Controversial Transactions

Left in the Lurch

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Luxembourg, Luxembourg City, Neumunster Abbey and St Michaels Church.
  • Why it matters

    Why it matters

    • Dividend stripping might have cost German taxpayers an estimated €12 billion ($13.6 billion) in lost revenue in recent years.
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  • Facts

    Facts

    • Theodor Knepper worked at the bank as chief financial officer and then CEO before being fired.
    • German tax-fraud investigators say they are closing in on illegal dividend-stripping business by 129 banks.
    • The Federal Financial Supervisory Authority closed the German subsidiary of Canada’s Maple Bank to public business last week due to dividend stripping activities.
  • Audio

    Audio

  • Pdf

Great things awaited Theodor Knepper when he began working for Valovis Bank in mid-2009, despite the turmoil that faced him. The bank, founded in 2001 as Karstadt Hypothekenbank, was suffering from the bankruptcy of Germany’s once-vaunted Karstadt department-store company.

In March 2010, less than 10 months after beginning work, chief financial officer Mr. Knepper announced his first coup: €6 million in profits from a bet of €50 million. Returns of 12 percent – and in only a few months.

As the months went by, Mr. Knepper impressed the bank’s non-executive supervisory board more and more. In 2011, just two years after he started, the bank took on a new structure and the suprvisory board announced that Mr. Knepper was to become chief executive.

His good fortunes didn’t last. Mr. Knepper was fired 14 months after becoming the boss. The supervisory board had released Mr. Knepper “with immediate effect and for good reason,” the bank said in a statement at the time.

It even claimed €48 million in damages from him for the same sort of transaction with which Mr. Knepper had engendered such enthusiasm among the supervisory board in 2010, namely a tax deal involving so-called dividend stripping. Mr. Knepper disputed the accusations.

Mr. Knepper’s whirlwind time at the top is a tale of the excesses of the financial industry – one of the many complicated tricks orchestrated by dozens of banks across Germany and Europe.

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