Wirecard CFO released from jail amid accounting fraud investigation

Dive Brief:

Burkhard Ley, former CFO of Wirecard AG, an insolvent German payment processor startup, has been released on bail after spending more than three months in custody, Munich prosecutors said Monday.
Alongside Ley, who led the financial services provider's finance from 2006 to 2017, Wirecard's former CEO, COO, two board members, and other executives were arrested this summer following the business' collapse. Former CEO Markus Braun is still in custody, while former COO Jan Marsalek is at large, topping Interpol's most-wanted list.
Wirecard's collapse this summer was one of Germany's biggest accounting frauds since World War II, Financial Times said. Prior to declaring bankruptcy in August, the company was listed on the German DAX, a stock index similar to the Dow Jones.

Dive Insight:

Alongside Braun, former head of accounting Stephan von Erffa and Oliver Bellenhaus, who headed a Dubai-based Wirecard subsidiary, remain in custody, FT reported.

Ley, Braun, von Erffa, and Bellenhaus face fraud, embezzlement and market manipulation charges. Ley is the only one released on bail because it appears most of the illegal activity occurred after he left the company in 2017.

After acquiring a German Bank called XCOM in 2005, Wirecard, which opened in 1999, allegedly began "artificially inflating profits, hiding massive losses, forging contracts, and duping investors, auditors, and regulators," Practical eCommerce wrote. Over the last decade, Wirecard has acquired several smaller, Asia-based payment processors, an Indian payments company, and several Citibank-owned processing and prepaid-card portfolios in Asia and North America, it added.

At its peak in 2018, Wirecard had a $28 billion public valuation, employed 5,000 people and claimed to process payments for 250,000 clients.

"[From] the prosecutor's point of view, essential crimes, which caused significant damage, were conducted after [Mr. Ley] retired from the management board," the prosecutors said in a statement, FT reported.

Additionally, Ley, whose assets have been seized, is far less likely than Braun, von Erffa or Bellenhaus to "tamper with evidence or go on the run," prosecutors added.

After a June arrest, Braun was initially released on a nearly $6 million bail. In July, he was taken back into custody after being charged with additional crimes.

Wirecard's COO, Jan Marsalek, is at large, Munich prosecutors said. She disappeared in June shortly after Wirecard's auditor, Ernst & Young, refused to sign off on its 2019 accounts due to a missing $2.23 billion. Wirecard filed for insolvency shortly thereafter.

In a report this week, the European Securities and Markets Authority (ESMA) identified a number of "deficiencies" with the ongoing investigation, Yahoo Finance reported.

ESMA also accused BaFin, Germany's financial regulator, and Germany's Financial Reporting Enforcement Panel of ignoring concerns raised over Wirecard's accounting practices between 2016 and 2018.

"FREP did not pick up signals in the international media and failed to select Wirecard for examination in the period between 2016 and 2018," the ESMA report said, according to Yahoo.

"Today's report identifies deficiencies in the supervision and enforcement of Wirecard's financial reporting," ESMA chairman Steven Maijoor said.

Following Braun's resignation, Wirecard's newly installed leadership acknowledged the decade-long accounting fraud in a statement, adding that after "further examination," the $2.1 billion its auditors were unable to find likely never existed.