(Bloomberg) -- Henry Gabay, founder of defunct London asset manager Duet Group, was sentenced to four years and 10 months in prison for his role in a Cum-Ex tax scheme that cost Germany about $100 million.

A German court convicted Gabay and ex-Duet partner Osman Semerci of aggravated tax evasion on Thursday. After a lengthy trial, the judges in Bonn sentenced Semerci, once a rising star at Merrill Lynch & Co., to three years and six months in jail.

Gabay, who has consistently claimed his innocence, and Semerci are the first high profile members of London’s financial community hit with custodial sentences in the sprawling tax scandal. Both men can appeal their convictions and won’t be sent to jail until that process ends unsuccessfully.

The two men were tried as part of the wider Cum-Ex trading ploy, which gamed the dividend tax system to pass vast sums from Germany’s treasury into the hands of scores of investors and banks. The trades under review in the Duet case aimed to generate €215 million ($232 million) in illicit tax refunds in 2010 and 2011 of which €93 million were paid out, according to the charges.

Many of their peers are among the 1,800 suspects German prosecutors are still targeting in their sprawling probe. The verdict came just two days after a Frankfurt court convicted a former top lawyer at Freshfields Bruckhaus Deringer for his legal work on Cum-Ex transactions, sentencing him to 3.5 years. 

The tactic, which originated with traders in London who took Germany as a prime target, exploited the way dividend tax was collected so that multiple investors could claim refunds on a tax that was only paid once. By the time Germany stopped the trades in 2012, the practice may have cost the country as much as €10 billion.

Gabay’s lawyer Ingo Bott said he will appeal. The court wrongly heard cases against the various Duet defendants in separate trials which is questionable under the rule of law, he said.   

Presiding Judge Frederik Glasner rejected Gabay’s claim that he wasn’t fully informed about the Cum-Ex trades and their legal implications. 

Both men originally agreed to the trading structure by relying on an initial presentation that clearly stated there were legal risks, but they nevertheless opted to go ahead, Glasner said. They also knew that part of the strategy was deceiving tax authorities by not disclosing the full details.

Gabay had argued Duet was a platform for various business ideas and he didn’t know what the Cum-Ex traders were actually doing. He only came in when the profits were distributed. The five judges didn’t buy it. 

“How can you negotiate how to share profits if you have no idea how these profits came about?” Glasner asked.  

Semerci last year had changed course and started to cooperate with the probe, testifying at the trial of a lower-ranking employee who got a suspended term. His confession was the main factor for his lower sentence, an element that was missing in Gabay’s case, the judge said.

“But let me be clear: given the high tax damage in this case, there was never an option for a suspended term for any of the two accused,” Glasner said. 

Gabay’s sentence was reduced because of publicity following his brief arrest in 2020 created turmoil in his life, the judge said. 

Semerci’s attorney Heiko Ahlbrecht also said his client will appeal, calling the sentence “much too harsh.” Semerci will continue to cooperating with the German authorities, he said.

The trial against Alain Schibl, the third ex-Duet partner, will start at the end of February. 

(Updates with defense statement in seventh paragraph)

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