The investment bank, which was wound up years ago, is just one of many involved in the cum-ex deals as short sellers.
(Photo: Reuters)
Dusseldorf Around 14 years after its demise, the former US bank Lehman Brothers is still good for a million-dollar payment to North Rhine-Westphalia: According to information from the Handelsblatt, the insolvency administrator of Lehman Brothers’ British subsidiary has transferred 48 million euros to Düsseldorf. “The decision, which is now legally binding, was issued in June 2022 by the Bonn Regional Court for a sum of 48 million euros,” said a spokeswoman for the North Rhine-Westphalia Ministry of Justice when asked.
According to informed circles, the money has already been received and can be booked in the state budget. “The administrators have had constructive discussions with the German public prosecutor’s office in order to find an amicable solution,” said a spokesman for the insolvency administrator, without going into further details.
The reason for the transfer is illegal tax transactions. Lehman Brothers filed for bankruptcy on September 15, 2008, triggering a global financial crisis.
Shortly before the bankruptcy, the European branches of the American investment bank participated on a large scale in cum-ex trading at the expense of the German tax authorities. Banks and investors were reimbursed for taxes that they had not paid at all.
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Lehman Brothers acted as a short seller on the deals, selling stocks it did not already own before the dividend record date. The investment bank thus assumed a central role in cum-ex trading.
It is now clear that the bankers involved have evaded taxes on a large scale with the deals: The Federal Court of Justice ruled that cum-ex transactions are punishable and illegal under tax law.
Investment bankers with “full pants”
Evidence of Lehman Brothers’ involvement in these deals abounds. In addition to the documented stock trading itself, there is e-mail communication, including from the law firm Freshfields Bruckhaus Deringer. She wrote numerous expert opinions that presented cum-ex transactions as legally compliant.
“The first short sellers are already getting nervous,” Freshfields lawyer Ulf Johannemann wrote to a colleague on April 12, 2007. The reason for this was cum-ex transactions worth billions by the then Landesbank WestLB in Düsseldorf, which became public due to a processing error. Lehman Brothers was involved.
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The investment bankers were “fed up,” wrote Johannemann. “Why? Have you now prohibited the trade?” asked the colleague. “No,” answered Johannemann.
But Lehman is concerned that “the next sow (possibly with the rest of the herd) will be herded through the village”. If WestLB’s stock trading were investigated, “it could come out that Lehman did something indecent”.
It came out – albeit only after the bank’s demise. Legally it makes no difference. Public prosecutors are investigating the responsible traders at Lehman Brothers, WestLB and the Freshfields lawyers involved.
Johannemann has already been charged with advising Maple Bank on the Cum-Ex matter and has even been in custody for a while. Prior to leaving Freshfields, he was the firm’s global tax director.
Short sellers with huge profits
According to the Federal Constitutional Court, all profits from cum-ex transactions can be confiscated. It is not known exactly how much Lehman Brothers made from it.
Insiders report that it is about a good 100 million euros that the authority is said to have registered in the insolvency table. The stock transactions were processed through London-based Lehman Brothers International Europe.
Lehman is just one of several investment banks involved in the cum-ex deals as short sellers — and it did so for just under two years. Barclays, Merrill Lynch, Morgan Stanley and Morgan Stanley, among others, are considered suspicious. The investigation is ongoing.
According to Handelsblatt information, the legal talks in the Lehman case lasted until 2020 and ended with an agreement on an amount of 48 million euros. However, the payment was not yet sealed.
After the deal, the public prosecutor first had to submit an administrative offense application to the Bonn Regional Court. After some back and forth, it was passed in 2022 and finally became legally binding. In the meantime, the insolvency administrator has paid out the 48 million euros.
More: The cum-ex shame of the state banks