MUNICH/FRANKFURT (Reuters) – Wirecard’s <WDIG.DE> former boss has been arrested on suspicion of falsifying its accounts, after the German payments firm disclosed a $2.1 billion financial hole and questioned whether trustees had actually held money on its behalf.
Markus Braun turned himself in on Monday night after Munich prosecutors issued a warrant for his arrest. A judge ruled on Tuesday that the 50-year-old Austrian could be released as soon as he posts 5 million euros ($5.7 million) in bail.
Germany’s financial regulator also filed a fresh complaint against Wirecard with the prosecutor, saying the company’s belated admission that billions were missing showed it had mis-stated its financial position between 2016 and 2018.
“This also strengthens the suspicion that the information contained in its financial reports sent false signals for Wirecard’s share price and in so doing violated a ban on market manipulation,” regulator Bafin said in a statement.
In his 18 years in charge, Braun transformed an offshoot of the dot.com boom, known for handling payments for online gambling and adult entertainment sites, into a $20 billion-plus ‘fintech’ that won a place in Germany’s blue-chip DAX index.
The former consultant traded in a suit for a black roll-neck and portrayed himself as a tech visionary, telling New York investors last autumn that Wirecard would increase revenues by six times by 2025 as digital payments boom.
Wirecard’s meteoric rise was, however, accompanied by repeated allegations from whistleblowers, journalists and speculators that its revenue and profits had been pumped up through fake transactions with obscure partners.
Braun, who will have to report to police once a week, said last week in a video statement that Wirecard may have been the victim of fraud, without giving details.
He now stands accused of misrepresenting Wirecard’s accounts and of market manipulation by falsifying income from transactions with so-called third-party acquirers, the Munich prosecutor’s office said earlier.
Two people familiar with the matter said state prosecutors were also considering issuing an arrest warrant for Jan Marsalek, a board member fired on Monday.
Lawyers for Braun and Marsalek were not available for comment. Wirecard could not immediately be reached for comment.
Wirecard’s implosion was described on Monday as a “total disaster” by Bafin, which has come under fire for pursuing its critics and not the company.
Finance Minister Olaf Scholz told Reuters on Tuesday that lawmakers should decide quickly how to tighten regulation following the Wirecard scandal, which had exposed lapses by both auditors and regulators.
Bafin’s investigation into Wirecard’s financial reporting is now complete, said a source familiar with the matter. The regulator, meanwhile, is also acting to shield Wirecard’s banking subsidiary from the debt crisis.
Bafin is seeking to prevent money held at Wirecard Bank from being tapped to bail out Wirecard AG, sources said. According to the most recent figures, the bank held 1.4 billion euros in deposits.
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An external audit by KPMG in April could not verify cash balances, questioned Wirecard’s acquisition accounting and was unable to trace millions in reported cash advances to merchants.
Braun, who said at the time that the allegations were not confirmed “in every point”, quit on Friday after in-house auditor EY refused to sign off on Wirecard’s 2019 accounts.
Wirecard’s shares have since shed more than 80% and its only listed bond is trading at 26 cents on the euro, indicating that investors expect to lose most of their money. <DE205218076=>
New CEO James Freis, a former financial investigator at the U.S. Treasury and compliance chief at the Frankfurt Stock Exchange, has opened urgent talks with some 15 banks that have lent 1.75 billion euros to Wirecard.
With Wirecard having failed to file audited financials, the banking consortium led by Germany’s Commerzbank <CBKG.DE> could call in the loans at any time.
Lenders have mandated FTI Consulting as financial adviser, people close to the matter said, bringing in an experienced restructuring specialist that is advising U.S. car rental firm Hertz on its Chapter 11 bankruptcy.
Some of the banks have signalled that they do not for now favour cancelling their loans and sending Wirecard into insolvency, but have demanded full transparency as they seek to recover their money, these people said.
Wirecard is being advised by investment bank Houlihan Lokey and the creditors by law firm Allen & Overy. Both declined to comment, as did FTI.
(Additional reporting by Holger Hansen and Hans Seidenstucker; Writing by Douglas Busvine; Editing by Alexander Smith and Mark Potter)