bawag at KPMG in Vienna, declined to comment on the report, beyond confirming that KPMG has audited Bawag's books in recent years.

Bawag spokesman Thomas Heimhofer hasn't returned six phone calls since yesterday.

The regulator will probably start a probe into the transactions after meeting Bawag's management on March 17, it said yesterday. Bawag said its securities investments were correctly booked in its accounts and approved by auditors.

Bawag will hold a press conference on March 24 about the investments, according to an invitation from the bank today.

Reuters reported yesterday that in 1994 the bank found itself in a political row when it emerged it had lent as much as 23 billion Austrian schilling ($2 billion) to Bermuda-based funds owned by then CEO Walter Flottl's son Wolfgang without having proper approvals from its supervisory board.

It unwound the investment under public pressure while saying it had been highly profitable ? but after the dust had settled, Flottl's successor Helmut Elsner said in 1995 he would resume the trading, this time with the proper approvals.

But this time they did not go as well, BAWAG has told the regulator. From 1999 the bank made losses and it decided to pull the plug and unwind the investments again ? over several years to minimise losses and avoid a humiliating one-off write-down.