August 12, 2020

Wirecard scandal puts German authorities against the wall amid user complaints


The task is piling up for those responsible for the German Federal Supervisory Authority for Financial Services (BaFin). In addition to having to carry out investigations against the online payment platform Wirecard and ensure that the cases against those responsible for the firm prosper Falling in disgrace due to the biggest accounting fraud scandal remembered in the country by Chancellor Angela Merkel, at BaFin they have to think about defending themselves.

The first complaints against the way BaFin dealt with Wirecard are already coming to court. Thus, the lawyer Andreas Tilp’s office has already filed a complaint in the Frankfurt Regional Court in which he reproaches the BaFin for inaction before the firm that was the great benchmark for German fintech companies. “It should have been investigated,” the newspaper told the Tilp cabinet Frankfurter Allgemeine Zeitung.

Tilp himself has told the newspaper that the BaFin fell into “blatant disregard for its legal duties and powers, refusing to carry out its own investigations into Wirecard.” Clearly, when the BaFin began investigating, the damage was already done. Otherwise the president of that supervisory body, Felix Hufeld, would not have spoken of “shame” in the face of a scandal in which it is suspected that a company has inflated its accounts to make itself more attractive in the eyes of markets and investors.

In 2018, the company integrated in its irresistible rise the DAX, the stock index that brings together the great German companies. But the scandal erupted at the end of last June, when the resignation of the CEO, Markus Braun, who is now on probation after having paid five million euros in bail.

Tilp denounces that Wirecard’s management could have been uncovered in February 2019. So, the British newspaper Financial Times He had already published an extensive dossier of information on the alleged irregularities of the German company. 1,900 million euros have disappeared from Wirecard accounts or, rather, they have volatilized because they never existed.

The fact that Hufeld came to the fore to scourge himself talking about national “shame” has also led to the lawyer Michael Leipold having filed a complaint for “damages” against BaFin. “When speaking the maximum representative of the supervisory authority of ‘negligence’, has laid the first stone for a complaint for damages,” Leipold has justified in a statement collected by the Frankfurter Allgemeine Zeitung. This lawyer represents 300 Wirecard investors affected by the collapse of the firm. Two summers ago, a Wirecard share cost 193 euros. Now the price of the title is around 1.85 euros.

Legal actions against the German State

Tilp and Leipold are not the only lawyers facing German authorities on account of “one of the biggest accounting scandals in history” in Germany, according to the terms of the economic magazine Manager Magazin. In Berlin, Marc Liebscher and Wolfgang Schirp are watching over weapons to judicially charge the German State for their inaction in the case.

Both accuse the German state of being responsible for the “great deficiency of the supervisory authorities” evidenced in the Wirecard case. These accusations are not only the product of the appetite of lawyers willing to see the German authorities pay compensation for their apparent inaction in the Wirecard case.

In reality, the once successful company of Markus Braun enjoyed a benevolent look from practically each and every one of the strata of German and international finance. This is at least what I highlighted a few days ago in the opinion pages of the Berlin newspaper Der Tagesspiegel financial expert Dorothea Schäfer, researcher at the German Institute for Economic Research in Berlin (DIW).

“Nobody wanted to ruin the star of the sky of fintech: neither the auditors, nor the Ministry of Finance, nor the Bundesbank, neither the banks that gave him loans, nor the investment institutions, among which are distinguished names such as Goldman Sachs, Morgan Stanley, Société-Générale, Blackrock, Citigruop, the subsidiary of Deutsche Bank DWS and Union Investment ”, wrote Schäfer in his article titled ‘When Everyone Looked the Other Way’.

Reforms in sight

By allusions like that, the deputy chancellor and finance minister, the Social Democrat Olaf Scholz, has been peppered by the Wirecard case. At least politically, the scandal is serving to question his management. This Wednesday, an extraordinary session of the Finance Commission of the Bundestag attended by deputies eager to see Scholz explain the authorities’ reproached passivity with Wirecard.

Meanwhile, Scholz has already put on the table a reform of the BaFin to strengthen it in cases such as the one that represents the disgraced internet payments platform, “a complicated international firm”, according to the description given by the vice-chancellor and minister of the Treasury. In accordance with its plans, the role of BaFin is expected to emerge stronger next year, in addition to improving investor protection.

“I want an authority capable of striking, so it is important to me that the BaFin is well equipped,” Scholz said of his intentions in an interview published in the penultimate edition of this month’s weekly. Die Zeit. In the midst of the scandal, the BaFin must reform, continue to investigate those responsible for Wirecard and defend itself against those who want to bring it to court. Sounds like squaring the circle in German finance.

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