German authorities have arrested the former CEO of Wirecard AG, one of the biggest online payment companies in Europe, amid accusations of fraud linked to the unexplained loss of $2 billion.
Markus Braun, who resigned from the company last week after auditors at EY refused to sign-off on its annual report, turned himself in to Munich prosecutors later Monday, officials said, and faces charges of market manipulation and misrepresenting company accounts in order to inflate the value of his company and attract new investors.
EY said last week that $2.1 billion in cash, claimed to be held in trust accounts with two banks Philippine banks, could not be verified. Wirecard later admitted the money likely never existed and pulled its financial results for both 2019 and the first quarter of 2020.
"We are in the middle of the most appalling situation I have ever seen a DAX company in," said Felix Hufeld, who heads Germany's financial market watchdowg, known as Bafin. " It is a scandal that something like this could happen."
Shares in the group, which was added to the bluechip DAX performance index in September of 2018 -- replacing one the country's most venerable institutions, Commerzbank AG -- have fallen more than 88% over the past two months as questions over its accounting practices and business model hammered investor sentiment. They were last marked 14.5% higher on the session at €16.56 in Frankfurt.
Once one of the fastest-growing tech companies in Europe, with clients such as Visa (V) - Get Report and Mastercard (MA) - Get Report on its resume, Wirecard is now fighting for its very survival and is "assessing options for a sustainable financing strategy" while holding 'constructive discussions' with its lenders.
Moody's Investors Service, meanwhile, withdrew its credit rating Monday, noting "insufficient independently verifiable financial information due to accounting irregularities which have not been resolved."
The Wirecard episode is the latest in a series of scandals that have rocked European financial institutions over the past few years and raised serious questions over the ability of both regulators and lawmakers to oversee a sector that has benefited from billions in taxpayer-funded bailouts since the global financial crisis.
Germany's Deutsche Bank AG DB was targeted by Federal prosecutors in a money laundering investigation in 2019, while Denmark's Danske Bank was embroiled in a similar scandal in its Estonian office in 2018, only weeks after the Dutch lender ING Group agreed to pay a €775 million fine after it admitted that "shortcomings ... resulted in clients having been able to use their bank accounts for money laundering practices for years."