Criminal charges, raid, annual balance – Wirecard under constant stress

Frankfurt The investigators were discreet when they searched the headquarters of payment service provider Wirecard last Friday. No flashing lights, no conspicuous police force caused a sensation in the industrial area in Aschheim near Munich.

The prosecutors were targeting the data on the laptops and smartphones of the board members of the Dax group. The search was triggered by an announcement by the financial regulator Bafin about market manipulation, i.e. the deception of investors.

The responsible public prosecutor’s office in Munich I had confirmed the announcement of the guards on Friday evening when asked by the Handelsblatt. Since there is no corporate criminal law in Germany, such criminal charges are always directed against the persons acting in a company – in this case against the four-member board, which includes CEO Markus Braun, CFO Alexander von Knoop, Chief Operating Officer Jan Marsalek and Product Manager Susanne Steidl.

The announcement and the search increase the pressure on the Wirecard managers and especially on the CEO Braun. Wirecard plans to present its three-year postponed annual balance sheet on June 18. The auditor EY has to certify it, but there is growing fear among investors that this could lead to problems.

The suspicion against Wirecard is based on the fact that “those responsible 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,” announced the public prosecutor on Friday.

Again and again negative headlines

Wirecard confirmed the raid in an ad hoc announcement. The company is cooperating “fully” with the investigators. A spokeswoman said: “The board is confident that the matter will clear up and the allegations will prove to be unfounded.”

For years, the group has been accused of falsifying balance sheets in media reports, especially in the business with foreign subsidiaries. A special audit commissioned by the supervisory board by KPMG was unable to completely clear up the allegations.

However, before submitting the KPMG final report at the end of April, Wirecard had stated in the ad hoc reports that the auditors had found no abnormalities. The Bafin apparently sees indications of market manipulation in this. Wirecard shares slumped by more than ten percent in after-hours trading on Friday.

Growing criticism of CEO Braun

Investors see responsibility for the turmoil especially with CEO Braun, who has dominated the group for two decades and, as the largest single shareholder, holds more than seven percent of the shares. Corporate governance expert Christian Strenger considers the top manager’s understanding of the office to be “increasingly problematic”.

“Braun’s problem is that he still strangers with the rules that apply to a DAX company in the capital market. In view of the public importance of the group, I can less and less understand the actions of the CEO. Braun’s actions may be well-intentioned, but they are detrimental to the group, ”says Strenger. “For that reason alone, the Bafin should have reacted much faster.”

Ingo Speich, Head of Sustainability and Corporate Governance at Deka, the fund company of the savings banks, makes a similar statement. He emphasizes that the presumption of innocence also applies to Wirecard managers. But he also warns of reforms: “Due to the strongly polarizing effect of Mr. Braun, the pressure on the capital market on the group should now be very great. It would be very critical if Wirecard went on as before, despite the constant media fire and widespread investor anger. ”

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

The DSW shareholders’ association requires an independent special audit. “That would be the right step to restore trust,” said Vice President Klaus Nieding of the Reuters agency.

Disabled special test

Wirecard itself commissioned the special inspection by KPMG. The auditors found no evidence of the serious allegation of falsification of the balance sheet. In their 74-page report, they complained about various shortcomings and weaknesses. For example, the collaboration with third parties could not be fully clarified.

The group uses these partners to process payments in countries where it does not have its own license. The partners are essential for winning Wirecard. 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.

According to the KPMG, 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 test report on the capital market was viewed so negatively that the share fell by a third within two days. Experts see one reason for the violent price reaction in the fact that Wirecard had not prepared the capital market for the problems cited in the KPMG special report.

In the weeks and months before, the Group had repeatedly reassured investors with comparatively positive messages – especially around the many postponements. First of all, the group explained the extension of the test period primarily with the effects of the corona pandemic. He later repeated that the auditors had not found any substantial problems.

Management also exercised optimism. 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 EY had “no problems at all”, the annual balance sheet To be released in 2019.

Controversial stock purchases

Displaying the Bafin is not the only problem that Braun is currently struggling with. Shortly before Pentecost, less than 30 days before the planned presentation of the annual balance sheet on June 18, the CEO of Wirecard bought shares. The financial supervisors are now also examining this process.

Governance expert Strenger disturbs that Braun bought the shares, whereas there was actually a lock-up period before the publication of the postponed annual figures: “As CEO, Braun is likely to have information that is not yet known in the market. For good reason, the law therefore provides for closed periods in which a board of directors is not permitted to conduct stock transactions. I see it as simply wrong to ignore that. ”The reference to the preliminary figures for 2019 already published in March is not convincing: Since then,“ too much relevant to the capital market ”may have happened.

The next critical point for Wirecard and CEO Braun is likely to be the annual balance sheet on June 18 and EY’s certificate. On Friday, the authority let the Bafin look at it.

Looking ahead, she explained: “The investigation as to whether Wirecard may also have misleading communication 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. “

By referring to possible accounting violations and the role of the auditors, Bafin increases the pressure on another actor: EY. The experts of the long-standing group auditor, who have to release the 2019 balance sheet, are currently evaluating the findings of the KPMG report.

KPMG: Missing account documents

“EY is in an extremely difficult position,” said the representative of a major Wirecard investor. “EY has to think very carefully about whether and how they issue their attestation. If you refuse to do so, you are questioning your own auditing activities over the past ten years. If you give it, there is a risk that you will be sued by lawsuits. ”

A particularly controversial point: According to the KPMG report, Wirecard was unable to provide the auditors with account receipts for an amount of one billion euros, which should have been in escrow accounts at the end of 2018. In the meantime, Wirecard has now presented the auditors with bank vouchers for four trust accounts at two banks, which are said to be worth billions. However, these refer to 2019.

The Berlin lawyer Wolfgang Schirp, who represents around 80 private investors, plans to file a lawsuit against EY with the Stuttgart district court on Monday, the auditor’s German headquarters. “The basis is above all that EY had not complained in the auditor’s report for the 2018 annual financial statements that there were no balance confirmations for around one billion euros in alleged trust assets, as we believe from the KPMG report. EY’s attestation should either have been restricted or at least supplemented. “

Time is running out

How much time does the company have to dispel the doubts? Ingo Speich doesn’t think much anymore: “We investors have often warned that the company has to change. This has been repeatedly announced, but real changes have been postponed.

Announcements no longer count at Wirecard, we need real implementation. If there are no correspondingly hard signals from the company, the question arises acutely whether the Wirecard management market continues to express confidence. ”

A lot now depends on the actions of the Supervisory Board. There were no crisis meetings after the raid on Friday, according to the Handelsblatt. Central to the assessment of chief supervisor Thomas Eichelmann, according to financial circles, will be how EY’s balance sheet attestation turns out. When conducting market manipulation investigations, the head of the supervisory board wants to wait and see whether legal proceedings are opened. If this happens, Braun could be suspended for the duration of the trial.

Eichelmann still has some options up until the Annual General Meeting on August 26: none of the Executive Board contracts expiring at the end of the year have so far been extended.

More: Bafin reports Wirecard bosses on suspicion of market manipulation – raid on corporate headquarters.

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