When Sanjay Shah lost his job more than a decade ago during the financial crisis, he was one of thousands of medium-sized traders who were suddenly unemployed.
It didn’t take long for Shah to get back into the game and set up his own fund to fill in loopholes in dividend tax laws. In just a few years, he saw a spectacular surge from the darkness of the trading floor to up to $ 700 million and a real estate portfolio that stretched from Regent’s Park in his native London to Dubai. He commanded a 62-foot yacht and booked Drake, Elton John, and Jennifer Lopez to play for an autism charity he founded.
Fueling the rise was what he claims was legal, if ultimately controversial, cum-ex trades. Transactions like this have exploited legal loopholes across Europe, allowing traders to repeatedly receive dividend tax refunds on a single holding of stocks. The deals turned out to be extremely lucrative for those involved – except of course for the governments, who paid billions. German lawmakers have called it the largest tax robbery in history.
Denmark, which is trying to reclaim around 12.7 billion kroner ($ 2 billion), or nearly 1% of its gross domestic product, says the entire company was a charade. The attorneys are trying to gain access to the bank records they hold, which will prove this point. The authorities have now frozen a large part of Shah’s fortune and he is fighting lawsuits and criminal investigations in several countries. His lawyers have told him that if he leaves the Gulf City for Europe he will be arrested, even though he has not yet been charged.
However, in a series of interviews from his $ 4.5 million home in Dubai, Shah was not remorseful.
“Bankers have no morals,” said the 50-year-old on a video call. “Hedge fund managers and so on have no morals. I made the money legally.”
Shah and the firm he founded – Solo Capital Partners LLP – are central figures in the Danish cum-ex scandal, in which he said his company helped investors sell stocks quickly and claim multiple refunds for dividend taxes.
Authorities have examined hundreds of bankers, traders and lawyers in multiple countries to explain the billions of dollars in taxpayers’ money they say have been harvested. But Shah says he’s being made a “scapegoat” for finding out how to legally benefit from obscure loopholes in tax legislation that allowed cum-ex trades, named after the Latin term for “with-without.”
“Prove a law has been broken,” said Shah. “Prove there was fraud. The legal system allowed it.”
Danish tax authority Skat says it has frozen up to DKK 3.5 billion of Shah’s fortune, including a $ 20 million mansion in London, in a widespread lawsuit against the former banker and his alleged employees.
The agency has not seen “evidence that real stocks were involved in the dealings related to the dividend refunds reclaimed in the Shah universe,” it said in a statement. “It looks like paper transactions unrelated to real stock ownership.”
Shah still reaps about £ 200,000 ($ 250,000) a year from renting his homes, he said, less than half of what he got before the arrival of Covid-19.
The former trader finds himself exposed to additional heat in Germany, where prosecutors are investigating him as part of a nationwide magnet attacking hundreds of suspects across the financial industry.
In Denmark, the case against Shah sparked public anger. The country, which is in the midst of an economic recession caused by the coronavirus, claims it has been robbed.
“In a country like Denmark, and especially in the time of Covid-19, this is of considerable importance,” said Alexandra Andhov, law professor at the University of Copenhagen. The country’s tax authorities have previously dealt with suspected fraud, but “not for $ 2 billion,” she said.
Shah appeared calm and optimistic as he set out how he would be arrested if he tried to fly home to London. Shah is married with three children and has lived in Dubai since 2009. For the past five years, he has studied legal documents and spoken to his attorneys extensively, he said. He has one piece of advice for the authorities trying to get him out of his exile: know your tax code.
“It’s very nice to put someone’s face on a front page of a newspaper and say, ‘Look at this man who lives in Dubai who sits on the beach every day sipping a pina colada while you’re broke and no job to have.’ ,” he said. “I would say look at your legal system.”
Shah is hardly the only person involved in the European cum-ex scandal. German prosecutors have been more aggressive than their Danish counterparts and have charged more than 20 people. In a landmark process earlier this year, two former UniCredit SpA dealers were convicted of increased tax evasion.
One of them, Martin Shields, told the Bonn court that although he made millions from Cum-Ex, he now regrets his actions.
“If I knew what I know now, I would not have gotten involved in the cum-ex industry,” said Shields, who avoided jail for helping with the investigation.
A decade ago, cum-ex deals were very popular in the financial industry. Shah says he picked up the idea during his years as a trader in London for some of the largest banks in the world.
The son of a surgeon, Shah dropped out of medical school in the 1990s and moved to the finance department. In the early 2000s, he first observed traders at Credit Suisse Group AG exploiting dividend taxes, a strategy known as dividend arbitrage. Will Bowen, a spokesman for the Swiss bank in London, said: “These lawsuits relate to a time after Sanjay Shah worked at Credit Suisse.”
Shah didn’t fully embrace Cum-Ex until he was hired by Amsterdam-based Rabobank Group a few years later when the financial crisis began to break through the industry. Rishi Sethi, a spokesman for Rabobank, declined to comment on former employees.
After his release, Shah received offers from several brokerage firms that included profit-sharing. But that wasn’t enough for him, so he started his own company.
“I don’t want to take part,” he said. “I want to do a lot.”
That ambition was captured in the name Shah chose for his company: Solo Capital Partners.
Shah said he had about half a million pounds when he started Solo. Within half a decade, his fortune would grow many times over. As he remembers, JPMorgan Chase & Co. also played a crucial role in getting it started as it was the company’s first custodian. Patrick Burton, a spokesman for the New York-based bank, declined to comment.
The scheme that Shah allegedly orchestrated was bold. A small group of representatives in the UK wrote to Skat between 2012 and 2015, claiming they represented hundreds of overseas companies – including small U.S. pension funds and companies in Malaysia and Luxembourg – that had received dividends from Danish stocks and were eligible for tax refunds. The Danes are satisfied with the evidence they have received and claim to have handed over around $ 2 billion.
Luxury real estate
But most of the money, authorities say, went straight into Shah’s pockets instead. The agents and hundreds of overseas companies were merely part of an elaborate network he had created along with a series of dizzying “bogus transactions” to generate illegal refund requests, the country alleged in British courts.
As of January 2014, more than $ 700 million reportedly landed in Shah’s accounts. He has put his fortune in real estate in London, Hong Kong, Dubai and Tokyo, Shah said and amassed a portfolio that he valued at around £ 70 million. He bought a 36-foot yacht for $ 500,000 in 2014 and named it Solo before upgrading to a $ 2 million 62-foot model, the Solo II.
Shah’s attorneys said in his most recent filing in the London lawsuit last month that Solo – which went into administration in 2016 – “provided clearing services to clients in order to engage in lawful and legitimate trading strategies at all times in accordance with Danish Right. “
They said that dividend arbitrage trading was a well known and “perfectly legitimate trading strategy”. Shah’s lawyers also deny whether Denmark has jurisdiction to prosecute his claim in the English courts.
It’s been five years since Shah learned he was under a criminal investigation when the UK National Crime Agency raided Solo’s offices after the company’s compliance officer gave UK tax authorities a lead.
His then attorney, Geoffrey Cox, told him in 2015 that he had nothing to fear and that it would all be over soon, Shah said. Cox, who would later become the UK’s attorney general and would play a central role in various Brexit crises last year, declined to comment.
Instead, Shah’s legal troubles are just beginning. A mammoth three-part civil trial over Skat’s allegations against Shah is set to begin in London next year. The allegations are also at the center of a massive U.S. civil case against other participants in the alleged fraud.
In Germany and Denmark, criminal investigations are still rumbling. While Shah said he had not been contacted by the UK’s Financial Conduct Authority, the watchdog said in February that it is investigating “significant and suspected abusive stock trading in London markets” related to cum-ex programs. A Dubai court in August dismissed Denmark’s lawsuit against Shah despite appealing the decision.
Back in Dubai, Shah said the ongoing saga was starting to wear him down.
“It was very nice to spend time with the kids and family, but now that I am I’m just bored and sick of it,” said Shah. “It’s been five years. I don’t know how long it will be before this is closed.”
(Except for the headline, this story was not edited by GossipMantri staff and published from a syndicated feed.)