Wirecard’s former CEO Markus Braun arrested

Wirecard’s former chief executive officer (CEO), Markus Braun, has been arrested on suspicion of false accounting and market manipulation, said Munich prosecutors on Tuesday 23 June.

The prosecutors are accusing Braun of artificially inflating Wirecard’s balance sheet and the company’s revenue in an attempt to make the company look more attractive for investors and clients.

Former Wirecard CEO, Markus Braun

The Financial Times reports that Munich police say a criminal investigation into Wirecard has been launched. The Munich prosecutors’ office declined to comment.

The prosecutors suspect Braun did this in conjunction with others. A spokeswoman for the Munich prosecutors’ office tells the FT that the company’s former management board was under investigation.

Braun reported himself to Munich prosecutors on Monday 22 June, travelling to the German city from his home city of Vienna after a judge issued an arrest warrant.

A Munich judge on Tuesday afternoon released Braun from custody on a €5 million bail. The former CEO will have to report to police on a weekly basis. A lawyer for Braun did not respond to a request for comment.

The arrest comes after Wirecard on Monday warned that €1.9 billion of cash on its balance sheet probably does “not exist” and disclosed that it had previously mischaracterised its biggest source of profits.

Felix Hufeld, the president of German financial watchdog BaFin, says the Wirecard scandal was “a complete disaster” and “a shame” for Germany — a market that “should be governed by quality and reliability”.

Braun in question

The company added on Monday that it was trying to work out “whether, in which manner and to what extent such business has actually been conducted for the benefit of the company”. It withdrew its most recent financial results and said other years’ accounts may be inaccurate.

Wirecard its continuing “constructive discussions” with a consortium of banks over the extension of €2 billion in loans. The loans can be terminated after the company missed a 19 June deadline for the publication of audited annual results.

The company is looking at cost cutting, disposing business units and products, and restructuring steps “to ensure the continuation of business operations”.

Shortly before his resignation on 19 June, Braun told investors that Wirecard might have become the victim of a case of “fraud of considerable proportions”.

Read more: KPMG’s Wirecard audit fails to verify payments processing profits

Shares in Wirecard have plummeted more than 80% since the company postponed the publication of its annual results on 18 June.

Until Braun resigned, he was the longest-serving chief executive of a Dax company, and one of its richest, thanks to a 7% stake in the group he ran from 2002. At its peak in the summer of 2018, Wirecard was worth more than €24 billion on the stock market.

When Wirecard replaced Commerzbank in the Dax 30 index in 2018 Braun was, on paper, a billionaire and was regarded by many within Germany as a visionary technologist.

Braun promised Wirecard would be at the forefront of a world where notes and coins were obsolete. Much of what Braun said is being questioned. In 2017, for example, he told investors that Wirecard was using the latest artificial intelligence technology to analyse data. But according to documents seen by the FT, staff were instead cobbling together spreadsheets of customer information.

Project panther

Before its meltdown in an accounting scandal, Wirecard AG toyed with a deal to vault into the global financial elite, according to Bloomberg.

The embattled payments-processing company last year considered a tie-up with Deutsche Bank AG and even approached the lender with the idea, according to people familiar with the matter and a McKinsey paper reviewed by Bloomberg News.

The project, code-named Panther, was discussed among Wirecard executives late last year, the people said, asking not to be identified because the information is private. Wirecard executives reached out to counterparts at Deutsche Bank in 2019, but the Frankfurt-based lender quickly ended the preliminary talks, the people said.

Munich police say a criminal investigation into Wirecard has been launched.

A draft 40-page feasibility analysis prepared by consultants at McKinsey, dated 15 November 2019, concluded that the “value proposition of the combined entities will fundamentally reshape the ecosystem,” unlocking €6 billion of additional profit per year by 2025 by combining a bank and tech company.

The paper didn’t identify Wirecard or Deutsche Bank. But it was commissioned by the payments processor, and certain context information point to Deutsche Bank, including the use of the name of its information-technology system — Autobahn.

Spokesmen for Wirecard, Deutsche Bank and McKinsey declined to comment.

The prospect of the card processor taking over Germany’s biggest lender highlights the sudden reversal of fortune for what was the best performer in the DAX 30 stock index in 2018. An 86% collapse in its shares the past three days after the disclosure that €1.9 billion has gone missing marks the death knell of any ambitions beyond survival.

Deutsche Bank has also hinted at deal-making to come in recent weeks. CEO, Christian Sewing, said in May that the bank’s global scale and relative strength “is something that will help us when consolidation in the European banking sector happens – as it inevitably will and must.”

See also: Al Alam enters liquidation following KPMG’s Wirecard audit