Wirecard Troubles in Germany – Class actions against the company and auditor EY adding to BaFin investigations
Not surprisingly, the turbulent times do not seem to be coming to an end soon for Wirecard. Already 2019 was dominated by accusations of balance sheet manipulation, shabby business practices, and compliance issues which were raised primarily by the Financial Times. Founder and CEO Markus Braun has always strictly rejected the accusations. Wirecard filed lawsuits and criminal complaints against the critics. And its PR machine aggressively attacked critics on the internet and social media. The rumor was spread that the accusations against Wirecard were made in the interest of short-sellers who wanted to see the share fall. BaFin and the public prosecutor’s office have investigated the critics following Wirecard’s complaints. Official Germany, it seemed, defends its DAX-listed FinTech at any cost. But no longer!
Next Round – KMPG v. EY
A special audit by KPMG was to invalidate all allegations. In fact, however, the special audit report submitted at the end of April 2020 did not clarify the situation but rather worsened it. Critics see themselves confirmed by the report, whereas Wirecard sees itself washed clean of the accusations. Strange, isn’t it? The German Financial Market Authority BaFin is investigating on the basis of the KPMG report because of possible errors in relation to the published news. Now Wirecard’s auditor EY is also getting under heavy pressure.
Shareholders are planning lawsuits against EY based on the KPMG report. “He’s a slap in the face for EY,” says Wolfgang Schirp, a German lawyer at the law firm Schirp & Partner in an interview with the German magazine FINANCE. As a matter of fact, EY has audited Wirecard’s financial statements up to 2018 and has never objected to anything. The KPMG report, however, refers to non-existent documents, compliance issues, and questionable business practices to say the least. Two fundamentally different opinions where actually should only be one. For this reason, the lawyers are now preparing a lawsuit against EY.
According to Wolfgang Schirp, EY should, therefore, have at least limited or extended the audit opinion in the consolidated financial statements. “But the complete silence of the audit opinion on this point is not compatible with proper audit work,” he says.
The German law firm TILP Rechtsanwaelte, in turn, is seeking damages for Wirecard shareholders in connection with the company’s “compliance scandal”. In its press release dated May 12, 2020, the law firm invites shareholders to join a class action (German-style) and register via the website set up for this purpose, www.wirecard-klage.de. TILP has filed an investor lawsuit against Wirecard and has applied for the initiation of a first case (“Musterverfahren”) at the District Court Munich I.
At present, it really does not look as if the turbulent times at Wirecard will soon come to an end. The Austrian CEO Markus Braun is coming under increasing pressure. Even the appointment of the U.S. American James Freis as Chief Compliance Officer and member of the Management Board has not changed this situation. Whether Braun, who remains Wirecard‘s largest private shareholder, will be able to hold on as CEO is currently questionable. However, it is also clear that Wirecard and Braun are difficult to separate.