What banks and investment advisors are liable for

In his tax returns, an initiator of film funds unlawfully declared 80 percent of the operating expenses – a total of around 635 million euros to the detriment of the tax authorities. This contrasts with the depreciation advantages enjoyed by investors, which are now being reclaimed by the State. What next?

Who is it about? The answer on the part of the editors: It concerns the convicted makers of VIP. In the meantime, the public prosecutor’s office is investigating further film fund initiators. Already by its resolution of 8 October 2007 (Az. 8 V 1834/07) the court in Munich indicated that with the (on the part of the editorship called) medium fund each specialist from the sales folder the fiscal false construction could have recognized by renowned chartered accountants.

In essence, the tax issue is that only operating expenses for film production can be deducted, not the payment of 80 percent of the deposits to a major bank for its subsequent guarantee repayment. The slightest tax knowledge on the part of analysts and rating companies would have been sufficient to recognise that the initiator did not have binding information from the tax authorities. However, the tax prospectus auditor would also have been obliged to do this (BGH ruling of 8 February 2007, ref. IX ZR 188/05). Not even the insurance of an auditor or tax prospectus auditor is likely to cover such gross errors. The Munich Higher Regional Court (Case No. 5 U 3700/07) evidently sees deficits in the plausibility checks carried out by the major banks selling the products. The bank analysts were apparently not able to sufficiently clarify the cash flows at the initiator. According to reports, the situation is similar for more than 30,000 intermediaries and consultants in sales, who did not even begin to recognise the “risk of prosecution” in view of the obvious tax deficits.



It is not surprising that intermediaries and banks are then also sentenced to reverse the transaction. The Regional Court of Munich I (judgement of 25 October 2007, file no. 22 O 523/07) wrote into a bank’s ledger that it must inform investors about their total commission without being asked to do so. The obligation to provide “advice appropriate to the object and the investor” also applies to closed-end investments, i.e. not only to the brokerage of securities.

Both possible additional payment obligations and the total loss risk must be pointed out to the investor by the intermediary (e.g. OLG Düsseldorf, judgement of 28 June 2006, ref. no. 7 U 225/05 and OLG Stuttgart, judgement of 27 July 2006, ref. no. 7 U 43/06). A typical sales trick: advertising distributions even if the fund fails to make a profit. This revives the investor’s obligation (§ 172 IV HGB) to make his contribution. This is because without correspondingly generated profits, the distribution is legally a “prohibited return of capital contributions”. This only leads to an external liability, so that the fund itself cannot reclaim the distribution. The repayment of a “premium” has the same effect if the contribution thus falls below the liable amount (BGH ruling of 9 July 2007, Ref. II ZR 95/06).

However, many real estate fund investors are surprised when they are asked by the initiator’s insolvency administrator to repay their distributions. The investor will then seek the reversal, because advisors only very rarely clarify these subtleties. The Federal Court of Justice (BGH) (decision of 30 January 2007, ref. X ARZ 381/06) made it easier for deceived investors to sue responsible initiators for “false, misleading or omitted public capital market information” in a joint jurisdiction by expressly including closed investments.


by Dr. Johannes Fiala

courtesy of

from www.performance-online.de (published in Performance 1+2.2008, page 94)


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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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