Wirecard auditors face legal action after collapse of scandal-hit payments firm

Key Points
  • The German shareholders' association SdK said Friday that it had filed a criminal complaint against auditors at EY.
  • Munich-based Wirecard filed for insolvency on Thursday, after revealing 1.9 billion billion euros had gone missing.
  • EY said "even the most robust and extended audit procedures" couldn't uncover what it called a "collusive fraud."
The lettering of the payment service provider Wirecard can be seen on a laptop screen
Silas Stein | picture alliance | Getty Images

Wirecard's auditors are being faced with legal action after the collapse of the scandal-hit German payments firm.

The German shareholders' association SdK said Friday that it had filed a criminal complaint against auditors at EY. SdK's complaint targets two current employees and one former employees of Wirecard's long-time auditor.

The accountancy last week refused to sign off Wirecard's 2019 books after discovering 1.9 billion euros ($2.1 billion) of cash had gone missing from its balance sheet.

Munich-based Wirecard filed for insolvency on Thursday, marking a tumultuous fall for the group. Wirecard, which is still listed on the DAX 30, has seen its share price capitulate since the accounting black hole was revealed last week.

EY told CNBC late Thursday that there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception."

In attempt to defend its reputation, the group added that "even the most robust and extended audit procedures" couldn't uncover what it called a "collusive fraud."

Very little legitimate business to be picked up from Wirecard, analyst says

EY is facing mounting legal pressure due to its role in auditing Wirecard's accounts. Earlier this month, Wolfgang Schirp filed a class action lawsuit against the consultancy on behalf of Wirecard investors, alleging it failed to flag improperly booked payments on Wirecard's 2018 accounts.

According to German news magazine Der Spiegel, SoftBank is also planning to sue EY over the debacle. A spokesperson for SoftBank Investment Advisers, the subsidiary that manages SoftBank's $100 billion Vision Fund, declined to comment when contacted by CNBC.

The Japanese tech investor last year put 900 million euros into Wirecard through a complex convertible note deal, but later sought to hedge against its initial bet by repackaging the bonds into exchangeables that were sold to other institutional investors.

FCA restricts UK unit

Wirecard has said it's considering whether its subsidiaries will also need to apply for insolvency. It said the firm's in-house bank would not be part of the initial insolvency proceedings and that the German financial authority, BaFin, has appointed a special representative for the unit.

On Friday, Britain's Financial Conduct Authority (FCA) said Wirecard Card Solutions must cease all regulated activities, effectively putting a freeze on customer money. The watchdog said that Wirecard's U.K. unit would also have to state this information on its website and communicate it with customers.

German regulatory oversight comes into focus as Wirecard scandal unfolds

The move has led to disruption for financial technology apps in the country.

Anna Money, a Cardiff-based business banking start-up, said its cards and accounts were temporarily suspended and that customer funds had been frozen.

"Your money remains safe," the firm said. "However, the FCA action over Wirecard means that you may not be able to access it."

London-headquartered Curve, which lets users aggregate multiple bank cards in its app, told customers their payment cards have also been suspended due to the shutdown.

"In April, Curve announced we would bring more processes in house such as card issuing and e-money and move away from a reliance on Wirecard," a Curve spokesperson said in a statement Friday. 

"This disruption is expected to last for a limited time only and we are focused on completing this transition as quickly as possible."

CNBC understands that Revolut, which used Wirecard for card top-ups in some locations, has moved all remaining customers to alternative providers to avoid potential disruption to their service.