Case Spotlight: Wirecard Insolvency (Germany)

CompanyWirecard AG
JurisdictionGermany
ExchangeXetra
IndustryFinancial Technology
ClaimsAccounting Irregularities and Compliance failures
Relevant PeriodJanuary 1, 2016 - June 25, 2020
Participation DeadlineAugust 31, 2020

CASE BACKGROUND

On June 25, 2020, Germany based Wirecard AG filed for insolvency in the wake of what appears to be the country’s biggest financial scandal to date. At least five groups of organizers were contemplating recovery efforts for investors in Wirecard securities. However, insolvency changed organizer views on strategy and the prospects for recovery.

Claims will be based on Wirecard’s alleged accounting improprieties and inadequate controls, detailed in numerous Financial Times articles during the past year and a half detailing fraudulent sales, revenue, acquisitions, and profits. During the course of this scandal, Wirecard share prices have fallen more than 90%, erasing roughly €17B in market capitalization.

  • April 27, 2020: A report by KPMG LLP, the firm brought in to audit the financials after those news stories appeared, stated that KPMG was unable to substantiate more than half of Wirecard’s reported profits from 2016 through 2018. (read more)
  • June 5, 2020: Germany’s financial regulator announced criminal charges against Wirecard’s board of directors including its CEO. (read more)
  • June 18, 2020: Wirecard was scheduled to report its full-year-2019 results after having been delayed three times. Its regular auditors, Ernst & Young GmbH (E&Y), were not able to verify €1.9 billion in reported cash balances. Wirecard has not yet been able to issue its 2019 annual results and E&Y has issued a statement that 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.” (read more)
  • June 19, 2020: Wirecard’s CEO, Markus Braun, resigned from his position in “mutual consent” with the board. (read more)
  • June 22, 2020: Wirecard issued a statement that the ‘missing’ €1.9 billion likely did not exist. Wirecard’s chief operating officer, Jan Marsalek, was dismissed. (read more)
  • June 25, 2020: The company filed insolvency proceedings. (read more)

ORGANIZERS

Two groups – Burford/Quinn Emanuel and DRRT/Therium/TILP – plan to pursue claims against Wirecard in insolvency. They expect the bankruptcy administrator will require claim submission this fall and are asking investors to register with them by the end of August. They also plan to separately pursue claims against others outside of the insolvency proceedings. Their registration agreements cover both efforts, even if claims against others are pursued later after more facts unfold.

Both organizer groups are proposing recovery efforts in Germany against Wirecard and others. They will represent you on a “no win, no fee” basis advancing all case expenses including lawyers’ fees and the cost to post statutory bonds or other security against adverse cost orders. If successful, they will receive a success fee from the recovery. Cost reimbursement will either be included in this percentage or netted from the gross recovery before success fees are applied.

FRT clients can email their FRT service representative for a more detailed organizer comparison or email us at learnmore@frtservices.com

HOW IS THIS CASE DIFFERENT FROM THE BROADER WIRECARD EFFORTS AGAINST THEIR AUDITORS?

There were at least five groups of organizers contemplating recovery efforts for investors in Wirecard securities before Wirecard filed for insolvency – including Burford and DRRT. Case details, including the relevant time period, may differ from the insolvency case versus the broader case that may be brought against the auditors.

While there may be opportunities later to register for recovery efforts, there is no guarantee. With Wirecard in insolvency, the remaining organizers may view the prospect for recovery to be significantly less and may decide it’s not worth pursuing. On the other hand, Germany has a three-year statute of limitations and with events still unfolding we do believe there are likely to be other recovery efforts in the future.

DETERMINING ELIGIBILITY & COSTS

Ongoing participation burdens should be minimal to modest. Both groups are using a case management process to minimize your time and effort. Discovery is limited in German civil proceedings, and depositions are not permitted. Courts cannot compel witnesses outside the country to appear but it may be necessary for some claimants to provide written statements supporting their claims or, less likely, to testify in court.

However, there is a risk that US claimants may be subject to discovery under US Code Title 28, Section 1782, which allows parties to litigation outside of the US to apply to a US federal court for evidence to use in those foreign proceedings. In prior securities cases, the parties have filed such proceedings to bypass discovery limits in Germany. When you register, try to negotiate coverage for any associated costs.

NEXT STEPS

If you are contemplating claims against Wirecard in insolvency, you must register now. FRT is working with our clients:

  1. Obtain trading data for their accounts,
  2. Blind the data, and
  3. Send it to the organizers for their estimates.

If eligible, FRT can then provide the registration agreements for the chosen organizer.

Please contact your FRT Representative or email us learnmore@frtservices.com if you would like to discuss registration in this effort.

Learn More

To learn more about how FRT can help your firm identify and monitor global opt-in securities litigation opportunities, visit our website.

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This communication and the content found by following any link herein are being provided to you by Financial Recovery Technologies (FRT) for informational purposes only and does not constitute advice. All material presented herein is believed to be reliable but FRT makes no representation or warranty with respect to this communication or such content and expressly disclaims any implied warranty under law. Opinions expressed in this communication may change without prior notice. Firms should always seek legal and financial advice specific to their unique situation and objectives.