London Fund Manager Faces Extradition Over German Tax Scandal
Duet Group Chief Executive Officer Henry Gabay appeared in a
French court Wednesday after being apprehended as part of a German probe into
the Cum-Ex tax scandal.
Germany issued an arrest warrant in relation to alleged
infringements that could result in 15 years in jail, a French judge describing
the case said at an extradition hearing in Aix-en-Provence on Wednesday. Gabay,
who has not been charged with a crime, agreed to cooperate and turn himself in,
which the court said must happen within 10 days.
Gabay, who founded the London-based investment holding
company in 2002, is the first person detained outside Germany in the wide
ranging Cum-Ex probes, which have ensnared dozens of bankers and financial
institutions. A Bonn court in March convicted two former London investment
bankers for their roles in the deals. They are appealing the verdict.
“Gabay was stunned when in front of his children, the eldest
being 14 years old, and his wife, he was apprehended and notified of this
arrest warrant,” Gabay’s lawyer, Jean-Marc Fedida, told the court, after
failing to have the proceedings heard in private. “Not only is he not on the
run but he would have gone to explain himself.”
The 52-year-old Gabay was detained at the Toulon airport
last week on his way back to London, where he lives, in what French authorities
called a “judicial retention.” German prosecutors in Cologne said in a
statement, which didn’t identify Gabay, that a suspect had been arrested in
France as part of the Cum-Ex probe.
Posted Bail
Gabay posted bail of 100,000 euros ($113,000) after his
detention last week. He remained free after the hearing as long as he long as
he stayed at a fixed residence in the south of France.
He told the court that he would have responded to German
requests if any had been sent to him.
“If German authorities had reached out I would have gone
straight away because I am a regulated professional,” he told the court. “I was
never summoned; I never got an email or a phone call.”
Cum-Ex was a trading strategy that’s triggered multiple
probes in Germany involving nearly 1,000 suspects and banks around the globe.
Authorities have said the trades could have cost the country 10 billion euros
in tax revenue.
The Aix judge said that the German prosecutors suspect Gabay
allegedly took part, between 2009 and 2011, in a “fraud that would have made
the German state about 94 million euros poorer.”
He is suspected “of having taken part at the time as head of
marketing by posing as a bank agent or a stock broker in helping a company get
tax credits in Germany,” the judge said.
“I have nothing to do with the 94 million” euros, Gabay said
to the judge. The CEO said that he followed tax lawyers’ advice and never did
anything wrong.
‘Not a Crook’
“I am not a crook,” he said. “I didn’t wake up one morning
thinking to myself I was going to cheat the German taxman.”
Gabay reiterated in a statement Wednesday his willingness to
cooperate with German investigators. He also said that in 2010 he wasn’t a
controlling shareholder of Duet. The company managed more than $4.4 billion
across hedged and long-only funds, private equity and real estate in 2017,
Gabay said at the time.
Gabay said he “had no role in any part of the business that
dealt with dividend arbitrage strategies.”
He said those sorts of transactions were run by another
team. For the fund to which the allegations appear to relate “he never traded
any stock, selected any service provider,” he said. He added that he doesn’t
have any background on tax-related trading strategies.
A second Duet official was granted bail on another German
warrant by a London court this week in a tax-evasion case, according to court
records.
Gabay said the allegations described in the European Arrest
Warrant issued by Germany center on Cum-Ex trades in which a fund set up by
Varengold Bank AG was involved.
A Varengold spokeswoman said Cum-Ex is an “old issue” and
declined to comment further. In its 2019 annual report, the Hamburg-based bank
said that Cologne prosecutors are probing former and current employees as well
as one of its units over dividend trading between 2010 and 2013.
Cum-Ex deals relied on a loophole in tax rules that seemed
to allow multiple people to claim a refund on stock dividends for a tax that
was paid only once.The Cologne investigation focuses on banks, brokers and
asset managers over various roles that were necessary for the Cum-Ex
transactions, including buyers, short-sellers and custody banks. Affiliated
companies within a group often took on several of these roles.
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