Weeks after Danish judges sentenced hedge fund trader Sanjay Shah to 12 years in prison, the country’s lawyers turned to a U.S. court in a bid to recoup about $500 million lost in the Cum-Ex tax dividend scandal.
Lawyers for the Nordic country told a New York jury that a group of US investors helped Shah steal from the Danish treasury by filing 1,200 fraudulent requests for tax rebates on dividends.
“This case is about greed and theft,” Marc A. Weinstein, a lawyer for the Danish tax authority, said during opening statements at a civil trial that started this week in federal court in New York. “They lined their own pockets, the pockets of their friends and families and the pockets of their coconspirators with the funds they stole from Denmark.”
Shah, who was
Cum-Ex was a controversial trading strategy designed to obtain duplicate refunds by taking advantage of how dividend taxes were collected and regulated a decade ago. Germany is looking at about 1,800 suspects from across the global financial industry in probes linked to the practice.
Denmark’s Customs and Tax Administration, also known as SKAT, has been pursuing traders and businesses around the world in a bid to claw back the billions it says it lost through trading schemes spearheaded by Shah. The case is the first to go to trial in the U.S. over Cum-Ex fraud linked to the hedge fund founder.
But a lawyer for two of the investors, Richard Markowitz, and his wife, Jocelyn Markowitz, told the jury that SKAT allowed Cum-Ex transactions to flourish for years before trying to stop the practice. He compared the tax agency to the town officials in the movie Jaws who were so focused on the tourist trade that they “didn’t do anything until the bodies started piling up.”
“Rich and Jocelyn did not do anything wrong. They didn’t lie, they didn’t cheat,” said Peter Neiman, a lawyer for the couple, during his opening arguments. “SKAT was not careful.”
Shah was a suspect in probes in both Denmark and Germany. German prosecutors also accused him of routing Cum-Ex deals through the U.S., saying in one indictment that he used a Jewish school in Queens to execute trades totaling €920 million euros ($948 million) as part of a plan to deceive tax authorities.
Shah, the founder of Solo Capital, became the most prominent figure of the Cum-Ex scandal after a 2020 Bloomberg TV
Denmark says that Richard Markowitz, John van Merkensteijn and two of their partners at a New York financial services firm, Argre Management, were recruited by Shah to take part in the scheme in 2012. Pension plans created by Argre became customers of Shah’s hedge fund, which served as the purported custodian of Argre’s Danish shares, and issued fraudulent statements for a rebate on dividend taxes that were withheld.
The plans, including ones established by their wives, Jocelyn Markowitz and Elizabeth van Merkensteijn, later submitted those statements as proof that the company was entitled to the refunds, the Danish tax agency says.
SKAT has sued approximately 260 pension plans and individuals in the U.S. over Cum-Ex. The country has also filed civil cases seeking to claw back Cum-Ex funds in other countries. A
If Neiman agreed with the Danish tax agency on anything, it was that Shah was the real villain. He said that Markowitz and Van Merkensteijn, “honestly and in good faith” entered into what they believed were legitimate dividend arbitrage transactions, first in Germany, later in Belgium and then in Denmark, only to find out that Shah had deceived them.
“It was only years later that they found out that Sanjay Shah had at some point stopped doing what he had promised and had begun to lie to them over and over and over again,” he said.
“The blame here lies with Sanjay Shah and Solo,” said Sharon McCarthy, a lawyer for the van Merkensteijns.
The case is In Re: Customs and Tax Administration of the Kingdom of Denmark (Skatteforvaltningen) Tax Refund Scheme Litigation, 18-md-2865, U.S. District Court, Southern District of New York.
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