Hedge fund founder, fighting $1.8 billion UK tax fraud case, says he acted honestly

LONDON, May 21 (Reuters) - Sanjay Shah, a UK hedge fund founder accused of masterminding a 1.44 billion pound ($1.83 billion) dividend tax fraud against Denmark, told a London court on Tuesday he was an honest man and good trader but had relied on others for tax and legal advice.

Testifying by video-link from Denmark, where he faces parallel criminal proceedings in the "cum-ex" dividend trading case, Shah alleged a legal "defect" had allowed the trading strategy that became so successful that he bought a Ferrari and paid himself a 19 million pound bonus when he turned 40.

"A defect in the law allowed such trades to be legal," the 53-year-old, dressed in a dark blue T-shirt and dark trousers, said on the first day of three weeks of cross-examination by a lawyer for Denmark's tax authority Skatteforvaltningen (SKAT).

SKAT alleges Shah's Solo Capital Partners and others ran a fraudulent scheme that involved submitting wrongful applications for dividend tax refunds on behalf of investors and companies around the world between 2012 and 2015.

Shah denies wrongdoing. Asked if he was an honest man, Shah said "yes".

"I believe that what I was doing at the time - and those working for me at the time - was lawful and following legal advice," he told London's High Court.

So-called "cum-ex" schemes, which flourished following the 2008 financial crisis, involve trading shares rapidly around a syndicate of banks, investors and hedge funds to exploit the tax systems of countries such as Denmark, Germany and Belgium.

Investigations led by Germany and Denmark have triggered bank raids, arrests and prosecutions. Denmark has charged a number of British and U.S. citizens over the schemes.

Laurence Rabinowitz, a London lawyer for SKAT that has been doggedly pursuing Shah in London, said that by 2011, major banks and a big auditor had stopped working with Solo Capital because of perceived risks.

"You appear to wish to represent yourself as someone incapable of understanding detail and as someone who lacks intelligence," he said.

"I am not holding myself out to be an expert in the tax field," Shah responded. "At the time, I was a good trader and I was able to obtain knowledge from competitors ... and assess risks for myself and execute trades. I was good at some things but I was not good at everything." ($1 = 0.7866 pounds) ($1 = 6.8747 Danish crowns) (Reporting by Kirstin Ridley; editing by Rod Nickel)