A criminal tax fraud investigation into dividend arbitrage by Germany raided Deutsche Bank’s Frankfurt headquarters in what is shaping up to be a very bad year for the German bank.
Just two days ago, its co-chief executives resigned due to investor frustration over the bank’s performance. In April, it agreed to pay a fine of $2.5 billion to resolve investigations by the U.S. and British governments into LIBOR manipulation. In May, it was fined $55 million by the SEC for misstating financial reports during the financial crisis to hide risk in its derivatives portfolio.
German officials were reportedly at the Frankfurt office throughout the morning collecting documents from the bank. “People close to the investigation” told the Wall Street Journal that it dealt with dividend arbitrage trades.
German prosecutors have been looking into the cum/ex trades because financial institutions reportedly obtained fraudulent tax benefits in the hundreds of millions of dollars. Changes in tax rules largely ended the transactions in Germany in 2011 when the loopholes were closed and they became less profitable.
The Commodity Futures Trading Commission and the Federal Reserve Bank of Richmond are both reportedly looking into matters related to dividend arbitrage. The CFTC has reportedly sent inquiries to five banks: Bank of America, Goldman Sachs, Citigroup, Deutsche Bank and Morgan Stanley. The Richmond Fed looked into the trades at Bank of America, which is within its jurisdiction since it is based in Charlotte. I haven’t seen any public media reports about Internal Revenue Service investigations in this area yet.