Wirecard investors sue German regulator over failure to spot audit scandal

[BERLIN] Germany's BaFin was sued by Wirecard investors who say the regulator turned a blind eye widespread evidence of an accounting scandal that led to the company's collapse.

Lawyer Andreas Tilp, who filed the suit in Frankfurt, said the regulator should have been aware of the financial problems engulfing the payments processor early last year.

Prosecutors arrested former Wirecard chief executive officer Markus Braun a second time this week over allegations the company covered up massive losses by inflating the balance sheet with fake assets. Regulators and prosecutors have been criticized for ignoring media reports about the company's financial problems for more than a year.

"BaFin grossly neglected its duties and powers by refusing to investigate Wirecard for market manipulation, while taking biased action against journalists and short sellers," Mr Tilp said in a statement Friday. If Bafin had "properly investigated the matter", any wrongdoing would have come to light earlier, he said.

A BaFin spokesperson said the regulator will comment on the suit later on Friday.

Wirecard filed for bankruptcy in June after acknowledging that 1.90 billion euros (S$3.05 billion) it had listed as assets probably didn't exist. The company admitted that previous descriptions of its business with third parties were "not correct" after pulling its financial results for 2019 and the first quarter of 2020.

Mr Tilp has already filed a suit against Wirecard and later added its longtime auditor Ernst & Young (EY) to the case.

EY is struggling to explain why it signed off on Wirecard's books for years without flagging any issues. The payment processor's demise was finally triggered in June when the accounting firm made a u-turn and refused to sign off on the company's annual report.

BLOOMBERG