BaFin under massive pressure for failing badly in the Wirecard fraud case
The German regulator BaFin has evidently looked the other way at Wirecard for years. Even when the signs already seemed clear and the respected Financial Times publicly presented evidence of balance sheet manipulation and compliance issues. Instead of initiating an investigation into Wirecard books, BaFin took action against the Financial Times journalists and other critics. The management of BaFin simply denied reality. According to the Financial Times, BaFin failed particularly miserably as an institution. Yes, we agree!
In BaFin’s early days, there was a practice whereby selected information was given to chosen journalists when the institution sought to present itself as a heroic fighter against evil financiers or foreigners intriguing against Germany’s financial great and good.
The Financial Times’ justified criticism of Wirecard continues:
BaFin bureaucrats were also offended when the first reports were published about potential irregularities at Wirecard. A huge scandal under their noses? Unthinkable.
In view of the denial of the long-term auditor EY to issue an audit opinion for the 2019 annual financial statements, the missing €1.9 billion, and clear evidence of fraud, BaFin must also admit its own problematic behavior but still puts the blame on others. Felix Hufeld, BaFin CEO, provides a respective public statement:
It’s a complete disaster we’re looking at. It’s a shame that something like that happened […] Many private and public institutions, including my own, were not effective enough to prevent such a thing.
In addition to criticism of Wirecard’s management and the auditors (EY), criticism of the Bafin was also justified, said Hufeld. Hufeld also hints that the insolvency of Wirecard can no longer be ruled out.
Bafin has come under criticism after it responded to the allegations in the Financial Times last year by temporarily banning short-selling of Wirecard shares, a step it had never taken for an individual company before. The German regulator also investigated possible market manipulation by short-sellers and journalists, and whether Wirecard failed to meet its disclosure obligations. The newspaper had alleged fraud at a unit of Wirecard.