Banker Had No Way of Knowing Tax Trade Was a Scam, Lawyer Says
Ex-Warburg Executive Next in Line for German Tax Fraud Trial
(Bloomberg) -- An ex-senior manager at M.M. Warburg & Co. had no way of knowing that deals struck a decade and scrutinized as part of the Cum-Ex scandal may have been a scam, his defense lawyer said at the start of a German trial.
Detlef M., former managing director of Warburg Invest, the lender’s investment arm, appeared in a Bonn court on Thursday accused of participating in a scheme that lost the country 157 million euros ($184 million). The 63-year-old is in the same courtroom where his ex-colleague Christian S. was sentenced to 5 1/2 years in prison.
In Cum-Ex deals, investors used short sales to earn duplicate tax refunds on dividend payments on German shares. The practice ended in Germany in 2012 when the nation revised its rules, but the schemes may have cost taxpayers more than 10 billion euros. Germany’s top criminal court said that the deals were illegal and criminal, calling them a “blatant money grab.”
Ingo Heul, a defense lawyer for Detlef M., rejected the allegations in court . Not all Cum-Ex trades were necessarily illegal and it’s far from clear that the Warburg funds bought from short sellers or that he could have known that they did, he said.
He had no way to see the deals would be considered illegal more than a decade later. The court shouldn’t make a hindsight mistake, Heul said.
“Let me draw a comparison, today we understand the 2008 financial crisis, it seems completely clear to us and we think it will never happen again,” said Heul. “In 2008 that was totally different.”
Central Player
According to prosecutors, Detlef M. was a central player when Warburg Invest set up two funds to conduct Cum-Ex trades, Axel Koertgen said at the start of the trial.
Detlef M. also disguised the trading strategy in paperwork while setting up the funds, said Koertgen. He made statements “veiling” the investment strategy by talking about “pricing anomalies” while the only sources of profit were illicit tax refunds, the prosecutor told the court.
Warburg, which dates back to 1798, has repeatedly said it never intended to participate in illegal transactions, mislead authorities or seek unjustified tax refunds.
Detlef M. is one of four ex-bankers of the Hamburg-based lender who were jointly charged last year over a total tax amount of 325 million euros.
The case is: LG Bonn, 62 KLs 3/20.
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