Payments company Wirecard has filed for insolvency following the emergence of an accounting scandal, causing its share price to decline by nearly 80%.
German firm Wirecard, which disclosed last week that €1.9 billion was missing in its accounts, filed for insolvency, causing its share price to free-fall.
When Wirecard joined Germany’s blue-chip Dax 30 share index in September 2018, it was valued at €24 billion. However, the scandal has caused its share price to crash, pushing its value down to just €3.2 billion.
The accounting scandal
The controversy started when auditors at EY, formerly known as Ernst & Young, said they could not confirm “sufficient audit evidence” of about 1.9 billion euros, or $2 billion, in its cash balances, implying that the money had gone missing.
Wirecard claimed that it had deposited the money at two Asian banks, namely the Philippines’ Bank of the Philippine Islands (BPI) and BDO Unibank Inc., both of which denied having any any business relationship with the payments firm.
BDO said: “Wirecard is not a client of the bank. The document claiming the existence of a Wirecard account with BDO is a falsified document and carries forged signatures of bank officers.”
Meanwhile, BPI also said Wirecard was not its client. The bank said: “Their external auditor presented to us a document that claimed that they are a client. We have determined that the document is spurious. We continue to investigate this matter.”
CEO's arrest and resignation
Last Friday, Wirecard announced that its chief executive officer (CEO) Markus Braun has resigned and that its chief compliance officer James Freis will serve as the CEO on an interim basis.
Prior to his resignation, Braun said he did not know why the banks denied having the money and suggested that Wirecard may even be the victim of fraud.
“It cannot be ruled out that Wirecard AG has become the aggrieved party in the case of fraud of considerable proportions,” Braun said.
He added: “Wirecard has excellent employees, a strong business model, outstanding technology and abundant resources to ensure a great future.”
However, on Monday, the payments firm said that the controversial €1.9 billion missing from its accounts may not even exist in the first place.
In a statement, the company said: “The Management Board of Wirecard assesses on the basis of further examination that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist.”
The missing money comprises around a quarter of the company’s total balance sheet. The German firm said it will withdraw its financial results for 2019 and the first quarter of 2020.
Filing for insolvency and widening investigation
According to Wirecard, its new management had decided to apply for insolvency at a Munich court "due to impending insolvency and over-indebtedness". It is also considering filing for insolvency proceedings for its subsidiaries.
The Munich prosecutor's office, which is investigating Braun, said it had expanded its investigation to look at others. News agency Reuters reported that the company's former chief operating officer Jan Marsalek is being suspected and believed to be in the Philippines.
Braun, who remains a suspect, has been arrested and freed on bail of €5 million.
