Hedge-Fund trader wins dismissal of $2 billion cum-ex case

Hedge Fund trader Sanjay Shah won his bid to throw out a 1.5 billion-pound ($2 billion) lawsuit filed by Danish tax officials over Cum-Ex trades, in a blow to the nation’s efforts to claw back vast sums officials claim were lifted from state coffers.a man standing in front of a building: Sanjay Shah, chief executive officer of Elysium Global Ltd., poses for a photograph in front of the Atlantis Hotel on the Palm Jumeriah in Dubai, United Arab Emirates, on Tuesday, Sept. 29, 2020. Shah charted a spectacular rise from trading-floor obscurity to amassing as much as $700 million and a property portfolio that stretched from Regent’s Park in his native London to Dubai.Sanjay Shah, chief executive officer of Elysium Global Ltd.

London judge Andrew Baker said in a ruling Tuesday that the U.K. wasn’t the proper place to bring a foreign tax claim. The Danish agency said it would appeal.

The U.K. civil case is just one avenue that Denmark is pursuing in a bid to recoup massive tax rebates it says it unwittingly handed to Shah and others. The nation has also charged Shah, who lives in Dubai.

Shah has emerged as a key figure in a scandal over alleged tax fraud that has engulfed multiple European countries. More than 25 bankers, traders and lawyers have been charged in Denmark and Germany over the use of Cum-Ex trades to obtain millions of euros worth of duplicate tax refunds.

Tuesday’s ruling is a setback for Denmark and its tax agency, which are trying to recoup billions of kroner of public money. They’ve already spent more than $100 million on lawsuits in the U.K., U.S, Dubai and elsewhere since 2017, according to public filings.

“This case will have a serious knock-on effect on any investigations into institutions and individuals who operated out of London and carried out dividend arbitrages schemes in European countries,” said Syed Rahman, a lawyer at Rahman Ravelli, who wasn’t involved in the case. “It highlights one of the dangers in cross-border cases.”

The Danish agency, known as Skattestyrelsen said it was “very surprised by the verdict and fundamentally disagrees” with it. In a statement published after the ruling, it said it wasn’t a tax claim, but rather a civil claim where it seeks to have the amount returned.

Denmark accuses Shah of being the “mastermind” of a “cynical and meticulously planned fraud” that saw traders use a loophole on dividend payouts to reap duplicate tax refunds. It says Shah earned millions of pounds in profits using the technique. Shah has repeatedly denied the allegations.

Sanjay Shah and the other defendants “have suffered three years of unnecessary litigation in the U.K.,” said Chris Waters, a lawyer for Shah. “As a consequence, our clients suffered very significant financial loss and damage which they will seek to recover from the Kingdom of Denmark.”

Shah’s spokesman, Jack Irvine, said they “were confident from day one that SKAT were either badly advised or took a bad decision to proceed with this case.” The agency will now have to pay the defendant’s legal fees, which run into many millions, he said. A hearing to determine costs usually takes place a couple weeks after a ruling.

Denmark’s appeal will rest on whether it can prove this is not a tax claim in a foreign jurisdiction and whether Shah should be a defendant in England, Rahman said.

The case was brought in 2018 against Shah and 70 other defendants, and was set for a second six-week trial in October. The main trial on the merits of the allegations was due to begin in 2023 and was expected to be the longest trial in High Court history, lasting a year.

Another defendant in the case, brokerage firm ED&F Man Capital Markets, emphasized that it was not accused of dishonesty in a statement following the ruling.

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