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MM Warburg has paid the final instalment of its €155 million court-mandated tax bill to return ill-gotten profits from a historic cum-ex trading scheme but is pursuing legal action against Deutsche Bank and others to recoup the losses.
The German private bank was handed the multi-million euro settlement fee by Bonn Regional Court in March 2020 after it was found to have profited from an illegal dividend arbitrage strategy between 2007 and 2011.
A €44 million tranche was handed over to the German tax authority in April 2020, followed by a second €111 million transfer in December.
“The Warburg Group has now paid the entire tax amount on its own, although third parties initiated and processed the business and made large profits, while the Warburg Group never intended to benefit unfairly from tax credits,” a spokesperson for the bank tells SFT.
Warburg is committed to recouping as much of these costs as possible from Deutsche Bank and ICAP which acted as its custodian and broker during the period, respectively, along with several individuals.
Warburg is appealing a ruling by the Frankfurt Regional Court in September 2020 that found Deutsche Bank was not liable to reimburse its then client for unpaid capital gains taxes related to cum-ex transactions.
Regarding the relationship between the joint and several debtors, the court concluded that the plaintiffs alone ultimately have to bear the taxes not paid by the defendant as a custodian bank.
“Since MM Warburg does not share the tax assessment of the authorities, according to which it is to be claimed primarily and solely for all tax claims, it is taking legal action against the notices,” a statement from the bank after the ruling reads.
Claims for damages have now been filed against “the initiators, executors and profiteers of the business,” Warburg confirms.
The Hamburg-based private bank is confident that the appeal will be fruitful based on an opinion expressed by the Hessian Finance Court which it says already determined the obligation to pay in earlier decisions.
Warburg also points to a statement by presiding judge Lotzgeselle during the meeting of the Finance Committee of the German Bundestag on 9 September 2020 where he underlined his view that the domestic custodian bank should be used as a priority.
Warburg further argues that the Frankfurt ruling is “incomprehensible” given the terms of the Annual Tax Act 2007, which states that “with regard to the late interest accrued due to the defendant's non-payment, the decision is incompatible with the tax and civil law”.
As a result, Warburg is now pursuing remedies from several of its former service providers, including the Deutsche Bank and ICAP, as well as several other individuals from other institutions that are understood to be appealing their own convictions for cum-ex related transgressions.
In an opinion on the Frankfurt case published just after the ruling, Warburg’s lawyers gave a message to those parties, stating: “You have made a very substantial income from it. From now on, claims are being pursued vigorously against these parties with regard to their contributions and the income they have achieved, as well as other parties involved.”
A spokesperson for Warburg was unable to provide insight into when the appeal may be heard in court given the on-going COVID-19 disruptions to legal proceedings in German and across Europe.
