When Sanjay Shah was detained last month in Dubai, prosecutors hailed the arrest as a key moment in their efforts against a tax scandal that cheated the Danish treasury of a “staggering” $1.9 billion.
But hundreds of miles away in London, a series of fines levied by the UK financial regulator against small brokers has highlighted the fact that Shah’s trades weren’t carried out alone.
The TJM Partnership Ltd., a now liquidated interdealer broker, became the third firm to be fined by the Financial Conduct Authority for its role trading tens of billions of shares for Shah’s hedge fund Solo Capital Partners LLP. So lucrative was the client that staff at TJM called Shah “the chicken that laid the golden egg,” the regulator said on July 15.
The penalty followed fines for Sunrise Brokers LLP and Sapien Capital Ltd. last year. In total, the three brokers traded around £121 billion ($145 billion) of Danish and Belgian equities for Solo Capital and its linked companies between January 2014 and November 2015, according to FCA documents. The regulator said that TJM and five other firms, which it did not name, executed trades amounting to between 15% and 61% of the shares outstanding in the Danish stock market. “These volumes are considered implausible,” it added.
Shah has become the face of the sprawling Cum-Ex scandal, which authorities say cost European taxpayers billions of dollars in lost revenue through illicit trades targeting taxes on dividends. Now coming to light are the interdealer brokers, or IDBs, that offered their help.
“This is another interesting example of the possible collusion, sadly, within the financial sector,” said Nicholas Ryder, a professor in financial crime at the University of the West of England, citing the role played by IDBs in previous cases of interest rate rigging. “The enforcement does not present a good image for the IDB industry.”
Shah has always maintained his innocence. He’s in custody in Dubai, awaiting a potential extradition to Denmark and his spokesman Jack Irvine has been unable to reach him. Irvine previously told Bloomberg that the FCA never found any wrongdoing and “under political pressure” chose to fine a couple of brokers for “know-your-customer misdemeanors.”
TJM’s founder, British businessman Timothy Jenkins, didn’t respond to requests for comment.
Sapien Capital said in an emailed statement that it “had no knowledge of anything improper and would not have had anything to do with the Solo Group had it known.”
“Sapien deeply regrets becoming involved with the Solo Group in the last few months of the scheme Solo had been carrying out for years undetected,” it added.
Tax Refunds
The Cum-Ex affair involved complex, multi-legged stock trades that had to occur around the dates of dividend payments. After the trades enabled firms to show they held the stock on the relevant date, they could seek tax refunds from the Danish and Belgian authorities.
IDBs are supposed to be independent actors that provide anonymity to buyers and sellers and help them get the best prices for securities. In Cum-Ex trades, though, the role of IDBs was to make the deals look like genuine transactions, rather than shams orchestrated in advance, according to regulators.
The FCA said the fined brokers each likely only carried out part of what it called “purported trading” for Solo. The watchdog said stock loans and forwards tied to the trading were also used to obfuscate and “give apparent legitimacy” to the scheme. A forward is a non-exchange traded contract that gives the owner the right to buy shares at a set price and date.
In 2018, as part of a mammoth civil claim made by the Danish tax authority in London, Shah provided a list of nine FCA-regulated firms that he said he used as part of his strategy, including the three that the watchdog has now fined.
Some of the IDBs that Shah cited no longer exist. One such example is Novus Capital Markets Ltd., which Solo Capital bought in 2015 but then placed into liquidation three years later. Anthony Jarmyn, the director who filed to shutter the firm, declined to comment.
Likewise Bastion Capital London Ltd., which filed for liquidation in 2019. Patrick Milne, a director and shareholder at the time of its closure, didn’t respond to requests for comment.
FCA Scrutiny
Others remain in business and face scrutiny from U.K. authorities, filings show. A subsidiary of Mako Europe Ltd., controlled by U.S. businessman David Segel, is “currently the subject of an ongoing FCA investigation,” according to the firm’s annual accounts that were published in September. Chief Executive Officer Trystan Schauer declined to comment on whether the probe was related to Shah.
Arian Financial LLP, a small London-based brokerage, is under FCA investigation for “past business undertaken,” according to accounts published last year. Veteran trader John Meadows founded the firm in 2003 and still oversees it today. He didn’t respond to requests for comment.
Shah also listed FGC Securities LLC in his response during the UK case. The New York-based brokerage in equity derivatives is controlled by founders John Foley and Demetri Lyristis, who didn’t respond to multiple requests seeking comment. The company’s public profile from the Financial Industry Regulatory Authority doesn’t disclose any regulatory issues.
London Capital Group Ltd. was also named by Shah. The company’s current owner, Charles Henri Sabet, said he had no knowledge of any dealings with Solo Capital.
TJM, which was founded in 2009, went into liquidation in December 2021 with a £2.7-million deficiency of assets, filings show. The FCA is listed among the firm’s creditors with a £2 million debt.
In 2020, TJM’s founder Jenkins helped start a new FCA-regulated consulting firm in Cardiff called Jencap Partners Ltd., which helps businesses and individuals ward off complaints.
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