STILL smarting from his acrimonious defeat in the London Stock Exchange takeover battle, Werner Seifert, the controversial head of Deutsche Börse, is now being forced to defend his musical activities to his rebel shareholders.

The Children’s Investment Trust (TCI), the London-based hedge fund that led the fight to block the German exchange’s £1.4 billion bid for the LSE, is claiming that Seifert has misappropriated company funds, including spending millions of euros a year supporting jazz festivals that he plays in.

The hedge fund also alleges that Seifert has been trying to cover up the real expense of two acquisitions by hiding costs in other divisions.

The first is its €1.7 billion (£1.1 billion) stake in Clearstream, and the other is the €100m the exchange spent on buying Entory, an information technology system.

TCI says Seifert is personally responsible for the alleged accounting irregularities and has illegally used Deutsche Börse funds to support his passion for jazz. Seifert spends much of his spare time playing jazz and touring Germany with his own band, the Big Brazz Pack.

Deutsche Börse sponsors several big jazz festivals in Europe. At the time news of Deutsche Börse’s bid emerged, Seifert was playing in a jazz concert in Hamburg to promote his new CD.

The Deutsche Börse board has appointed Ernst & Young, the accountant, and Skadden, Arps, Slate, Meagher & Flom, the American law firm, to investigate the allegations.

Deutsche Börse withdrew its 530p-a-share proposal for the LSE in March, after a ferocious investor rebellion in which TCI was backed by Atticus, Merrill Lynch and Fidelity. Seifert used the London offices of his former girlfriend, Lisa Traeger, while he plotted the bid.

Not content with blocking the bid, the rebel investors have pledged to remove Seifert and chairman Rolf Breuer at the Börse’s annual meeting in two weeks’ time. The rebels had lined up Lord Jacob Rothschild as Breuer’s replacement, but Friedrich Merz, the German politician, is now considered their preferred chairman. Reto Francioni, the chairman of the Swiss exchange and an enemy of Seifert, has been chosen as their preferred chief executive.

Investors said that Goldman Sachs, which is advising Deutsche Börse, called to ask if they would accept Breuer’s departure rather than Seifert’s.

Insiders said the exchange’s supervisory board, which consists of 21 directors, not including Lord Levene who resigned last week, will meet for an extraordinary meeting next Monday and is deeply divided. However, it is now moving towards removing Seifert ahead of the annual meeting.

Deutsche Börse has reserved the right to re-enter the bid for the LSE and compete with a rival offer from Euronext, the Paris-based exchange.

The takeover proposals have been referred to the Competition Commission.

Deutsche Börse said: “While the company sees it as its duty to have the allegations investigated thoroughly, it considers them unfounded, inflammatory and damaging to the company’s reputation.”

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