(Bloomberg) -- A London hedge fund dispute exposed a bitter rift between two former business partners who were targeted for their alleged roles in the sprawling Cum-Ex tax scandal a year ago.
Duet Group’s CEO Henry Gabay was ordered by a judge in London to pay Alain Schibl $2.5 million to cover debt outstanding from an arbitration settlement this week. The pair, who founded the London-based hedge fund together in 2002, traded insults and allegations of improper conduct at the hearing that pushed their spat into the public domain.
The men are both being investigated for their alleged involvement in what German lawmakers say is one of the biggest tax heists in European history. Germany’s Federal Court of Justice ruled Wednesday that the Cum-Ex trades were criminal and a “blatant” money grab. Neither of them has been charged and they both deny wrongdoing.
After finding out what Schibl told German prosecutors about him, Gabay sent a furious email to him and another former Duet partner.
“You are both dead in my eyes,” Gabay said in the December 2020 email, cited in a court document filed by Schibl’s lawyers. “Now you are both an enemy, you chose war, you chose lies just to make you feel good, let’s see how the war will end.”
Schibl declined to comment over the phone. His lawyers did not respond to requests for comment. Gabay said he planned to appeal the ruling.
Read More: Why ‘Cum-Ex’ Tax Dodge Casts Shadow on Global Banks: QuickTake
The 53-year-old Gabay was the first person arrested outside Germany in the wide ranging Cum-Ex probe that has hundreds of potential suspects. He posted a 3 million euro ($3.6 million) bail, his lawyers said in a court document prepared for a hearing on Tuesday. Schibl surrendered to German authorities just weeks later and made a bail payment of 2 million euros, his lawyers said in another filing.
At Gabay’s extradition hearing in Aix-en-Provence last July, a French judge said that German prosecutors believe he took part in a scheme that defrauded the state of 94 million euros between 2009 and 2011. Gabay said that he had “nothing” to do with it. All European warrants against Gabay were dropped against him after a procedural hearing in a German court last year.
Bankruptcy Petition
The details of the feud between the once close business partners was revealed at a U.K. insolvency court hearing this week. If Gabay does not pay the $2.5 million by Aug. 24, Schibl can file a bankruptcy petition against him, a London judge ruled. A court can decide whether to make a bankruptcy order or dismiss the petition at a later hearing.
Matthew Cook, Gabay’s lawyer, said in court on Tuesday that the ruling has “serious consequences for Mr. Gabay personally.”
“If the appeal is rejected the amount due will be paid,” Gabay said in comments sent by phone. “We will proceed with separate litigation against him.”
Gabay and Schibl exchanged accusations of impropriety as part of the case. Gabay said Schibl lied to German prosecutors about his involvement in the fund that traded in Cum-Ex transactions and Goldman Sachs Group Inc’s alleged refusal to work with him. Schibl denied lying to the authorities.
Schibl told German authorities that he was in discussions with Goldman Sachs in 2002 to engage them as a prime broker. The investment bank refused to work with Gabay because he “had blown up a fund and not paid off the prime brokers and clients,” Schibl told the prosecutors, according to a document filed by Gabay’s lawyers.
Schibl also said that being associated with Gabay was “toxic,” according to Gabay’s lawyers.
Sebastian Howell, a spokesman for Goldman Sachs in London, declined to comment.
Schibl’s statements “falsely seek to paint a picture of Gabay as a poor businessman who regularly engaged in dubious and unlawful business practices,” Gabay’s lawyers said in the filing.
The “false statements” made by Schibl “will inevitably focus the German authorities’ attention on me, which is likely to exacerbate and extend the duration of their investigation into my involvement in the Cum-Ex trades, even though I had no involvement in them,” Gabay said in a witness statement cited by Shibl’s lawyers.
Gabay’s lawyers told the court that they had grounds for a counter-claim for damages against Schibl because his comments had caused Duet to lose business deals, running to the tens of millions of dollars.
They said their claim would exceed the $2.5 million owed to Schibl, but the judge wasn’t satisfied that there was a real prospect of “there being a cross-claim which will have affect of diminishing the debt.”
He dismissed Gabay’s application to set aside the demand for the money.
(Adds details of proposed counter-claim and judge’s decision in last paragraph)
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