Crit­ics’ ire turns on au­dit gi­ant EY after col­lapse of Wire­card

Arab News - - Business - AFP Frank­furt am Main

Global au­dit gi­ant EY is fac­ing grow­ing ques­tions and threats of le­gal ac­tion over its role in the bankruptcy of Ger­man pay­ments pro­ces­sor Wire­card after sign­ing off on the ac­counts for years.

Some plain­tiffs have al­ready launched le­gal cases against EY after Wire­card’s spec­tac­u­lar bankruptcy last week.

Ger­man share­hold­ers’ as­so­ci­a­tion SdK said Fri­day it had launched a case tar­get­ing two au­di­tors still work­ing at EY and one former em­ployee. Listed on the blue-chip DAX in­dex since 2018, Wire­card filed for in­sol­vency Thurs­day after ac­knowl­edg­ing that €1.9 bil­lion ($2.1 bil­lion) sup­pos­edly held in trust for it in bank ac­counts in the Philippine­s did not ex­ist.

Ger­man Fi­nance Min­is­ter Olaf Scholz has called the Wire­card col­lapse an “un­prece­dented scan­dal in the fi­nan­cial world,” say­ing it was a “wake-up call that we need more su­per­vi­sion” in fi­nan­cial mar­kets. Nei­ther Wire­card’s pri­vate sec­tor au­di­tors nor Ger­many’s fi­nan­cial mar­kets watch­dog BaFin saw the crunch com­ing.

Press re­ports had since 2015 pointed to pos­si­ble ir­reg­u­lar­i­ties in Wire­card’s busi­ness model, while the Fi­nan­cial Times pub­lished a string of ar­ti­cles from early 2019 on fraud sus­pi­cions in the group’s Asian op­er­a­tions.

BaFin re­acted by im­pos­ing a ban on traders bet­ting against Wire­card stock and an­nounc­ing a probe into FT jour­nal­ists.

This week the Lon­don-based busi­ness daily took aim at EY, al­leg­ing that the au­di­tors did not do a thor­ough job.

In a Fri­day ar­ti­cle, the pa­per re­ported that EY did not ask for ac­count in­for­ma­tion for over three years from a Sin­ga­pore bank where Wire­card claimed to hold a cash bal­ance of €1 bil­lion.

“Check­ing the ex­is­tence of bank de­posits is one of an au­di­tor’s eas­i­est tasks,” the SdK share­holder group com­plained, nor­mally fol­low­ing “clearly reg­u­lated” pro­ce­dures. Ber­lin-based law firm Schirp and Part­ner launched a law­suit against EY in early June, say­ing on its web­site the group could not have cer­ti­fied Wire­card’s ac­counts “without a breach of an au­di­tor’s au­dit­ing obli­ga­tions.”

Given Wire­card’s share price has col­lapsed by 98 per­cent in 10 days, Schirp told share­hold­ers that “EY is eco­nom­i­cally the bet­ter claimant for ag­grieved in­vestors,” urg­ing them to join a class ac­tion suit.

Out­side Ger­many, Dutch as­so­ci­a­tion Euro­pean In­vestors (VEB) has de­manded an out-of-court set­tle­ment from EY to fend off a threat­ened law­suit, busi­ness daily Han­dels­blatt re­ported.

The au­dit group said last week there were “clear in­di­ca­tions that this was an elab­o­rate and so­phis­ti­cated fraud” after re­fus­ing to sign off on Wire­card’s 2019 ac­counts.

“Mul­ti­ple par­ties around the world in dif­fer­ent in­sti­tu­tions” must have acted with “a de­lib­er­ate aim of de­cep­tion,” EY added.

But such state­ments could yet be turned against the au­di­tors, in the shape of claims they should have in­formed the pub­lic sooner about their doubts.

EY had been check­ing Wire­card’s books since 2009.

The au­dit firm is also in the sights of mam­moth Ja­panese con­glom­er­ate Soft­Bank, which plans le­gal ac­tion against EY ac­cord­ing to Ger­man weekly Der Spiegel.

HIGH­LIGHTS Wire­card filed for in­sol­vency Thurs­day after ac­knowl­edg­ing that €1.9 bil­lion sup­pos­edly held in trust for it in bank ac­counts in the Philippine­s did not ex­ist.

Ger­man Fi­nance Min­is­ter Olaf Scholz has called the Wire­card col­lapse an ‘un­prece­dented scan­dal in the fi­nan­cial world,’ say­ing it was a ‘wake-up call that we need more su­per­vi­sion’ in fi­nan­cial mar­kets.

AFP/File

A traf­fic sign stands in front of Wire­card head of­fice in Aschheim, Ger­many.

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