Henry Gabay, founder of now defunct London-based asset manager Duet Group, told a German court that he’s innocent and that the “devastating” Cum-Ex charges against him are built on lies by his former business associates.
Gabay, who addressed for the first time the Bonn court where he’s on trial, said he’s still shocked to be in this situation as he relied on legal advice that cleared the deals at the time. The probe destroyed his firm and his personal reputation, Gabay said, mainly because of the media coverage of his 2020 arrest, which was leaked to the press.
“My whole life is in shambles,” Gabay told the judges. “Had I only had the slightest idea that the legal opinions didn’t cover the whole picture and risks, I would have never allowed these deals to be done under the Duet umbrella.”
Gabay and his former Duet partner Osman Semerci are on trial for their alleged role in the controversial strategy that exploited how Germany collected dividend taxes. The trades under review aimed to generate €215 million ($234 million) in illicit tax refunds in 2010 and 2011 of which €93 million were paid out, according to prosecutors.
Duet only provide the infrastructure and the traders handled the deals themselves, so Gabay didn’t play a leading role, he said. From 2008 to 2012, he didn’t know of any multiple refunds of the same tax, he said.
The Duet founder also lashed out at Semerci, his co-accused, who changed course earlier this year and is now cooperating with prosecutors. Semerci flooded investigators with documents full of inaccuracies and lies, Gabay said.
“It’s disappointing to see that the Cum-Ex complex seems to bring out the worst in people,” said Gabay.
Semerci used to be one of his best friends, said Gabay, adding that he helped Semerci, during a professional and personal crisis after he was fired from a top position at Merrill Lynch. Semerci will address the court later on Friday.
Gabay added that the manager who ran the Cum-Ex unit at Duet, who is now a key witness for the prosecution and who can’t be fully identified under German law, lied to prosecutors. Gabay said he’s astonished that this man, who made more money with Cum-Ex than any of the Duet partners, hasn’t even been charged yet.
“I have nothing to fear,” said Gabay. “All I want is to contribute to bringing the truth to light, and to restore my name.”
‘Dividend Arbitrage’
Semerci told the judges that he already knew of “dividend-arbitrage” deals that exploited tax rules when he was a top manager at Merrill Lynch, though the trades weren’t done at his units. When he joined Duet in 2008, former Merrill Lynch trader Salim Mohamed pitch this kind of business to them.
The pitch included U.S. transactions but Semerci said he opposed those because of the U.S. Senate’s report on dividend tax abuse, making such trades “red flags.” While he understood there were remaining legal risks to doing the deals in Germany, legal advice made them seem manageable, and that fact that virtually all international bank were doing them comforted Duet, Semerci said.
“The bad feeling I had about the U.S. trades should have prompted me to do more analysis and ask more questions as to transactions in the other countries,” Semerci said. “I regret that now.”
In 2011, he said he learned from a former colleague at Merrill Lynch that Cum-Ex deals were now also considered illegal in Europe, and he wanted to stop them. But his Duet partners Gabay and Alain Schibl wanted to continue and that’s why he left the group in February that year, Semerci said.
(Updates with Semerci’s comments after ‘Dividend Arbitrage’ subhead)