Bafin files criminal charges – suspected market manipulation

Frankfurt German financial regulator Bafin has reported Wirecard to suspected market manipulation. This was confirmed by the responsible public prosecutor’s office in Munich I on Friday evening when asked by the Handelsblatt.

“We can confirm that a few days ago Bafin filed a criminal complaint against those responsible at Wirecard for suspected market manipulation at the Munich I public prosecutor’s office. The suspicion is based on the fact that those responsible at Wirecard could have given misleading signals for the stock market price of Wirecard AG shares through the ad hoc announcements of March 12, 20 and April 22, 20, ”said a spokeswoman for the law enforcement agency in a written statement .

And further: “The public prosecutor’s office in Munich I then initiated proceedings against the entire board of directors, four of the accused, and has searched the company headquarters in Aschheim since this morning. We are currently unable to provide any further information on the result of this search and further steps, in order not to have any influence on the company’s share price, ”the statement continues. Wirecard confirmed the searches in an ad hoc announcement.

A Wirecard spokeswoman told the Handelsblatt: “The board is confident that the matter will clear up and the allegations will prove to be unfounded.” In the ad hoc announcement, the group further stated that the investigation was not against the Society, but against their board members. The company is cooperating “in full” with the investigative authorities.

From corporate circles it is announced that the investigation is probably not about the overall ad-hoc communication of Wirecards in the past few months, but only about a few selected statements.

On request, a Bafin spokeswoman said that, in principle, there was no comment on individual companies. “We regularly check whether listed companies provide the capital market with timely, complete and not misleading information about inside information. If we find any evidence that this was not the case, we file a complaint with the public prosecutor. Because incorrect, incomplete or otherwise misleading information – such as in ad hoc releases – can be a prohibited manipulation of the market, ”said the spokeswoman.

At the same time, the Bafin makes it clear that it is waiting for its further investigations to present the annual balance sheet on June 18: “The investigation as to whether Wirecard may also have misleadingly communicated and thus committed market manipulation has not yet been completed. Here we were and still are dependent on the findings of other bodies – especially the auditor (KPMG, EY). We absolutely need their findings on any accounting violations. “

Investors see further deterioration

Ingo Speich, Head of Sustainability and Corporate Governance at Deka, the savings banks’ fund company, warns when asked by Handelsblatt: “Before the contrary is proven, even a criminal complaint does not mean a prejudice.” First, the further investigation and a possible trial would have to be awaited. However, with regard to CEO Markus Braun, Speich fears: “Due to the strongly polarizing effect of Mr. Braun, the pressure on the capital market on the group is likely to be very great. It would be very critical if Wirecard continues as before, despite the constant media fire and widespread investor resentment. ”

“Our demand for Markus Braun’s resignation remains. Wirecard’s situation has worsened rather than improved in recent weeks. The negative news outweighs, “Speich continued. “The governance problems are now weighing so heavily on the share price, even operationally good results have a hard time having an impact.”

For Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt University in Frankfurt, the criminal complaint “comes as no surprise if you compare the content of the ad hoc reports with the KPMG special report.” The presumption of innocence continues to apply. “However, the loss of confidence associated with such a procedure is a problem for investors.”

“It will be all the more important how the auditor’s certificate turns out,” says the economist. The assessment of CEO Braun’s share purchases made before Pentecost, which Bafin is currently examining for suspected insider trading, also played a role. “The supervisory board must draw its conclusions from this overall picture,” says Brühl.

The news caused a great deal of uncertainty among investors: the share has now lost more than ten percent in late trading in Frankfurt. The papers had ended the regular trade 0.2 percent up at 95.88 euros.

Repeatedly postponed test report

The background to the investigation is the special audit launched by the auditing company KPMG in October after numerous serious allegations regarding alleged balance sheet falsification and other irregularities. The submission of the KPMG audit report was postponed several times – this was accompanied by several ad hoc notifications from the Group, which have now become the focus of supervision.

The group had already presented a partial report of the investigation results on March 12 and postponed the submission of the complete report to April 22. Even then, Wirecard was unable to present a final result, but postponed the publication again to April 27. This day also brought no information for investors, but only the following April 28th.

The document that Wirecard then presented caused horror among investors and observers. KPMG found no evidence of the serious allegation of falsification of the balance sheet. The 74-page report was swarming with criticism of inadequacies in the structures and weaknesses in the documentation.

Particularly explosive: Wirecard’s cooperation with its third parties could not be fully clarified. The group handles payment transactions through them in countries where it does not have its own license. The partners are essential for the consolidated profit.

But instead of supplying the KPMG auditors comprehensively, Wirecard and its third parties withheld the account documents, contracts and other documents for months, according to the report. Some documents were only submitted in copy or not at all. The auditors also complained that interviews with key managers were postponed several times. In total, KPMG was unable to completely refute many of the allegations made. The magazine “Spiegel” simply called the report a “document of horror”.

Controversial communication

The test report on the capital market was viewed so negatively that the share fell by a third within two days – a process almost unprecedented for a Dax group. According to observers, one reason for the extreme uptake is that Wirecard had not prepared the capital market for the negative result in advance. It was only afterwards that the group made a prominent statement that it was a forensic examination, which differs significantly in type and scope as well as in the level of detail from a normal final examination.

In the weeks and months before, Wirecard had repeatedly reassured investors with comparatively positive messages – especially around the many postponements. First of all, the group explained the extension of the review period and the rescheduling of the annual financial statements, primarily with the effects of the corona pandemic.

“Also due to current, Corona virus-related travel restrictions, especially in Asian countries, the time frame for the special examination must be extended,” it said in March. At the same time, the group emphasized at the time that the parts of the audit that had been completed “from today’s perspective, there are no substantive findings that would require correction for the annual financial statements in the 2016, 2017 and 2018 investigation period.”

The group stayed with this presentation at the end of April when it declared: “No evidence for the publicly raised allegations of balance sheet manipulation was found.” And further: “In the remaining days, incoming data should be processed and taken into account.” that many market participants don’t believe.

The top managers of the payment service provider also exercised demonstrative optimism. CEO Markus Braun already told major investors in spring: “Don’t worry, everything will be fine.” Even after the KPMG report appeared, he said in an analyst call that the auditor Ernst & Young (EY) had ” no problems at all “to release the 2019 annual balance sheet.

At the beginning of the year, many investors had reassured an interview with the newly elected Chairman of the Supervisory Board, Thomas Eichelmann. When asked about the initial findings from the special audit, he said in “Manager Magazine”: “You can draw your conclusions from the fact that we have not yet submitted an ad hoc report.”

Was the wish the father of thought in Aschheim? At the beginning of May at the latest, the Bafin apparently broke patience in view of the many soothing statements from the corporate headquarters. At that time, the authority said that the KPMG special test report was included in the “market manipulation investigation, which is still ongoing”. “Of course, we also look at Wirecard’s communication immediately before the KPMG report is published,” said the warning.

With the criminal complaint and the subsequent search on Friday, the guards have now taken it seriously. This affects the Group and its investors at the wrong time, as the much awaited presentation of the 2019 annual balance sheet is due. This was originally supposed to be released on April 8. In March the date was postponed to April 30th, later to June 4th. This date could not be kept either: Now Wirecard is aiming for the presentation of the annual balance sheet for June 18. One thing is clear: EY has to test them.

More: Wirecard boss Markus Braun: a visionary under pressure.

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