One year ago, a man calling himself Benjamin Frey appeared on German television wearing a fake chin, a gray wig, and thick glasses. His voice artificially distorted, the man told how he helped bankers, investors and traders extract billions from the country’s taxpayers -- and how about 50 million euros ($56 million) of that money landed in his own pockets.

Last week, the same 48-year-old showed up as a witness in the first German trial over Cum-Ex, the controversial trading strategy described on TV. The mask was gone and he had to use his real name before the five judges in Bonn. The man, a lawyer whose identity still can’t be published, was the first person to cooperate with prosecutors in the Cum-Ex probes in an effort to avoid prison. His account laid out how Cum-Ex became a money-spinning machine on an unprecedented scale.

The practice has become a national financial scandal in Germany, ensnaring dozens of banks and financiers in a web of criminal probes across the country. Named for a Latin term meaning “With-Without,” Cum-Ex helped investors exploit a loophole on dividend payments, allowing multiple people to claim the same tax refund, according to authorities. Lawmakers say the deals eventually cost the government 10 billion euros in lost revenue.

Invented Name
At the Bonn trial, former London bankers Martin Shields and Nicholas Diable are accused of helping organize deals that led to more than 400 million euros in lost taxes. Neither man is challenging the facts prosecutors have assembled, and the court will ultimately rule on whether what they did was criminal. As part of the process, the man was called to testify last week about his role in Cum-Ex.

To make his story easier to read, Bloomberg will use his invented name, Benjamin Frey. Frey is scheduled to reappear for additional questioning on Tuesday in Bonn.

In three days on the witness stand, Frey laid out how he and another lawyer managed to transform Cum-Ex, which in 2005 was used for trades between banks, into a profit machine for a host of wealthy investors and their advisers. He described how his partner was allegedly able to influence lawmakers on new rules and how they helped their clients “twist” trades to avoid getting caught by authorities trying to curb the double dipping on dividends.

“We often fabricated our own version of the truth,” Frey said.

Humble Background
Frey told the court he came from a “very modest” background in Northern Germany. But his father was a businessman, giving him a thirst for money. After graduating among the top in his class in law at Osnabrueck University, one of his professors opened the door to a Wall Street Law firm: Shearman & Sterling LLP. He joined in 2001.

A year later, he came under the tutelage of a man who would become his mentor on a journey into the world of Cum-Ex: Hanno Berger. At the time, Berger was a top tax lawyer, with banks and billionaires lining up to get his help – and tips on how to lower tax bills or avoid them altogether. Berger took Frey along when he moved to Dewey Ballantine LLP, where Frey made partner.

The duo eventually struck it out alone to become the poster children of Cum-Ex in Germany, a strategy they discovered almost by chance, Frey said. Berger was asked to give a second opinion on a memo another law firm had written for the Australian bank Macquarie on whether Cum-Ex deals were viable under German law.

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