Cum-Ex Trading Transactions – Criminal Lawyer

The Cum-Ex trading strategy represents a highly complex scheme in securities trading that became particularly relevant around the dividend record date of a stock corporation. A Cum-Ex transaction is a trading process in which shares are acquired shortly before or on the dividend record date (usually coinciding with the annual general meeting, AGM) with a dividend entitlement (referred to as “cum dividend”). The distinctive feature of this strategy is that the relevant shares are only delivered after the dividend date, without dividend entitlement (“ex dividend”).

Compensation Claims and Manufactured Dividends

Due to this structure, the acquirer is entitled to a compensation payment, often referred to as a manufactured dividend. This payment serves as compensation for the fact that the entitlement to the dividend for the past financial year does not accompany the share delivery. As a result, the purchaser not only receives the share itself but also an additional financial compensation equivalent to the dividend amount they did not actually obtain.

Dividend Resolution and Payout

On the AGM date, the dividend is officially resolved, with the actual payout taking place on the subsequent ex-date. Trading with dividend-entitled shares (cum shares) ends at midnight on the AGM day. Thereafter, shares are traded as non-dividend-entitled (ex shares). The dividend is credited to the shareholder who holds the shares on the record date, minus capital gains tax and the solidarity surcharge. Payment is processed via Clearstream Banking Frankfurt AG (CBF), which transfers the net dividend to the shareholder. Subsequently, the shareholder receives a tax certificate from their custodian bank in accordance with Section 45a para. 3 of the German Income Tax Act (EStG), documenting the withheld and remitted capital gains tax. This certificate is essential for tax credit or reimbursement by the competent tax office.

For a detailed explanation of criminal tax matters, see our tax evasion defence page.

Definition of Short Selling

In the context of Cum-Ex transactions, short selling refers to the sale of securities that the seller does not hold at the time of sale. The seller, referred to as a short-seller, must later acquire the securities to meet the delivery obligation. Cum-Ex transactions are typically not conducted on the stock exchange, but “over the counter” (OTC), meaning they are arranged directly between parties without a public trading platform.

For general guidance on economic offences, see our page on fraud and white-collar crime defence.

Typical Transaction Process

The typical sequence of a Cum-Ex short sale transaction can be described as follows:

• Sale of the shares: A foreign short-seller sells shares of German stock corporations shortly before or on the AGM date to a purchaser, even though the short-seller does not actually own the shares at that point.
• Delivery deadlines: According to stock exchange practice, delivery takes place two days after the transaction (t+2). During this period, the short-seller acquires the shares OTC from the actual holder (the “lender”).
• Acquisition of shares: The short-seller acquires the required shares in an ex/ex transaction from the lender, typically with shortened delivery deadlines (e.g., t+1 or same-day delivery).
• Delivery to the purchaser: After acquiring the shares, the short-seller delivers them to the buyer, who receives them ex dividend, accompanied by a compensation payment equal to the net dividend.

Divergence from Regular Dividend Distribution

Unlike regular share purchases, short sales do not involve a blocking mechanism (Sperrvermerk). In ordinary share acquisitions, the selling bank ensures that dividend entitlements are allocated correctly. In short sales, however, the original shareholder is not involved at the moment of sale.

CBF Regulation

In addition to settlement, Clearstream Banking Frankfurt (CBF) also regulates net dividend and compensation payments. The short-seller is debited via their custodian bank, while the purchaser is credited with the net dividend. Custodian banks, however, cannot verify whether the credited net dividend originates from an actual shareholder payout or a compensation payment, and they merely issue tax certificates based on the credited amount.

Tax Implications

Through such certificates, (short) acquirers could claim or reclaim the same withholding tax multiple times, while the original shareholder also claimed reimbursement. This duplication effect was at the heart of Cum-Ex prosecutions. Subsequent transactions (ex/ex) between lender and short-seller required no compensation since they were agreed without dividend entitlement.

Resale of Shares

After receiving compensation, the (short) acquirer typically sells the shares back to the short-seller, who returns them to the lender.

Legal and Tax Framework

According to German tax law (§§ 44, 43 EStG), a domestic financial intermediary would have been obliged to withhold and remit capital gains tax on manufactured dividends from 2007 onwards. However, if such trades were executed through foreign custodians, these were not considered liable under German law. This created significant regulatory loopholes, which were exploited in Cum-Ex schemes.

Financial Aspects of the Cum-Ex Strategy

The profitability of the Cum-Ex model lay in the fact that the short-seller obtained the gross dividend amount within the sales proceeds, while being charged only with the net dividend. This created a financial margin – the withholding tax difference – which could be shared among the participants.

For criminal defence strategies in Cum-Ex investigations, see our page on Cum-Ex and Cum-Cum proceedings.

FAQ – Cum-Ex Transactions

What is a Cum-Ex transaction in simple terms?
A Cum-Ex deal involves the rapid trading of shares around dividend dates, leading to multiple claims for the same tax credit.

Why are Cum-Ex deals considered illegal?
Because they enabled double or multiple tax refunds, causing significant losses to the German treasury, and are prosecuted as criminal tax evasion.

Who is being investigated in Cum-Ex cases?
Bankers, traders, lawyers, and institutional investors have all faced prosecution in Germany and abroad.

Can international investors also face liability?
Yes. Foreign actors who participated in Cum-Ex structures may face charges in Germany, especially if linked to German securities.

Do I need a specialised criminal lawyer for Cum-Ex cases?
Yes. These are highly complex proceedings requiring expertise in German criminal procedure and white-collar defence.

Contact Us – Specialist Criminal Defence Lawyers in Frankfurt and Nationwide

• Dr. Caroline Jacob, Criminal Defence Lawyer, Specialist in Criminal Law
• Frank M. Peter, Criminal Defence Lawyer, Specialist in Criminal Law
• Dr. Sven Henseler, Lawyer, Diploma in Fiscal Administration (FH)
• Of Counsel: Prof. Dr. Frank Peter Schuster
• Cooperation Partner: Tax Adviser and Former Tax Investigator Frank Wehrheim

Our law firm Buchert Jacob Peter has been established in Frankfurt am Main for over 25 years with extensive experience in criminal defence. We represent our clients nationwide in Germany.

📞 Phone: +49 69 710 33 330
✉️ E-Mail: kanzlei@dr-buchert.de

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