Warburg Seeks $197 Million From Deutsche Bank in German Tax Scandal

M.M. Warburg & Co. has nearly quadrupled the amount it’s seeking from Deutsche Bank AG in a German lawsuit over the Cum-Ex tax scandal, according to people familiar with the case.

The private bank is now asking for 166 million euros ($197 million) ahead of a hearing in the case Monday in Frankfurt.

In the case, which has been pending since 2018, Warburg is seeking to have Deutsche Bank pay its tax liabilities stemming from so-called Cum-Ex transactions. The private bank, which dates back to 1798, expanded the lawsuit after it received two new tax bills from revenue officials in the city of Hamburg, according to the people who asked not to be identified because the court filings aren’t public.

Both banks are among dozens of financial institutions caught up in a scandal over stock trades designed to take advantage of a loophole in tax laws related to dividends. Earlier this year, two bankers were convicted in the first criminal trial related to the practice.

The court in Frankfurt confirmed the Warburg filing, saying the suit was expanded to cover additional years.

Warburg argues in the lawsuit that Deutsche Bank failed to transfer taxes to revenue officials on a transaction where Warburg acquired the stocks. Deutsche Bank acted as the custodian for the group selling the stocks.

Deutsche Bank has rejected the claims and said in a statement Friday that Warburg was well aware that the custodian banks never transferred money to tax officials in Cum-Ex deals.

Warburg declined to comment on the new filing in the lawsuit.

Both Warburg and Deutsche Bank are embroiled in the investigations. Warburg’s transactions were under review in the first Cum-Ex trial in Bonn that ended with convictions of two British traders in March. That trial centered on more than 30 deals in which managers at Hamburg-based Warburg were involved, according to findings in that case.

As part of the judgment, the Bonn court seized 176 million euros from Warburg, which the judges said was the profit the private lender made from 2007 to 2011. Little later, the city of Hamburg ordered the bank to repay more than 160 million euros in tax refunds it received as part of Cum-Ex transactions. As that order covers some of the same years, it’s unlikely Warburg will have to pay both bills. The bank is challenging both rulings.

In June, four Warburg bankers were indicted in Germany over the Cum-Ex scandal.

Cum-Ex trades, named for the Latin term for “With-Without,” took advantage of German tax laws that seemed to allow multiple investors to claim refunds on a dividend levy that was paid only once. The practice ended in 2012 when Germany revised its rules and the trades may have cost taxpayers more than 10 billion euros.

The case is: LG Frankfurt am Main, 2-18 O 386/18.

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