Former Wirecard CEO Marcus Brown has been arrested in Germany

Former Wirecard CEO Marcus Brown has been arrested in Germany

Munich prosecutors confirmed on Tuesday that Brown, the former CEO of Wirecard, has been arrested on suspicion after inflating the balance of the digital payment company and counterfeit sales in order to be more attractive to investors and customers. Prosecutors said Brown may have acted in collaboration with other perpetrators.
Wirecard (WCAGY) admitted on Monday that 1.9 billion euros ($ 2.1 billion) cash included in the financial statements – or approximately a quarter of its assets – probably never existed in the first place. The company withdrew its preliminary results for 2019, the first quarter of 2020 and its profit forecast for 2020.

The scandal erupted last week when Wirecard said its auditor EY could not find the funds in trust accounts and refused to sign the company’s financial results.

Brown resigned as CEO on Friday, suggesting the company may have been the victim of a large-scale fraud. Jan Marsalek, Board Member and Chief Operating Officer of Wirecard, was fired on Monday,,

Founded in 1999, Wirecard was once considered one of the most promising technology companies in Europe. It processes payments for consumers and businesses and sells data analysis services. The company has nearly 6,000 employees in 26 countries around the world.

Brown, an Austrian who was also Wirecard’s chief technology officer, has led the company since 2002. The former KPMG consultant is the company’s largest shareholder with shares of just over 7%, according to Refinitiv.

Wirecard quickly grew with Brown at the helm. The company reported revenues of more than 2 billion euros ($ 2.2 billion) in 2018, or more than four times that of 2013. In September 2018, the shares reached a high level of more than 190 euros ($ 213). the same month Wirecard was replaced Commerzbank (CRZBF) in Germany’s list of top 30 companies. At the time, it was worth more than 24 billion euros ($ 26.9 billion).

The company is now facing an existential crisis. A frantic search for the missing money hit a dead end over the weekend in the Philippines, where the central bank denied that the money had entered the country’s financial system. The company’s shares fell on Monday, leading to a collapse that wiped out 85% of its share price in three trading sessions. Wirecard ended the day with a market value of 1.7 billion euros ($ 1.9 billion).

Wirecard is vying to keep creditors in jeopardy, a task that could be complicated by the arrest of its former CEO. The company said on Friday that it has hired investment bank Hooligan Lokey to develop a new financing strategy.

The implosion follows a tumultuous 18 months for the company, ousted by allegations of fraud, attacks by short sellers and questions about its accounting practices.

The success story began to unravel in January 2019, when the Financial Times reported that Wirecard forged and withheld contracts in a series of suspicious transactions in Singapore. The company denied the report, which was prepared with the help of a whistleblower, but its shares fell. In February 2019, the authorities in Singapore announced that they would investigate.

Another blow came late last year when FT published a report and company documents suggesting that profits and sales had been inflated in Wirecard’s forefront in Dubai and Ireland. Wirecard again denied the allegations. However, an investigation by KPMG, published in April, found that the company did not provide enough information to fully explain the issues raised by FT.

Brown reported to prosecutors Monday night after his arrest warrant was issued. Prosecutors say a judge will decide later Tuesday whether he should remain in custody. The former CEO explained his decision to resign last week in a letter to employees and shareholders.

“Capital market confidence in the company I have run for 18 years has been deeply shaken. ‘I respect the fact that the responsibility for all business transactions lies with the CEO,’ said Brown.

– Mark Thompson contributed to the reporting.

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