Wirecard CEO arrested in the case of the missing billions
Wirecard AG’s former chief executive officer was detained by
Munich prosecutors after 1.9 billion euros ($2.1 billion) went missing from the
digital-payment company, in a scandal that has rattled Germany’s financial
industry.
Markus Braun, who resigned last week, turned himself in
Monday evening in Munich as part of a probe into the company’s accounting
practices, prosecutors said in an e-mailed statement. A judge will review
whether he can be kept in custody Tuesday afternoon.
The company is fighting for survival after acknowledging the
missing funds probably don’t exist. The payment processor said it’s in
discussions with creditors and is considering a full-scale restructuring after
pulling its financial results for fiscal 2019 and the first quarter of 2020.
“It’s a brutal development -- it could hardly have turned
out worse,” Oliver Kipper, a defense lawyer who isn’t involved in the case,
said before Braun’s arrest. “You should know what happened to 1.9 billion euros
of assets you have listed in your books.”
In less than a week, the fintech company once hyped as the
future of German finance has lost most of its market value.
“It’s a complete disaster we’re looking at,” said Felix
Hufeld, head of BaFin, Germany’s top financial regulator, at a panel discussion
Monday. “It’s a shame that something like that happened.”
Munich prosecutors said Braun is suspected of inflating
Wirecard’s balance sheet and sales volume by faking income from transactions
with so-called third-party acquirers, possibly in cooperation with other
perpetrators. That would make the company appear financially strong and more
attractive for investors and customers.
Officials at Wirecard and Braun’s attorney weren’t
immediately available to comment.
Prosecutors said that they are likely to add additional
suspects to the probe.
Braun’s arrest will come as a further shock to Wirecard
employees. Interim Chief Executive Officer James Freis told employees on Monday
to expect a major restructuring as it tries to salvage the company, people
familiar with the situation said.
In his first message to the company as interim chief, Freis
said in a pre-recorded video that management is looking at all options,
including selling assets, said the people, asking not to be named as the
situation is private.
Wirecard is working with investment bank Houlihan Lokey on a
financing strategy, while also considering a broad restructuring to keep its
business operations going, the company said on Monday.
Wirecard had been championed by German politicians as their
own tech giant. It became a favorite of investors, breaking into Germany’s
elite DAX index of the largest companies in 2018, at the expense of the then
148-year-old Commerzbank AG.
The Wirecard saga has been under review for months, but
prosecutors’ focus is likely to have changed with last week’s developments.
Initially, authorities looked at media reports that caused
the stock to tumble, with Wirecard a potential victim of market manipulation.
Then, earlier this month, they began an investigation targeting the management
board, over how an internal review by KPMG was communicated to the markets.
The arrest of Braun shows, however, that the probes have
come full circle, with the former victims becoming the suspects.
“Given the numbers, it’s certainly the biggest accounting
scandal in Germany,” said Katie Schroeder, a criminal defense lawyer in
Frankfurt. “You’d have to think pretty hard to find a case of such scope.”
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