Hedge-Fund Founder Charged in $1.6 Billion Cum-Ex Probe
(Bloomberg) -- Sanjay Shah, who founded a London hedge fund that specialized in controversial Cum-Ex trades, was charged by Danish prosecutors in a 9.6 billion-krone ($1.6 billion) tax-fraud probe, according to a person familiar with the case.
Two British citizens, including one who lives in Dubai, were charged, a Danish prosecutor said Thursday in a statement. Shah, who lives in Dubai, is one of the two people targeted in the indictment, according to the person, who declined to be identified because the process is confidential.
“This is a case of extremely serious and extraordinarily extensive crime committed against the Danish state,” economic-crime prosecutors said. “We believe that the two defendants committed cynical and meticulously planned fraud.”
The charges are the latest legal escalation for Shah related to trades designed to claim multiple refunds on stock dividends. Shah, who has been described as the “mastermind” of Cum-Ex fraud by the Danish tax authority, also faces a pair of civil lawsuits in the U.K. and Dubai.
A spokesman for Shah said the Solo Capital founder was consulting with lawyers, but reiterated past statements that Shah has never done anything wrong. In an interview last year, Shah said that he took advantage of loopholes in Danish law, but never did anything illegal.
Danish media has widely identified Shah as the primary target of the probe.
The second person charged in the case was described by attorneys at the Danish State Prosecutor for Serious Economic and International Crime as the “presumed helper” of the principal figure in the case.
The development is a milestone in a scandal that has outraged Danes since they learned that international financiers stole about $2 billion from state coffers by falsely claiming refunds on dividend taxes. The wider Cum-Ex scandal is still being investigated in Germany and the U.K., as well as in other countries including Denmark. Germany alone is looking at the actions of as many as 1,000 suspects from across the financial industry.
Cum-Ex was a trading strategy that used the rapid trade of shares to gain duplicate tax refunds. The practice, named for the Latin term for “With-Without,” took advantage of tax laws and seemed to allow multiple investors to claim refunds on a dividend that was paid only once. Denmark alleges Shah engaged in a criminal charade to make it appear trades were made.
The charges come just a week after the U.K. cut ties with the European Union and lost access to the European Arrest Warrant. While Britain has said its extradition relationships with the EU will be similar to those between the bloc and Norway and Iceland, the process may now be slower and clunkier.
The U.K.’s National Crime Agency said it has supported the Danish investigation, and will continue to do so.
The agency is aware of the charges against the two U.K. nationals linked to an alleged fraud “committed against the Danish and Belgium tax authorities between 2012 and 2015,” NCA director of investigations Nikki Holland said by email.
The Danes have frozen as much as 3.5 billion Danish kroner of Shah’s assets, including a $20 million London mansion, as part of its civil case. German lawmakers have called the Cum-Ex scandal the greatest tax heist in history.
The Danish Tax Agency said in a separate statement that the latest charges target “some of the central actors” in the Cum-Ex scandal. The agency, which has filed dozens of civil cases in the U.S., said it’s looking forward to recouping as much of the money as possible.
On the same day the charges were announced, an arrest warrant issued by Germany against former investment banker Paul Mora also become public. Mora, a citizen of New Zealand, said he won’t travel to Germany to face tax-evasion charges over Cum-Ex trades. Mora denies the allegations.
In Germany, half a dozen prosecutors’ offices are investigating and so far more than 20 bankers and lawyers have been indicted over Cum-Ex.
A Bonn court convicted two former London investment bankers in March over trades that led to about 400 million euros ($490 million) in illicit tax refunds, according to the judges. Courts in Wiesbaden and Frankfurt are scheduled to open more trials this year. The Bonn judges are currently trying another former banker in the investigation.
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