The complaint also names former CEO Markus Braun, the company’s current and former chief financial officers, and several other corporate officers of the German company, who allegedly were involved in “drafting, producing, reviewing and/or disseminating” false and misleading statements about the company’s financial condition. The company’s German auditor, Ernst & Young GmbH, was also named as a defendant.
The plaintiffs allege that Wirecard, which offered Internet payment and processing services, overstated its cash balances by falsely claiming $2.1 billion of cash in a trust account account—roughly a quarter of its consolidated balance sheet. On June 18, the company announced that “no sufficient audit evidence could be obtained” of cash balances on trust accounts in the amount of $2.1 billion.
In the span of a week, the company once considered the future of German finance filed for insolvency protection and saw its CEO arrested and its stock price plummet. The accounting scandal is the latest in a series of corporate collapses that have called into question the Big Four accounting firms’ ability to deliver on their most basic duty: to provide reliable financial statements to investors and serve as a check on management.
The sudden downfall has renewed calls for tougher audit oversight in Europe and comes as regulators in the UK are considering reforms intended to end what is seen as cozy relationships between auditors and their clients and to increase competition among the largest firms.
EY has previously called the scheme “an elaborate and sophisticated fraud” designed to deceive investors. The firm said that it too was duped, given false documents related to escrow accounts that “even the most robust and extended audit procedures” may not have detected.
On June 22, Wirecard conceded in a press release “there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR ($2.1 billion) do not exist.”
Braun was arrested on June 23 on suspicion of having inflated the digital payment company’s balance sheet and sales through fake transactions in order to make it more attractive to investors and customers, the complaint says.
The proposed class is comprised of purchasers of publicly traded Wirecard securities between Aug. 17, 2015, and June 24, 2020, and were damaged thereby.
Cause of Action: Securities Exchange Act of 1934.
Relief: Damages, attorneys’ fees and costs.
Potential Class Size: The complaint alleges there are “hundreds, if not thousands of members” in the proposed class.
Response: A spokeswoman for Wirecard said the company “is not making any further statements at this time.” EY also declined to comment on the U.S. lawsuit.
Attorneys: The Rosen Law Firm represents the plaintiffs.
The case is Brown v. Wirecard AG, E.D. Pa., No. 20-cv-03326, complaint filed 7/7/20.