Ex-CEO of scandal-hit Wirecard freed on bail in Germany

FRANKFURT AM MAIN, Germany (UPDATED) – German prosecutors said Wirecard’s ex-chief executive officer Markus Braun was granted bail on Tuesday, June 23, following his arrest on suspicions of fraud after 1.9 billion euros ($2.1 billion) went missing from the payment provider’s accounts.

Prosecutors in Munich said Austrian-born Braun, who resigned as CEO on Friday, June 19, turned himself in on Monday evening, June 22, after an arrest warrant was issued.

A judge in Munich ordered him to be released on bail for 5 million euros, the prosecutors said in a statement. Braun must also report to police each week.

Prosecutors accuse Braun of false accounting and market manipulation in connection with the scandal, which is fast turning into one of Germany’s biggest financial frauds.

They believe Braun artificially “inflated” the company’s assets and revenues through “fake transactions with so-called third party acquirers in order to make the company seem financially stronger and more attractive to investors and customers.”

Braun may have acted “with other perpetrators,” they added.

Computer scientist Braun joined Wirecard in 2002.

He oversaw the Bavarian start-up’s global expansion and its much trumpeted entry into Frankfurt’s prestigious DAX 30 index in 2018, when Wirecard edged out traditional lender Commerzbank.

Dogged by scandal

Wirecard, which was founded in 1999 and started out processing payments for porn and gambling websites, was long seen as a rising star in the fintech sector thanks to the growing popularity of digital payments.

But the company has been dogged by reports of accounting irregularities in its Asian division, notably in a series of articles in the Financial Times since January 2019.

Wirecard’s woes deepened earlier this month when Munich prosecutors raided its headquarters as part of a probe into market manipulation targeting the firm’s entire management board. 

The probe, instigated by German financial watchdog Bafin, is looking into whether Wirecard sent out misleading ad hoc statements that may have influenced its share price.

Wirecard’s crisis finally exploded on Thursday, June 18, when auditors Ernst & Young said 1.9 billion euros were missing from the company’s accounts.

The missing cash was held to cover risks in trading supposedly carried out by third parties on Wirecard’s behalf and was meant to be sitting in trust accounts at two Philippine banks.

But the two Asian banks, BDO and Bank of the Philippine Islands, denied having a relationship with Wirecard. (READ: Mark Tolentino, Wirecard trustee, denies irregularities)

Braun resigned abruptly the next day while the company’s chief operating officer Jan Marsalek was dismissed on Monday.

Wirecard admitted on Monday that “on the basis of further examination…there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist.”

The revelations have sent Wirecard’s share price plummeting. It was trading at around 17 euros on Tuesday afternoon, down from almost 100 euros last Wednesday, June 17.

Watchdog under fire

The Wirecard saga has stunned Germany and drawn comparisons with the Enron accounting scandal in the United States two decades ago.

German Economy Minister Peter Altmaier called for a thorough investigation and warned that the controversy could erode confidence in the country’s finance sector.

“We never expected a situation like this in Germany. That’s why we need to take tough action,” he told the T-Online news portal.

Bafin president Felix Hufeld called the Wirecard situation “a complete disaster” and admitted his watchdog “had not been effective enough to prevent something like this from happening.”

Katja Hessel, the chairwoman of the German parliament’s finance committee, said Bafin should “draw the consequences” for its apparently lax oversight of Wirecard. 

The finance committee will discuss the Wirecard saga in its final meeting before the summer recess, she added.

Wirecard is now in crisis talks with creditors and said it was “examining a broad range of possible further measures” to stay afloat, including restructuring and selling off or simply halting some activities.

The firm, which employs nearly 6,000 people, has also withdrawn its preliminary results for 2019 and the 1st quarter of this year.

If the 2019 results are not published by Friday, June 26, two billion euros of credit could be withdrawn from the firm. – Rappler.com