Wirecard's dramatic fall from grace has thrust corporate governance and industry regulation in Germany firmly in the spotlight.
The Munich-based payments processor filed for insolvency on Thursday, reportedly owing creditors 3.5 billion euros ($3.9 billion). The company's collapse follows a series of investigative reports from the Financial Times into claims about accounting irregularities.
The revelation last week that 1.9 billion euros had disappeared from Wirecard's balance sheet has seen the firm's share price collapse 98% and former CEO Markus Braun arrested on suspicion of falsifying accounts.
The Wirecard saga and its broader implications raises many questions, with some experts describing the scandal as the "Enron of Germany."
Under German corporate law, companies are required to have both a supervisory board and a management board. The supervisory board is responsible for overseeing management.
Chris Hohn, the head of $24 billion hedge fund TCI, had called on Wirecard's supervisory board to dismiss former CEO Markus Braun in late April.
"We are of the view that the supervisory board is legally obliged to intervene," he wrote in an open letter published April 28. "In our opinion, the necessary intervention is now to remove the CEO from all management duties."
Nonetheless, Braun had resisted pressure to leave. He resigned last week after 18 years at the helm and is currently out on bail after being arrested in Munich last week. The fiasco has led to fresh questions about why Wirecard's supervisory board did not act ahead of time.
"What you see with Wirecard, it's a disaster," Peter Dehnen, chairperson of the Association of Supervisory Boards in Germany, told CNBC's "Squawk Box Europe" on Thursday.
Dehnen is calling for reforms to Germany's corporate governance rules. Though the German corporate governance code was updated only recently, Dehnen thinks there's a need for something "new" and "dialogue-driven" that makes companies communicate with all their stakeholders — not just shareholders.
"This is modern corporate governance," he said. "With the rules presently in place, I feel we're still back in the last century. And for that we need a drastic change."
The Wirecard scandal is far from the first to rock the German corporate world. Siemens was hit by a corruption scandal in the late 2000s, while Volkswagen's reputation was significantly damaged by the so-called "Dieselgate" emissions scandal in 2015.
Maximilian Weiss, an attorney at law firm TILP Litigation, which filed an investor lawsuit against Wirecard in May, told CNBC's "Squawk Box Europe" last week: "We are at the beginning of one of the biggest corporate scandals we have seen in Germany."
"I think there is a lot that needs to be done," Weiss said on Wednesday. "Just take a look at the U.S., what happened after Enron. I think Wirecard is the Enron of Germany."
Enron was an energy services company that collapsed in 2001 after revelations of systemic accounting fraud. The scandal was a factor in the enactment of the Sarbanes-Oxley Act, introduced in 2002, to protect investors from fraudulent financial practices.
Weiss said Germany required "better laws" to incentivize whistleblowers. He added that the Sarbanes-Oxley Act could offer a blueprint for what happens next in the country: "I think this is going to become a political issue."
The scandal has also renewed focus on how Germany's regulators dealt with allegations against Wirecard. Many hedge funds have criticized Germany's financial regulator, BaFin, for temporarily banning short-selling in Wirecard stock and for filing a criminal complaint against two FT journalists who reported the whistleblower allegations about the company.
Felix Hufeld, president of BaFin, has admitted the situation was a "scandal" and a "total disaster." On Tuesday, the regulator filed an updated case against the company looking at "suspected market manipulation."
"BaFin haven't covered themselves in glory at all," Neil Campling, a tech, media and telecom analyst at Mirabaud Securities, told CNBC on Friday. "They are supposed to regulate — all they did was bow down to any requests from the company."
The watchdog has also been the target of criticism from German lawmakers. Finance Minister Olaf Scholz told Reuters on Tuesday that the scandal "raises critical questions about supervision of the company" and is calling for regulatory reform.
"Is BaFin really a financial watchdog? Or is it a puppy dog?" said TILP Litigation's Weiss. "I think they have to be very critical when it comes to what they did in this matter."
However, the problem could be a cultural issue rather than a legal one, according to Jan Pieter Krahnen, scientific director at the Leibniz Institute for Financial Research SAFE in Frankfurt. He said German regulators lack teeth when it comes to issues impacting capital markets.
"It's basically an outgrowth of a culture that is not really looking at investor rights," Krahnen told CNBC. "There's really no real culture of going after companies that may be not disclosing everything in the right way so an investor can feel safe."
Krahnen thinks there could also be a role for the EU to play with respect to such capital markets issues. This could come under the wing of the European Securities and Markets Authority (ESMA), he said, adding the watchdog is currently viewed as more of a rule-setter.
Brussels is now calling on the ESMA to look into potential supervisory failures from BaFin. "We need to clarify what went wrong," Valdis Dombrovskis, the European Commission's executive vice president, told the FT on Friday.
It is not just BaFin that needs to stand up to scrutiny, analysts say. There are also questions about why EY, Wirecard's long-time auditor, didn't pick up on accounting irregularities that date back years.
"There also has to be some responsibility held to the auditor," said Mirabaud Securities' Campling, who claims to have been following the Wirecard case for two years. "It's the auditor's role to support the credibility of the accounts and documentation."
Campling says he suspects the 1.9 billion euros of missing funds "never existed in the first place." Wirecard has said it is likely that the lost cash doesn't exist.
EY has faced mounting legal pressure over its auditing of Wirecard's accounts. German shareholders' association SdK has filed a criminal complaint against Wirecard's auditors. The complaint targets two current employees and one former staff member at EY.
It comes after law firm Schirp & Partner brought a class action lawsuit against the accountancy on behalf of Wirecard investors, alleging it failed to flag improperly booked payments on Wirecard's 2018 accounts.
"There are 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," EY said in a statement Thursday.
"Collusive frauds designed to deceive investors and the public often involve extensive efforts to create a false documentary trail. Professional standards recognize that even the most robust and extended audit procedures may not uncover a collusive fraud."
The company told CNBC that it doesn't comment on "pending litigation."