Wirecard boss arrested over €2bn accounting scandal

24 Jun, 2020 10:35
source: Singularity Financial

Singularity Financial Hong Kong June 24, 2020 – The former boss of German payments firm Wirecard has been arrested on Tuesday amid an accounting scandal that centres on a missing €1.9bn. The money accounts for about a quarter of the firm’s total balance sheet.

Markus Braun had resigned as chief executive on Friday and was replaced by James Freis, who joined from Deutsche Börse the day before.

Prosecutors accuse Markus Braun of inflating Wirecard’s finances to make it appear healthier to investors and customers.  Braun reported himself to Munich prosecutors on Monday evening after a judge issued an arrest warrant against the 50-year old.

Wirecard is battling an accounting crisis that has put its survival at stake. Ernst & Young, Wirecard’s auditors refused to sign off on its 2019 accounts after they could not find a missing €1.9 billion in its accounts.

The missing €1.9bn was supposedly held in accounts at two Asian banks and had been set aside for “risk management”, Wirecard had said. But EY said after an audit of the business that banks had been unable to provide the account numbers for where the money was held.

The firm finally admitted on Monday that the money probably does not exist.

“The Management Board of Wirecard assesses on the basis of further examination that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist. The company previously assumed that these trust accounts have been established for the benefit of the company in connection with the so called Third Party Acquiring business and has reported them as an asset in its financial accounts. The foregoing also causes the company to question the previous assumptions regarding the reliability of the trustee relationships.

The Management Board further assesses that previous descriptions of the so called Third Party Acquiring business by the company are not correct. The Company continues to examine, whether, in which manner and to what extent such business has actually been conducted for the benefit of the company.”

Wirecard, a former champion of Germany’s tech sector, saw its shares jump almost 28% in early trade on Tuesday after having fallen by 80% since last week.

Neil Campling of Mirabaud, that has a zero price target on Wirecard shares claims to have been following the story for two years. He thinks that payment giants Mastercard and Visa will “revoke their licenses” for Wirecard.

Visa spokesperson said: “We continue to closely monitor developments and assess new information as it becomes available.” They added, “Our priority is, and will always be, maintaining the integrity of the Visa payments system and protecting the interests of consumers, merchants and our clients.”

The firm has been fighting whistleblower allegations of accounting fraud for more than 18 months. A forensic audit by KPMG, which Wirecard’s supervisory board commissioned after the Financial Times made a series of allegations about how it documented sales, failed to allay concerns when its findings were published in April.