German Court Limits Scope Of Cum-Ex Trial Due To Virus

Law360 (March 16, 2020, 4:34 PM EDT) -- A German court for now is limiting the scope of a landmark trial over cum-ex trades so the trial can continue even amid the mass slowdown of public activity in light of the new coronavirus, the court said Monday.

The court's statement said it is excluding four of five financial companies that could forfeit around €400 million ($446 million) in the event of a guilty verdict against the two defendants in the case. The four companies' cases can be taken up later should that be found appropriate, the court in Bonn said.

The case involves two former employees of HypoVereinsbank accused of engaging in cum-ex transactions, in which shares of a company are sold or swapped just before a dividend payout and then followed by claims for refunds or rebates of capital gains taxes that were never paid. The five institutions involved are the Warburg Group, BNY Mellon, Société Générale, Hansainvest and Warburg Invest, a Warburg Group subsidiary.

Of those five, only the Warburg Group is staying in the trial, court spokesman Tobias Gülich told Law360.  

“The gathering of evidence in regards to the other parties would take up a lot of time, which given the current health situation wouldn't be feasible,” Gülich said.

A Warburg spokesman declined comment on Monday's announcement. BNY Mellon and Société Générale also declined comment, and Hansainvest didn't respond to a request for comment.

The court's announcement comes only a few days after it said two sessions last week had been delayed due to a judge's illness, which was not related to the coronavirus, and that parties had made requests for further evidence. The trial is continuing Tuesday, the statement confirmed. 

The court determined that this need to pursue further evidence would unnecessarily delay the main proceedings of the trial.

“Also with a view to the threatening difficulty of the corona epidemic is a quick resolution of the trial all the more appropriate,” the court said in a statement.

The statement said a verdict in the case would focus on the two defendants and whether one of the institutions would have to forfeit earnings.

Still, it added, “the court can, if the situation should change in the short term, at any time bring the four parties back to the trial.”

--Editing by Vincent Sherry.

For a reprint of this article, please contact reprints@law360.com.

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