Trader’s Case Halted as U.K. Judge Thwarts Tax-Scandal Probe
(Bloomberg) -- The U.K. market watchdog’s investigations into a Europe-wide tax scandal were dealt a blow by a London judge who hit the brakes on one of its most advanced cases into Cum-Ex dividend-stripping schemes.
The Financial Conduct Authority was ordered to pause its probe into a trader until 2022, after a separate court decides on a case brought by Danish tax authorities against former hedge-fund manager Sanjay Shah.
The investigations into the Cum-Ex scandal were not “one of the FCA’s high priorities,” Judge Jonathan Swift said Wednesday, saying that the agency has been looking into the case since at least 2015.
The judge’s decision is a setback for the FCA, which argued at the hearing in January that the case was of public importance -- with many of the traders involved in the Cum-Ex schemes operating out of London.
“This case represents a serious rap over the knuckles” for the FCA’s enforcement division, said Claire Cross, a lawyer at Corker Binning, who wasn’t involved in the case.
“The case also exposes what appears to be a startling lack of energy and motivation to investigate what amounts to the biggest financial scandal since Libor rigging over a decade ago,” she said.
A lawyer for the trader involved in the stalled case declined to comment.
The agency’s investigation against the accused man was expected to set down a “marker” with its findings.“It is vitally important in the authority’s view that individuals including senior individuals are held to account,” the FCA’s lawyer Monica Carss-Frisk said in a filing for the hearing.
The FCA, which has investigations open into 14 firms and six individuals who operated schemes in Denmark, Germany, France and Italy, said in a statement it will seek permission to appeal.
In Cum-Ex deals, investors rapidly traded shares to earn duplicate tax refunds on dividend payments. Several European countries -- with Germany and Denmark at the fore -- are pursuing finance professionals as part of investigations into how the process stripped funds from their treasuries.
The U.K. has so far failed to sanction any individuals over the schemes, but the case of the accused man, who can’t be identified, was due to be considered by an internal tribunal, one of the final steps before a public ruling. The judge said the tribunal members lacked the expertise needed to decide on the matter.
The FCA’s case should be postponed, the judge said, because of the substantial overlap with the civil suit currently before the courts.
“While the finding will not prevent the FCA from continuing their related investigations into alleged misconduct arising out of Cum Ex, it will mean that we should not expect any further outcomes to be made public until 2022,” Cross said.
Denmark’s tax agency is suing Shah and his associates in London, in a bid to recoup 1.5 billion pounds ($2.12 billion) it says it was defrauded out of. The mammoth trial -- expected to be the longest in High Court history -- is being split into three parts, with the so-called “validity trial” set to start in October.
The trial will consider whether the trading strategy, criticized by the Danish agency as fraudulent, was established market practice or not.
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