Australian Bank Accused of Financing Fund Linked to Tax Deals

(Bloomberg) -- Macquarie Bank Ltd. was accused in a German lawsuit of financing a high-risk fund linked to controversial Cum-Ex tax deals that ended up costing wealthy investors 190 million euros ($209 million).

The Australian investment bank took about 48 million euros “for nothing,” Eckart Seith, a lawyer for the investors, told a Munich court Tuesday. Macquarie financed the deals in 2011 after the lender already knew the German Finance Ministry was trying to clamp down on the practice, he said.

The lawsuit is one of many legal actions, including multiple criminal probes, related to the controversial tax arrangements. Lawmakers estimate that Cum-Ex deals, which triggered multiple tax refunds on dividend payments, cost the treasury more than 10 billion euros in lost revenue.

Like many other lenders, Macquarie has been caught up in the Cum-Ex scandal. Earlier this month a former trader testified at the trial of two former investment bankers involved in the transaction at other companies, describing how the tax practice worked its way to the Australian institution.

Seith told the court Tuesday that 22 people who have worked at the bank are suspects in one of the criminal probes. The attorney has access to the files of Cologne prosecutors because he represents people deemed to be victims of Cum-Ex crimes.

“Macquarie was lusting for these deals,” Seith said at the hearing. “It was like bank robbery -- only that this time the robber was a bank.” The fund never received the tax refunds and the money was lost, he said.

German Billionaire

The Munich lawsuit was filed by a German company set up to help wealthy individuals -- including billionaire Erwin Mueller -- recoup money they had invested in a Luxembourg fund called Sheridan. The fund heavily traded in Cum-Ex and Seith says his clients weren’t told about the real nature of the tax-driven trades. Since Macquarie acted as as prime broker in the deals, he wants the bank to cover his clients’ losses, which total 30 million euros.

Jan Erik Windthorst, a lawyer for Macquarie, asked the court to dismiss the case, arguing the bank didn’t sell the fund’s shares to the investors.

“The investors had no contact at all with Macquarie,” the lawyer said. “The only thing Macquarie did was provide capital, that’s all.”

Amanda Mitchell, a spokeswoman for the Sydney-based bank, declined to comment.

The Cum-Ex scandal has ensnared multiple financial institutions, including Bank of New York Mellon Corp., Merrill Lynch and BNP Paribas SA. The transactions used short sales of German stock around dividend day in an effort to get double tax refunds.

Tuesday’s hearing was set up to determine whether Munich is the right location for the case or whether Seith must sue in London or even Australia. The court scheduled a ruling on this question for Dec. 17.


Macqaurie had a unit called MSIS, which worked on Cum-Ex deals. An employee for the unit in Munich would eventually become the first person linked to the bank to become a suspect in the Cologne probe, according to Seith.

The transactions were approved by the executive committee, including then-Chief Executive Officer Nicholas Moore and his successor, Shemara Wikramanayake, Seith said. Both are now being investigated as suspects in Cologne, he said.

In a September 2018 release related to the lawsuit, Macquarie said that the then-CEO and “the CEO designate” were involved in the approval process of the deals, without mentioning their names. Wikramanayake followed Moore in December 2018 as CEO. The statement also said that it was likely that both would be “formally classified” as suspects.

Macquarie also said in the 2018 statement that it received extensive external legal advice in relation to its involvement and believed that it was acting lawfully.

Seith has earned some fame in the Cum-Ex saga. He won a 50 million-euro verdict in Germany for Mueller against Switzerland’s Bank J. Safra Sarasin AG, which marketed the investment. In the course of his research, Seith obtained material from Sarasin which he handed over to German authorities. His input is deemed a key element in the probe by Cologne prosecutors that now covers a multitude of banks and more than 400 suspects.

In the eyes of Swiss prosecutors, Seith’s actions amounted to spying, They charged the lawyer as he got the documents from two Sarasin insiders. A Zurich court in April convicted Seith of violations of the Swiss Banking Act and fined him with 165,600 Swiss francs ($165,231). He has appealed.

The Macquarie lawsuit is: LG Muenchen, 40 O 4474/18.

©2019 Bloomberg L.P.

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