(Bloomberg) --
A former senior manager at M.M. Warburg & Co. faces calls for a seven-year jail term for his role in illegal “Cum-Ex” deals that cost Germany's taxpayers 157 million euros ($177 million).
Cologne prosecutors are seeking the term for Detlef M., former managing director of Warburg Invest, the lender's investment arm, according to a spokeswoman of the Bonn Regional Court. His defense asked the judges for a suspended prison term, she said. A verdict may come on Feb. 9.
The 63-year-old has been on trial since September in the same courtroom where his ex-colleague Christian S. was sentenced to 5 1/2 years in prison. After fighting the allegations for months, Detlef M. in January made a surprise u-turn and admitted that he was aware that the transactions were illicit.
In Cum-Ex deals, investors used short sales to earn duplicate tax refunds on dividend payments on German shares. The practice ended in Germany in 2012 when the nation revised its rules, but the schemes may have cost more than 10 billion euros. Germany's top criminal court said that the deals were illegal and criminal, calling them a “blatant money grab.”
Detlef M.'s attorney, Ingo Heuel, said that his client should get a suspended jail term, given his confession and the fact that none of the money landed in his own pockets. Prosecutors also dropped a part of the charges during trial that amounted to a 48-million euro tax loss which must now be cut from the total damage, he added.
“My client is the first German banker who confessed, and the first one at Warburg,” Heuel said. “He didn't play a central role, but simply ran along with the herd.”
Next to his late confession, Detlef M. also made him self available for two interviews with Cologne prosecutors outside of court to reveal his knowledge about other cases. The investigators weren't much impressed by what he gave them, they told the court. That's one reason why they are seeking a long term.
Heuel said that his client shared what he knew and it shouldn't hold against him that he had less information to disclose than people who were deeper involved in Cum-Ex.
According to the indictment, Detlef M. was a central player when Warburg Invest set up two funds to conduct Cum-Ex trades more than a decade ago. He disguised the trading strategy in paperwork and made statements “veiling” the investment strategy by talking about “pricing anomalies” while the only sources of profit were illicit tax refunds, prosecutors have said.
Detlef M. is one of four ex-bankers of the Hamburg-based lender who were jointly charged in 2020 over a total tax amount of 325 million euros.
The case is: LG Bonn, 62 KLs 3/20.
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