Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Banker tells German court of 'vast network' at center of fraud trial

Stock MarketsSep 18, 2019 01:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

By John O'Donnell

BONN (Reuters) - A banker at the center of a trading scheme German prosecutors say resulted in hundreds of millions of euros of illegitimate tax rebates told a court the scheme had taken on an "industrial scale" involving a network of banks and other institutions.

Martin Shields, a former investment banker, said that a web of banks, investors and brokers had organized the circular trades, making multiple tax reclaims and sharing the profit.

"I am not before you to deny my involvement, but to explain it," Shields told the court in Bonn on Wednesday.

The trial is the first in a wider investigation aimed at recovering billions from banks which prosecutors say profited from such schemes. Germany estimates the schemes cost it more than 5 billion euros ($5.5 billion) in total.

Prosecutors allege that players in the so-called cum-ex scheme misled the state into thinking a stock had multiple owners who were each owed a dividend and a tax credit.

Shields' testimony is a critical building block in pursuing others potentially involved. The case, Germany's biggest post-war fraud investigation, is being closely followed in London and Frankfurt, where much of the trading was organized, according to bankers and court documents.

German state prosecutor Anne Brorhilker this month outlined criminal charges against Shields and fellow British banker Nicholas Diable, who she said organized a network of traders and lenders to make double tax reclaims with sham share trades.

Brorhilker said the two men, who face a possible jail term and a state order to repay any profits they made, had been involved in organizing bogus share trades in companies including carmaker BMW and airline Lufthansa.

The alleged scheme involved trading shares rapidly around a syndicate of banks, investors and hedge funds to give the impression of numerous owners, each entitled to a tax rebate.

Shields, a 41-year-old engineering graduate, said he regretted his involvement in the trading scheme but that the practice was common knowledge in the industry and that he had no reason to believe at the time that it was legally questionable.

"This was not the clandestine approach of a few," he said, describing it as the "clear and openly communicated expectation of most banks and their customers".

Diable is expected to address the court on Thursday. His lawyer did not respond to a request for comment.

Brorhilker has estimated that the alleged scheme she is prosecuting cost Germany some 450 million euros in lost taxes.

She said the two men had started it when working at German bank HVB, before moving to a small investment firm, tapping a wide network of contacts to arrange the trades, sometimes splitting the profit made with banks.

Shields named banks and financial institutions he said were involved in the scheme, including Warburg, Deutsche Bank (DE:DBKGn) and Deutsche Boerse's trade settlements arm Clearstream.

Last month, prosecutors raided the offices of Deutsche Boerse (DE:DB1Gn) as part of the wider probe.

Warburg has been included in the German trial and may have to repay any profit made from the schemes. A spokesman for Warburg has said that it had not received such multiple tax rebates and had never set out to do so.

HVB, which has blamed its involvement on wrongdoing by individuals, declined further comment. A spokesman for Deutsche Boerse said it was fully cooperating with the authorities.

A Deutsche Bank spokesman said it had been involved with clients' cum-ex deals but that it now takes a critical view of these transactions and is cooperating with the authorities.

Germany changed and clarified the law in 2007, 2009 and 2012 to prevent cum-ex trades, but the case has fueled mistrust of banks among ordinary Germans.

The discovery of the trades in Germany and Denmark, where tax authorities say they lost $2 billion in rebates, prompted investigations by other countries including Austria and Belgium, which have found they were also affected, albeit on a far smaller scale.

Banker tells German court of 'vast network' at center of fraud trial

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email