Counting the Human Cost of Germany's Massive Tax Heist

(Bloomberg) -- First the judges in a landmark German tax trial heard of the financial fallout from the controversial trades. Then they gained some insight into the human toll, too.

Appearing in a courtroom in Bonn on Oct. 1, former Macquarie Bank Ltd trader Darren T. told judges how the revelation that prosecutors were investigating his role in the so-called Cum-Ex deals so rattled him that he had to see a psychiatrist for about a year and take medication for 18 months. Only after he began cooperating did he turn the corner, he said.

The testimony provided a more personal perspective of the complex world of dividend deals that the trial is seeking to unpack, establishing who played which role in a scandal that’s the biggest tax heist in recent German financial history. The 45-year-old with a physics degree from Oxford is the first witness testifying in the trial against former bankers Martin Shields and Nicholas Diable, who are charged with helping to orchestrate deals causing a damage of more than 400 million euros ($436 million).

“When we first learned that a criminal investigation was starting to look into our company, it was a huge personal shock,” Darren T., who hasn’t been charged with a crime and can’t be identified under German law, told the judges. “I took that personally very, very hard.”

Detailed Presentation

A trained accountant, Darren T. wound up at Macquarie in 2004 after stints at Arthur Andersen LLP, Merrill Lynch Europe and Maple Securities. After working in various roles, in 2007, he became a trader and worked on Cum-Ex transactions. Like Shields and Diable, he has been cooperating with prosecutors and helped them uncover details of the complicated transactions. Shields, in particular, provided extensive testimony over several days, supported by graphics that laid out the intricate web of Cum-Ex relationships in the financial industry. Darren T. is scheduled to continue his testimony today.

Cum-Ex peaked between 2007 and 2011 and lawmakers estimate the financial engineering cost the government more than 10 billion euros in lost revenue, a shortfall the treasury is keen to recoup. The Cum-Ex scandal has ensnared multiple financial institutions, including Deutsche Bank AG, Bank of New York Mellon Corp. and Societe Generale SA. Macquarie said a year ago that as many as 30 people at the bank -- including top executives -- would be interviewed as part of the probes.

Stephen Moir, a spokesman at Macquarie in London, declined to comment.

Under Investigation

By 2015, as he learned he was being investigated, Darren T. hired a German lawyer who suggested approaching Cologne prosecutors about cooperating with the probe. At the time, however, Darren T. was “just too afraid” to do it, he said. Only in 2017, when a lawyer involved in Cum-Ex deals asked Darren T. to go to prosecutors with him, the ex-trader was ready to do it.

That decision helped improve his health, he said.

“I only started to relax a little after I started cooperating with prosecutors,” he said. “I understood I was on the right track.”

No one at Macquarie knew about Cum-Ex until 2005, when the bank hired a trader from Deutsche Bank who taught them how it worked, Darren T. said. That banker also recruited customers who acted as buyers in the deals.

Darren T.’s task was “book building,” meaning he had to coordinate short sellers, buyers and brokers to ensure the right number of shares could be traded. The deals were often set up via instant messages. He later did the same job at Zeta Financial, he said.

Shields and Diable were competitors in the high profitable Cum-Ex market competing for clients like M.M. Warburg, said Darren T., who has lived in Dubai since 2009, when he joined Zeta Financial. He’s now a “small-scale” real estate developer, by his own account, and he wants to come back to the U.K. with his wife and children eventually, he said.

"Really our home and heart is in the U.K.," he said.

The trial is scheduled to last through early next year.

--With assistance from Donal Griffin.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Daniel Schaefer

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