Former Wirecard CEO Arrested In Germany On Suspicion Of Massive Fraud

The former CEO of scandal-ridden German payment processor Wirecard AG, Markus Braun, has been arrested on suspicions of accounting fraud and market manipulation, said prosecutors in Munich on Tuesday.

Braun turned himself in to authorities on Monday night.

Three other Wirecard executives are also under investigation by Munich authorities.

Braun’s arrest caps off a tumultuous episode for the DAX-listed technology firm which has seen its shares tank by more than 80% in recent days over accusations that the company engaged in massive fraud.

Braun resigned from his executive post last Friday after auditors at Ernst & Young were unable to locate 1.9 billion euros ($2.15 billion) of cash on the company’s balance sheet. (On Monday, Wirecard admitted the missing cash likely does not exist.)

Ernst & Young subsequently refused to validate the company’s financial statements for 2019. As a result, Wirecard withdrew its financial results for both 2019 and the first quarter of 2020.

Reports that the missing funds were deposited in two banks in the Philippines were categorically denied by that country’s central bank chief.

A judge in Munich will now determine if Braun should be held in custody or not.

Braun, who had served as Wirecard CEO since 2002, has been accused by prosecutors of inflating the company’s balance sheet and revenues to make it more attractive to investors -- "possibly in collaboration with further perpetrators.”

Upon his resignation last week, Braun claimed his company itself had been victimized by fraud.

Rumors of accounting irregularities at Wirecard or its subsidiaries have been swirling since last year when the Financial Times published a report suggesting fraud at the company.

Wirecard, which had a market value of about $27 billion when it listed on DAX two year ago now has a valuation of less than $3.4 billion.

German media reported that Wirecard has also fired its chief operating officer, Jan Marsalek, who had already been suspended from the management board last week.

Marsalek was in charge of overseeing operations in Southeast Asia, where the possible fraud may have occurred.

Meanwhile Wirecard is fighting for its very survival – it is currently engaged in emergency discussions with its banks and is also considering the sale (or closure) of some of its assets to raise cash.

Wirecard has also appointed Los Angeles-based investment bank Houlihan Lokey to guide it through the deepening crisis.

On Monday, Wirecard’s interim Chief Executive Officer James Freis told employees to expect a major restructuring.

“It’s a brutal development -- it could hardly have turned out worse,” said Oliver Kipper, a German defense lawyer who is not involved in the case. “You should know what happened to 1.9 billion euros of assets you have listed in your books.”

Katie Schroeder, a criminal defense lawyer in Frankfurt, stated: “Given the numbers, it’s certainly the biggest accounting scandal in Germany. You’d have to think pretty hard to find a case of such scope.”