Wirecard collapsed on Thursday owing creditors almost $4 billion after disclosing a gaping hole in its books that its auditor EY said was the result of a sophisticated global fraud.
The payments company filed for insolvency at a Munich courtsaying that, with 1.3 billion euros ($1.5 billion) of loans due within a week its survival as a going concern was “not assured”.
Wirecard’s implosion came just seven days after EY, its auditor for more than a decade, refused to sign off on the 2019 accounts, forcing out Chief Executive Markus Braun and leading it to admit that $2.1 billion of its cash probably didn’t exist.
“There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world,” EY said in a statement.
EY said while it was completing the 2019 audit, it was provided with false confirmations with regard to escrow accounts and reported them to the relevant authorities.
Wirecard declined to comment following EY’s statement.
The company logo is seen at the headquarters of German payments provider Wirecard in Aschheim near Munich, southern Germany, on June 24, 2020. (AFP)
The financial technology company is the first member of Germany’s prestigious DAX stock index to go bust, barely two years after winning a spot among the country’s top 30 listed companies with a market valuation of $28 billion.
“The Wirecard case damages corporate Germany. It should be a wake-up call for reforms,” said Volker Potthoff, chairman of
corporate governance think-tank ArMID.
Creditors have scant hope of getting back the 3.5 billioneuros they are owed, sources familiar with the matter said. Of
that total, Wirecard has borrowed 1.75 billion from 15 banks andissued 500 million in bonds.
“The money’s gone,” said one banker. “We may recoup a feweuros in a couple of years but will write off the loan now.”
The collapse of Wirecard, once one of the hottest fintech companies in Europe, dwarfs other German corporate failures. It
has shaken the country’s financial establishment with FelixHufeld, head of regulator BaFin, calling it a “total disaster”.
German Finance Minister Olaf Scholz described the collapseas a “scandal”, acknowledging it was time to review regulation.
“We must rethink our supervisory structures,” said Scholz,adding he had asked his ministry to come up with ideas in the
next few days.