When UK regulators fined ED&F Man Holdings for generating billions of pounds of illicit dividend-tax deals, they zeroed in on an individual identified only as “Senior Manager A” who was a “controlling mind” behind the scheme.
That matches the description of Mark Whitehead, a former trader at Merrill Lynch & Co. and MF Global Holdings Ltd. who joined ED&F Man in 2012 and oversaw the commodities firm’s entry into so-called Cum-Ex trading, according to legal filings and people familiar with the matter who requested anonymity because some details are private. His small team brought in £129 million ($158 million) of revenue in just three years and drove profits at the firm’s newly-created Capital Markets unit.
Hiring Whitehead as head of equity finance was part of ED&F Man’s push beyond the business it had relied on since the 18th century — hauling sugar, coffee and cocoa around the world — and into what turned out to be dicier territory through its brokerage subsidiary. His desk operated without “any meaningful oversight” as it arranged some £10 billion of trades, according to the UK’s Financial Conduct Authority.
The move ultimately landed ED&F Man in the middle of one of the biggest financial scandals in modern European history. The kinds of trades that Whitehead arranged, complex stock deals that exploit gaps in dividend-tax laws, have cost treasuries around the continent tens of billions of euros and spawned dozens of investigations and court cases. On June 5, the FCA hit the firm with a £17-million fine for its involvement with Cum-Ex, the biggest penalty of the year so far, and criticized the lack of controls at the Capital Markets unit and the behavior of the equity-finance desk. Executives at ED&F now intend to shutter the division after selling off much of its operations to rival Marex Group last year, Bloomberg has reported.
Emma Kane, an external spokesperson for ED&F Man, said that the FCA’s action related to “a legacy business area that was shut down” in 2015, a year before Whitehead left the company. She declined to comment on the identity of “Senior Manager A.”
In an emailed statement, Whitehead’s lawyer Julian Pike said that the trader disputed the FCA’s findings.
“While Mr Whitehead has seen the FCA’s decision, it should be known that the FCA closed its investigation into him almost two-and-a-half years ago without taking any further action,” Pike said. “He does not recognize as accurate key material events and facts set out in the FCA’s decision and is therefore disappointed with the erroneous pictured painted by the decision.”
A spokesperson for the FCA declined to comment.
Read More: Cum-Ex Trades Called a ‘Blatant’ Money Grab by Germany Court
Countries across Europe are now assessing the losses from these dividend-tax trades. Banks and traders have argued that they thought these deals were legal at the time, although courts and authorities have since stated otherwise. Authorities in Germany have already secured multiple convictions against those who allegedly took part, including against one of Whitehead’s former hires at Merrill Lynch. German and Danish investigators raided the London offices of the Capital Markets unit and visited the homes of people at the firm who are being investigated, Bloomberg reported in November.
ED&F Man's shift into Cum-Ex trading has echoes of past missteps in the banking industry, according to Peter Hahn, a former banker at Citigroup Inc. who is now emeritus professor at the London Institute of Banking & Finance. Finance firms frequently move into businesses that they don't understand, attracted by the lure of profits and comforted by the fact that others are doing it too, he said.
Executives should have asked themselves, “is this really something we know about? Experience? Controls? Risks?” said Hahn. “Was it, ‘wow, looks like easy money, and it won't cost us much if they don’t deliver, so let’s go for it.’"
The ‘Cum-Ex’ and ‘Cum-Cum’ Tax Dodges Haunting Banks: QuickTake
The FCA alleged in its June 5 fine that the equity-finance desk had “enabled” significant volumes of dividend-tax trades, allowing millions of euros of refunds to be illegitimately claimed from Danish authorities. It was “completely unacceptable,” said Therese Chambers, the regulator’s joint Executive Director of Enforcement and Market Oversight, “for authorized firms to make money from this kind of trading.”
The FCA described “Senior Manager A” as “an individual with responsibility for the equity-finance desk.” That was Whitehead’s role, according to a 2021 interview that lawyers for the Danish tax authority, known as Skat, conducted with an employee at the Capital Markets unit as part of separate US proceedings.
The UK watchdog also mentioned a “Senior Manager B” who oversaw Whitehead. The same employee who named Whitehead in the Skat deposition identified Whitehead’s boss as Stephen Hawksworth, who was CEO of the capital markets unit from 2013 until 2019, according to FCA filings. Hawksworth didn’t respond to multiple letters seeking comment.
Beyond Commodities
Taxpayer largesse helped James Man establish what became ED&F Man near the banks of the Thames in 1783. A sugar broker at a time when Britain was producing more of it than ever on the backs of enslaved workers in the Caribbean, Man also obtained a contract to supply rum to the British Navy during a period when each crew member was entitled to a daily ration, according to Ulbe Bosma, author of “The World of Sugar,” a history of the industry.
Two centuries later, having grown into a commodities giant, ED&F Man executives established a financial-services arm. In 2000 the company split: the agricultural commodities unit kept the ED&F Man brand and the financial side became Man Group Plc.
In 2007, the latter spun out a brokerage business through an initial public offering, creating MF Global.
After leading equity-finance businesses at Merrill Lynch and Bank of America Corp. Whitehead took a similar job at MF Global, which was run by former New Jersey Governor and ex-Goldman Sachs Group Inc. partner Jon Corzine. There, Whitehead pitched Cum-Ex trades to the firm’s board, according to people familiar with the matter, who requested anonymity as details aren’t public. Directors were convinced that the strategy was legal and approved it, the people said.
On a conference call with analysts in July 2011, Corzine and other executives frequently cited “structured equity finance” as a reason for posting the highest quarterly revenues in nearly three years.
MF Global collapsed just a few months later as a result of wrongway bets on European sovereign debt. Around the same time, ED&F Man executives were taking steps to set up their own London-based brokerage unit that would once again focus on financial markets: this became ED&F Man Capital Markets. Whitehead signed on in 2012.
By the time he joined the Capital Markets division, Whitehead was a central figure in London’s close-knit dividend-arbitrage scene with contacts across the industry. He was also one of the biggest investors in the Cinnamon Club, an upmarket Indian restaurant popular with traders that opened in 2001 in the former Westminster Library.
Among Whitehead’s contacts were a pair of traders named Martin Shields and Paul Mora, who had worked for him at Merrill Lynch in the early 2000s, according to German legal filings. The two later set up Ballance Group, a hedge fund specializing in Cum-Ex trades that attracted the attention of regulators around 2018. Shields has since cooperated with German prosecutors to avoid going to jail and was found guilty as a result of his involvement. Mora, who is also facing charges, was placed on Interpol’s most wanted list in 2021. He has denied any wrongdoing.
Read More: Wanted: Banker Who Became Literal Poster Boy of Cum-Ex Deals
At ED&F Man, Whitehead had hoped to continue focusing on dividend-tax trades tied to German stocks as he had at MF Global, according to the FCA. But after Germany changed its tax rules in 2012, Whitehead’s team pivoted to Denmark instead. They engaged in trades linked to £4 billion in Danish stocks, causing that country’s tax authority to issue millions of euros in illegitimate refunds, the FCA said. Whitehead’s desk was the only profitable business at the division — even as his superiors struggled to understand what he was doing, according to the UK financial regulator.
“They were aware of their basic level of understanding,” the FCA said of the company’s senior management, “but the trading was allowed to continue regardless.”
Global Fallout
Whitehead’s desk cultivated pension-fund clients in the US, taking advantage of their tax-exempt status to facilitate Cum-Ex trades, according to the FCA and legal filings. This too has led to a slew of legal complaints against ED&F.
One such client was Bernard Tew, who oversaw multiple pension plans in Kentucky. He thought the ED&F desk was carrying out “legal dividend arbitrage” trades on behalf of his funds but was actually engaged in fraud, according to a June 14 claim in the Eastern District of Kentucky. Skat sued him in 2018 for tens of millions of dollars of illicit profits, forcing him to declare bankruptcy and settle with the tax agency for $34 million, according to the claim.
“Bernie Tew joins many others who have sued ED&F Man in multiple courts and claims that ED&F Man’s illegal and egregious actions cost victims on both sides of its supposed trades hundreds of millions if not billions of dollars,” Jeffrey Ritholtz, a lawyer for Tew at Rolnick Kramer Sadighi LLP in New York, said in an emailed statement.
Emma Kane, the spokesperson for ED&F Man, described Tew’s claim as “opportunist and without substance.” She cited a separate case from 2015 in which the US Department of Labor found that Tew had misused pension-plan funds, leading to his ban from acting as a fiduciary to employee benefit plans.
Whitehead left ED&F Man in 2016. Three years later, the firm shuttered its equity-finance business. Around that time, ED&F Man’s core sugar business was beginning to suffer. Bumper crops in Asia were depressing prices, and executives were looking to shed troublesome assets. In 2021, veteran agricultural commodities trader Chris Mahoney took over as chairman, and a year later he oversaw the sale of the brokerage to rival Marex Group in a deal valued at $220 million, Bloomberg reported.
“Mahoney has ditched a troublesome unit that strayed from the historical origins of ED&F," said George Stein, managing director of New York-based recruiting firm Commodity Talent LLC. He “concluded it was time to leave complex financial products to others.”
--With assistance from Karin Matussek.
(Updates with clarification in 22nd paragraph about Shield’s cooperation with prosecutors.)
