Wirecard, Ex-CEO, EY Face Lawsuit Over Missing $2.1 Billion
Wirecard AG and its auditor were hit with what appears to be
the first proposed securities fraud class action by U.S. shareholders over $2
billion in assets that went missing.
The complaint also names former CEO Markus Braun, the
company’s current and former chief financial officers, and several other
corporate officers of the German company, who allegedly were involved in
“drafting, producing, reviewing and/or disseminating” false and misleading
statements about the company’s financial condition. The company’s German
auditor, Ernst & Young LLP, was also named as a defendant.
The plaintiffs allege that Wirecard, which offered Internet
payment and processing services, overstated its cash balances by falsely
claiming $2.1 billion of cash in a trust account account—roughly a quarter of
its consolidated balance sheet. On June 18, the company announced that “no
sufficient audit evidence could be obtained” of cash balances on trust accounts
in the amount of $2.1 billion.
In the span of a week, the company once considered the
future of German finance filed for insolvency protection and saw its CEO
arrested and its stock price plummet. The accounting scandal is the latest in a
series of corporate collapses that have called into question the Big Four
accounting firms’ ability to deliver on their most basic duty: to provide
reliable financial statements to investors and serve as a check on management.
The sudden downfall has renewed calls for tougher audit
oversight in Europe and comes as regulators in the UK are considering reforms
intended to end what is seen as cozy relationships between auditors and their
clients and to increase competition among the largest firms.
EY has previously called the scheme “an elaborate and
sophisticated fraud” designed to deceive investors. The firm said that it too
was duped, given false documents related to escrow accounts that “even the most
robust and extended audit procedures” may not have detected.
On June 22, Wirecard conceded in a press release “there is a
prevailing likelihood that the bank trust account balances in the amount of 1.9
billion EUR ($2.1 billion) do not exist.”
Braun was arrested on June 23 on suspicion of having inflated
the digital payment company’s balance sheet and sales through fake transactions
in order to make it more attractive to investors and customers, the complaint
says.
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