From 1920 to 1927 as commander of the Naval Transportation Division, Lohmann ran a secret rearmament and research program on behalf of the Ministry of the Reichswehr in an attempt to circumvent the Versailles restrictions.

Favoured by the interests of the Chief of Naval Headquarters, Admiral Paul Behncke, it led to uncontrolled scope for legal violations, criminal activity and high-handed action by individuals within the ministry.

When his work was discovered in 1927, the scandal became known as the Lohmann affair in Germany and led to the resignation of Reichswehr Minister Otto Gessler in January 1928[1][2] and director of naval command Admiral Hans Zenker.

With the outbreak of World War I, he was appointed to the rank of Korvettenkapitän I artillery officer aboard the dreadnought Prinzregent Luitpold where he worked as a non-combat logistics specialist.

[8] In May 1921, Lohmann managed to secure some shipping that had been seized by the British and used for prisoner of war transports that were returned to their former owners, which raised his reputation amongst his colleagues considerably and set a precedent for future purchases.

[15] During that same month his questions were answered when he received information indirectly about Lohmann's financials in Phoebus-Film AG and Berliner Bankverein from the former director of the company, Sally Isenberg, who was in dispute with Phoebus.

[16] Beginning on 8 August 1927, Wenkel began publishing a series of articles that lasted for two weeks, that had titles like "The film scandal in the Ministry of Defense" and "Captain and Merchant".

[17] Lohmann believed he would be cleared of all blame as he considered it his job to exceed authority and to keep his actions secret from Naval Command to ensure the success of the rearmament programme.

[19] On 31 March 1928, the Marx government acting on Saemisch's recommendations, retired Lohmann, drastically reduced his pension and made him liable for the sum of 120,000RM for damages associated with Phoebus.

The official strategy developed and advanced by the Chief of the Fleet Department Wilfried von Loewenfeld [de] and supported by Admiral Hans Zenker was to build Deutschland-class cruisers.

These were unofficially known as "pocket battleships" by the British and officially called armoured ships in Naval Command, that were built in accordance with restrictions imposed by the Versailles treaty.

[21] In this way, Loewenfeld and Zenker hoped to tie up the French Navy in support of their merchant fleet in the Atlantic, while keeping the sea lanes clear in the north of Scotland to ensure it wouldn't be subject to any further naval blockades.

[13] Lohmann along with Rear Admiral Arno Spindler [de], Director of submarines advocated for a rapprochement with the Soviet Union as they believed it could provide prohibited war materials and at the same time, improve economic ties with Germany.

[23] A 1926 ministry memorandum "Denkschrift über die Notwendigkeit der Beschaffung eines langfristigen Kredites zur Sicherstellung gewisser militärisch notwendiger Marinebelainge, denen aus verschiedenen Gründen beim Ordentlichen Marinehaushalt nicht Rechnung getragen Werden kann" (Memorandum on the necessity of obtaining a long-term loan to secure certain militarily necessary naval assets which, for various reasons, cannot be taken into account in the regular naval budget) illustrated Lohmanns financial concept.

[23] The businesses would be structured in such in a manner to build trust abroad, populate the Naval supply chain correctly with armaments and at the same time, provide intelligence of the capabilities of foreign industry.

These discussions were primarily led by Yevgeny Berens and although no concrete agreement was reached, the Soviet Union agreed to buy German Accumulatoren-Fabrik AFA submarine batteries in July 1922.

[27] Lohmann wanted to send a naval architect to inspect the submarines and requested Paul Wülfing von Ditten [de] discuss the contract during a diplomatic visit to the country in 1923 as part of a delegation led by General Otto Hasse.

[31] However, the relationship failed to develop and the agreement was broken, when the Reichmarine received a diplomatic communiqué in December 1926 stating that Soviet submarines couldn't be built to German designs due to a lack of funding.

[35] In 1925, Lohmann worked with Reichsmarine officer Robert Moraht [de] to secure a submarine contract from the Soviet Union worth 30-50 million RM that had been held back for more than 2 years.

[39] By 1930, the plan had faltered when Prime Minister of Spain Miguel Primo de Rivera died, resulting in the completed u-boat being sold to Turkey at a loss.

[54] At the same time, the funding also covered the end of life maintenance of the decommissioned minelayer SMS Albatross and the construction of the steamships MV Bessel (initially known as the Sorrento) and Amalfi [b] at A.G. Weser.

[57] As well as funding many different capital projects, Lohmann ensured that suitable personnel were trained in an on-going basis, an activity that was a clear violation of Article 177 of the Treaty of Versailles.

[59] In February 1925, Lohman founded Tebeg (Technische Beratung und Beschaffung GmbH) to run the naval defence economy with company shares held by Navis.

[60] Tebeg's remit was to "draw up a comprehensive armament plan that would regulate the securing and distribution of raw materials, manufacturing facilities and workers" and was funded to the tune of 120,000marks that came from various departments within the Reichsmarine.

[70] On 10 December 1926, Lohmann approached Emil Georg von Stauß of Deutsche Bank for a loan of 15million marks to support both yards with the expectation of new orders being received after the tankers were completed.

[70] In a letter to Brockdorff-Rantzau sent of 22 February 1923, Lohmann described Sprenger as a very rich individual, who as owner of his own factories could make unilateral investment decisions without external input.

[71] In late 1925, a dispute arose between Franz Stapelfeldt [de], the director of Deschimag and Sprenger who was used to making his own decisions, that resulted in Lohmanns confidente in the company "Gerber" being fired.

[72] The submarine with designation submarino E-1 was sold by Naval Command to Turkey to partially recoup costs,[72] after Miguel Primo de Rivera fell from power in January 1930, along with his government.

[86] Even before Lohmann activities were exposed in 1927, Chief of Army Command Wilhelm Heye in February 1926 called for better controls and closer political involvement in financial planning and this was further reiterated by President of the Court of Audit Friedrich Saemisch who wished to be released from official secrecy during the investigation.

In order to make it easier for the Reich ministers to ensure that such expenditure is used in accordance with the agreed purpose, a committee will be formed to which the ongoing monitoring of the use of the funds in question will be entrusted.