FRANKFURT, Feb 12 (Reuters) - German financial watchdog Bafin declared Maple Bank GmbH to be an indemnification case, meaning that deposits of up to 60 million euros ($68 million) per client will be covered by Germany's banking association's guarantee fund.
Insolvency proceedings have been started for the German unit of Canada's Maple Financial, whose operations Bafin closed on Sunday on impending financial over-indebtedness related to tax-evasion investigations.
In September, German prosecutors searched offices and residences linked to Maple Bank in a probe of serious tax evasion and money-laundering connected to so-called dividend-stripping trades.
The trades involve buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to reclaim capital gains tax.
Bafin said on Friday it had established that Maple Bank was no longer in a position to pay back all its customers' deposits, and that the guarantee fund would soon contact the bank's creditors.
Deposits of up to 100,000 euros are safeguarded by Germany's deposits protection scheme. Bafin said in exceptional circumstances this could be raised to 500,000 euros.
German daily Sueddeutsche Zeitung has reported that Frankfurt prosecutors allege that Maple Bank and its business partners have deprived German taxpayers of about 450 million euros ($508 million).
The bank, which shot to fame in Germany in 2008 when it helped Porsche in its failed takeover attempt of Volkswagen, has an equity capital of just 300 million euros.
Bafin has said the lender, with 5 billion euros in assets, poses no threat to Germany's financial stability. ($1 = 0.8859 euros) (Reporting by Georgina Prodhan; Editing by Arno Schuetze and Susan Thomas)