ICAP Called ‘Spider’ in Cum-Ex Web by German Authorities
(Bloomberg) -- A TP ICAP Plc unit is accused of being “a spider in the web” of controversial Cum-Ex trading by German prosecutors, who have targeted it with search warrants and multiple investigations.
Prosecutors in Cologne and Frankfurt obtained new orders allowing them to seize documents earlier this year, as part of proceedings against the unit and its employees, according to a court document filed by the firm.
TP ICAP emerged as the world’s biggest inter-dealer broker after Tullett Prebon bought the voice-broking business of arch-rival ICAP from city grandee Michael Spencer in December 2016. The deal more than doubled its revenue, but has left the firm with a number of headaches in the form of regulatory and criminal probes.
In September, Cologne opened another formal investigation into alleged tax evasion on Cum-Ex trades against the unit. Cum-Ex trading was a controversial practice where shares were rapidly traded to earn duplicate tax refunds on dividend payments.
The details of the probes were disclosed as part of TP ICAP’s lawsuit against NEX Group Plc, the remaining businesses that Spencer sold to U.S. futures exchange CME Group Inc. in 2018.
TP ICAP accuses NEX of failing to reveal the company’s alleged role in Cum-Ex trading during the sale. TP ICAP is seeking to force it to pay any fines and litigation costs that may arise from the ongoing probes.
The voice-broking business was “a spider in the web” or “the glue that held the system together” when it came to Cum-Ex trading, according to the Cologne order, cited in TP ICAP’s lawsuit.
TP ICAP “has issued a claim case against NEX Group Ltd. in the High Court in regard to investigations by governmental authorities concerning a number of matters, including alleged ‘Cum-Ex’ trades in Germany,” the company said in an emailed statement.
“These trades, which are being investigated by several German authorities, occurred some years before Tullett Prebon acquired the voice-broking business of ICAP” at the end of 2016, it said. “The existence of the alleged “Cum-Ex” trades and the regulatory enquiries in Germany were not disclosed to Tullett Prebon during the sale process.”
A spokesman for CME said the company has filed a court document to dismiss the case and declined to comment further. Spencer didn’t respond to a request for comment through his representatives.
TP ICAP’s lawsuit lifts the lid on the extent of the unit’s alleged role in what has become known as the biggest tax fraud in European history. It’s the first time the 2020 warrants and Cologne’s new probe into the business have been made public.
Cum-Ex deals ended in Germany in 2012 when the nation revised its rules, but the tax schemes may have cost taxpayers more than 10 billion euros ($11.9 billion).
The unit’s alleged involvement in Cum-Ex trading was described in at least three out of five indictments filed in Germany so far. Prosecutors also mentioned it in a Bonn court on Tuesday, where the second German trial over Cum-Ex started. ICAP acted as a broker in deals under review in the case, according to the court filing.
TP ICAP’s lawyers say it is aware of reviews, inquiries, investigations and proceedings by relevant authorities involving the German Federal Tax Office, Frankfurt and Cologne prosecutors.
The Cologne order, issued in July, indicates that it’s suspected that the accused employees knew that the purpose of the transactions was to obtain unjustified tax refunds, TP ICAP’s lawyers said. The order refers to trades with 39 different parties and seeks trading data and communications in respect of them, the lawyers said.
Frankfurt prosecutors said they are investigating a financial-services provider based in the U.K. but declined to name the company. Cologne prosecutors declined to comment.
Frankfurt prosecutors are seeking all the contents of email in-boxes of 10 individuals at ICAP Securities Ltd., documents about the profits generated as a result of the transactions, legal opinions and a product review carried out in 2008, according to TP ICAP’s lawyers.
Correspondence referred to in the Frankfurt order, issued in April, alleges that at least the ISL director and one of the ISL brokers were aware of the criminal nature of such transactions, the lawyers said. The individuals haven’t been named.
TP ICAP’s lawyers say NEX retains control of much of the documentation relating to the probes. NEX has refused to provide the requested information for nearly a year, the firm said in the court filing.
Although several countries are pursuing hedge funds, banks and individuals over cum-ex trading, German prosecutors have been far more aggressive.
In late October, a document released by the German parliament said that more than 20 bankers and three lawyers have been charged as part of the country’s criminal probe and tax authorities have been reviewing 391 open Cum-Ex cases totaling potentially illegal payouts of 4.3 billion euros. Prosecutors secured convictions of two former traders earlier this year.
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