BANKRUPTCY OF WIRECARD GOT INTO A FINANCIAL SCANDAL

The German payment system Wirecard is sinking like a rock, trying to patch the holes in the worst financial scandal in the history of post-war Germany. The collapse was caused by the refusal of the Ernst & Young (EY) auditor, who was checking the company’s work, to sign a report for 2019 after he had found a deficiency of $ 2.1 billion

Executive Director Marcus Brown was forced to admit that probably this money never existed. As a result, an insolvency petition from Wirecard, indicating that the company would not be able to pay a loan of $ 1.5 billion, was sent to the Court of Munich. The loan was to be paid at the end of June, but as a result, there were no proper financial provisions for it.   

The collapse of Wirecard, one of the Germany’s most profitable companies, has shaken the country's financial system, eclipsing other business failures. 

The head of the regulator, Felix Hufeld, called it “a complete disaster.” After the announcement of the start of the bankruptcy proceedings and the company’s filing for the protection from creditors, exchange trading with company’s shares on the Frankfurt Stock Exchange was suspended. Then, immediately after the resumption of trading, the value of Wirecard shares on the exchange fell by 80%. Thus, from the moment the auditor refused to sign statements for the last year, the shares have lost about 98% in value.  

It is necessary to note that in 2019, the capitalization of Wirecard reached $ 28 billion. The company was considered one of the most successful European financial and technological services. It became one of the first participants in the German DAX “blue chip” stock index. According to the experts, this is the first case of the collapse of company included in the index. The company went bankrupt two years after it had entered the list of thirty largest companies in the country.

Now analysts estimate the value of Wirecard at € 2.4 billion.

A number of experts have already compared the reputation scandal surrounding Wirecard with a similar scandal with the US Enron company. At the same time, it takes place against the background of the criminal cases, brought against the top managers.  

Marcus Brown, who resigned from his post of head of the company, would be arrested on 22 June. He is suspected of deliberately overestimating the company's revenues, distorting the balance sheet in order to increase the investment attractiveness. A day later he would be released from custody on the conditions of payment of a security deposit of € 5 million. Another director, the chief operating officer of the company, Jan Marsalek, is currently under suspicion. The justice officials suppose that he is currently on the territory of the Philippines.    

Schirp & Partner, a legal company of Germany, has already announced that the shareholders and bondholders of Wirecard will file the class - action lawsuits against the EY auditor. 

The reason is that the company worked for many years without causing any doubts on their part. Founded in 1999, the company was previously criticized by reporters and stockbrokers, and has been repeatedly accused of the fact that its earnings and profits are based on the fake transactions. The experts suggest that for several years, the head of the company managed to fight back, until at the end of 2019, an external financial audit was held to conduct an independent investigation. 

Now, according to a number of sources, the creditors have scanty hope to return € 3.5 billion. It is known that € 1.75 billion of this amount are the loans that Wirecard received from 15 banks, and another part of the funds (about € 500 million) was obtained by the securities issue. However, as it was noted by one of the financial market participants, "the money is gone."