The fraud trial against the former head of Wirecard, the German electronic payments company that went from being the darling of the European start-up scene to a spectacular fall that led to changes in Germany’s financial oversight, began in Munich on Thursday.
The electric payments company rose to huge fame in the 2010s and grew to become the most valuable financial company in the country. But two years ago, the accountant declared he couldn’t find nearly 1.9 billion euros (about $2 billion) on Wirecard’s books, triggering a chain of events that would wipe out more than 20 billion euros, generate arrest warrants for its top executive. , and damaging the reputation of Germany’s financial regulators, who for more than a decade have overlooked questions about the company’s activities.
Markus Braun, the former chief executive, and two other former executives are accused of defrauding creditors of $3.7 billion through false accounting from 2015 until Wirecard collapsed in June 2020.
Prosecutors said that Mr. Braun, the entrepreneur who founded the company and would become a billionaire, misrepresented Wirecard’s earnings by inflating its sales with falsified earnings.
Plaintiffs in Germany are not filing pleas, but prior to trial, Mr. Braun said the allegations against his client are “seriously flawed” and “were based on a misrepresentation of the facts”. They said Mr. Braun acted in good faith and was unaware of any machinations by others in the company, especially in relation to its business in Asia.
The two others charged in the case are Oliver Bellenhaus, who headed a Wirecard subsidiary in Dubai, and Stephan von Erffa, the company’s chief accountant. All three face the same charges, which carry sentences of up to 15 years in prison if convicted.
The process is expected to take at least a year given the complexity of the charges and the need to sift through transactions in detail.
At the height of his company’s success – in 2018, Wirecard was the most valuable financial company listed on the DAX blue-chip stock index – Mr. Braun is considered a tech icon in Germany, credited with creating a modern financial technology company that could stay with the more traditional heavyweights of the German business world, but also hold its own against American rivals such as PayPal.
Founded in 1999 and based in the Munich suburb of Aschheim, Wirecard provided the invisible financial plumbing that allowed customers to transact by waving a plastic card over a reader almost anywhere in the world. Hedge funds and global investors rushed to buy stocks.
Prosecutors said that Mr. Braun signed financial reports knowing they were false. The company created the illusion of having more money than it had, they said, by posting nonexistent revenue attributed to multiple partnerships in countries abroad.
Central to these partnerships were escrow accounts held at two Philippine banks, according to Wirecard. The money was needed for the company to secure online card payments by third-party partners.
Without this guarantee and the alleged income that could be generated from third-party activities, Wirecard would have been in the red and failed to inspire the confidence of investors and banks.
But the two banks said they had never dealt with Wirecard. And prosecutors and the administrator involved in handling the company’s insolvency, Michael Jaffé, now believe the money never existed.
One of the biggest challenges for prosecutors is what another executive, Jan Marsalek, the chief operating officer, knew and what role he played.
Mr. Marsalek was responsible for third party business. But he was last seen in Western Europe in June 2020, boarding a private jet in Vienna for Minsk. He is wanted under an international arrest warrant and German media have reported that he is now believed to be living in Russia.
Mr. Braun turned himself in to authorities in Munich after stepping down as CEO. He has been in custody ever since. The company filed for bankruptcy in June 2020.
The company’s collapse prompted a parliamentary inquiry and a review of Germany’s financial regulator, BaFin. The regulator had responded to reports in The Financial Times about questionable transactions at Wirecard by investigating the reporters, rather than the company.
Last year, lawmakers expanded BaFin’s financial oversight capabilities, giving it more powers and intervention powers.
