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BofA’s Montag Emerges in $440 Million German Cum-Ex Trial

BofA’s Montag Emerges in $440 Million German Dividend-Tax Trial

(Bloomberg) -- The role of Bank of America Corp. in the Cum-Ex dividend-tax affair came back into focus at a trial of two former traders when one of the men named Chief Operating Officer Thomas Montag and a pair of colleagues in his testimony.

Montag was among the U.S. bank’s contacts for Ballance Group, the asset manager linked to Cum-Ex trades at the center of a trial in Bonn, along with Rajeev Patel and Monuhar Ullah, according to one of the two men accused in the case. Testifying on Wednesday, ex-Ballance co-owner Martin Shields said he never had direct contact with any of them, but that he “believes” others at his firm did.

The Cum-Ex scandal has roiled countless financial institutions as prosecutors allege bankers helped investors reap billions of euros in improper tax refunds from a loophole on dividend payments. Named after a Latin term for “With-Without,” Cum-Ex exploited how Germany taxed dividend payments. Authorities say Cum-Ex, where investors collected multiple refunds on taxes withheld on stock dividends, may have cost taxpayers more than 10 billion euros ($11 billion).

Montag, 62, spent two decades climbing the ranks at Goldman Sachs Group Inc. before joining Merrill Lynch & Co. as the global head of trading in 2008. Months later, as the financial crisis raged, his employer was taken over by Bank of America and Montag became head of global banking and markets. Bank of America, based in Charlotte, North Carolina and one of the world’s biggest banks with $2.4 trillion of assets, has since promoted Montag to chief operating officer.

The testimony is part of the trial of former bankers Shields and Nicholas Diable, who are charged with helping to organize deals that led to more than 400 million euros in lost taxes. In 2012, Germany revised its tax laws in an effort to end the practice, but whether the tactic was illegal is one of the key issues at the trial.

John McIvor, a spokesman for Bank of America in London, declined to comment.

Patel joined Merrill Lynch in 2006 from Morgan Stanley, according to records from the U.K. Financial Conduct Authority, and he is now global head of securities lending. Ullah, who declined to comment when contacted by email, now works as global head of financial solutions at ICBC Standard Bank Plc in London. An external spokeswoman for ICBC in London didn’t immediately comment.

Shields said that Ballance partner Paul Mora -- a former Merrill Lynch manager -- established the contacts with the U.S. bank alongside colleague Simon Pearson. The bank acted as prime broker and leverage provider for funds that were set up for Cum-Ex and which are now being reviewed at the Bonn trial, according to Shields.

The two funds were set up in 2010; one was called BC German Hedge Fund and the other BC Pro Rendite Fund. Ballance created these entities for German investment companies and also acted as an investment adviser. Mora and Pearson headed up the negotiation of the terms of the necessary investment facilities provided by Merrill Lynch, according to the testimony.

To contact the reporters on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Benedikt Kammel, Christopher Elser

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