German finance company Wirecard files for insolvency amid accounting scandal

German financial technology company Wirecard is filing for insolvency after an accounting scandal that led to the arrest of its former chief executive earlier this week.

The payment systems provider said it would make the filing at a district court in Munich “due to impending insolvency and over-indebtedness”.

It added in a brief statement that it is evaluating whether insolvency applications also have to be filed for its subsidiaries.

Markus Braun resigned as CEO on Friday after the company said that auditors could not find accounts containing 1.9 billion euros (£1.69 billion).

On Monday, Wirecard said it had concluded that the money probably does not exist, and Braun turned himself in to prosecutors hours later.

Markus Braun is under investigation (Matthias Schrader/AP)
Markus Braun is under investigation (Matthias Schrader/AP)

Braun was arrested on suspicion of market manipulation and inflating financial numbers, and later freed on bail

Adding to the damage to Germany’s corporate reputation was the reaction of the financial regulator, BaFin, when media reports last year questioned the company’s accounting.

Rather than investigate Wirecard, it targeted investors, banning them from betting on a drop in the share price, which plunged more than 40%.

“That is a documented failure of supervision to intervene when there was clear evidence in this case,” Florian Toncar, a member of parliament for the opposition Free Democratic Party, said in an interview on Norddeutscher Rundfunk public radio.

He said the case was “a heavy blow” for Germany’s reputation as a financial centre.

“WireCard was until now one of the few functioning tech companies that have come up with new ideas in the market place and now it turns out that that was to a great extent smoke and mirrors.”

BaFin’s head Felix Hufeld has conceded that Wirecard’s implosion was “a disaster” but the agency is standing by its decisions throughout the scandal, details of which are still emerging.

Wirecard provides the technology to companies and consumers to make cashless payments, a growing and competitive market globally.

Founder Braun resigned last week and said “it cannot be ruled out” that the company could have been the victim of fraud.

Under the new CEO, James Freis, the company has said that previous descriptions of its business in countries where it worked with partners — a key pillar of earnings — were inaccurate, and that it was probing whether those businesses were always run in the best interests of the company.

The missing 1.9 billion euros was supposed to be in trustee accounts but the two Philippine banks the company said held the money have said they have no dealings with Wirecard. Auditor EY refused to sign off on the company’s annual report.