Wirecard Fallout Continues: Bank Wins Right to Pursue EY Lawsuit Independently
The ongoing saga of Wirecard, the German payment processing firm that collapsed in 2020 amidst allegations of massive fraud, continues to unfold in the courts. In a recent ruling, Germany’s Federal Court of Justice (BGH) has allowed a bank to proceed with its damages claim against auditing firm EY, even as a large-scale investor class action remains suspended. This decision highlights the complex legal landscape surrounding the Wirecard scandal and raises questions about the timeline for justice for those affected. The move is likely to frustrate many Wirecard investors who are still awaiting resolution of their claims, with over 9,200 lawsuits representing approximately €1.9 billion in damages currently on hold.
The case centers around allegations that EY failed in its duty to properly audit Wirecard’s financial statements for several years, ultimately missing or overlooking critical red flags that foreshadowed the company’s downfall. The bank, identified as Raiffeisenlandesbank Oberösterreich, extended a loan to Wirecard prior to its insolvency and is now seeking compensation from EY for losses incurred as a result of the alleged accounting failures. The BGH’s decision allows the bank to pursue its claim without waiting for the outcome of the broader investor class action, a move that could potentially expedite the recovery of funds for at least one creditor. This ruling underscores the significant financial and legal repercussions stemming from the Wirecard collapse, which shook confidence in Germany’s financial regulatory systems.
EY’s Audits Under Scrutiny
EY served as Wirecard’s auditor from 2009 until 2019. For the years 2014 through 2018, EY issued unqualified audit opinions, essentially signing off on the company’s financial statements as accurate. However, in 2019, EY refused to provide that same unqualified opinion, a pivotal moment that ultimately triggered the unraveling of Wirecard and its subsequent insolvency filing in June 2020. The refusal to attest to the 2019 financials stemmed from the discovery of discrepancies and a lack of sufficient evidence to support the reported figures. This ultimately revealed that approximately €1.9 billion, purportedly held in trust accounts in Asia, did not exist. The Handelsblatt reports that the BGH’s decision compels EY to release confidential audit files related to these years.
The Raiffeisenlandesbank Case
The specific bank involved in the current legal battle, Raiffeisenlandesbank Oberösterreich, had extended credit to Wirecard before the company’s collapse. Following Wirecard’s insolvency, the Austrian bank initiated legal proceedings against EY, alleging that the auditing firm had significantly breached its duties in examining Wirecard’s annual and consolidated financial statements. The core accusation is that EY failed to identify and address critical accounting irregularities that ultimately led to the company’s downfall. The bank has not publicly commented on the case, citing ongoing legal proceedings. EY has also refrained from commenting on the BGH’s ruling.
The BGH’s decision to allow the bank’s lawsuit to proceed independently stems from the bank’s challenge to the suspension of its claim alongside the broader investor class action. The bank argued that the delay caused by the suspension was unduly prolonged. The BGH agreed, allowing the bank to pursue its claim at the Regional Court of Munich I. The case number for the BGH decision is III ZB 22/24. According to the BGH’s press release, the ruling allows the bank to move forward with its pursuit of damages.
Impact on Wirecard Investors
While the Raiffeisenlandesbank’s legal victory is significant, it does little to alleviate the frustration of the thousands of individual investors still waiting for resolution in the main class action lawsuit. The suspension of these claims, initiated when the capital investor model proceedings began in 2022, has left many feeling in limbo. Marc Liebscher, a lawyer representing the Wirecard class action plaintiffs, expressed his disappointment, stating, “Wirecard investors are getting stones instead of bread. They get the devastating impression that a bank is getting to its goal faster, while they have to wait.”
A key sticking point in the investor class action revolves around whether an auditor’s confirmation constitutes public capital market information under the terms of the German Collective Redress Act. The Bavarian Higher Regional Court previously ruled that auditor confirmations are *not* considered public capital market information, a decision that is currently under review by the BGH. This determination is crucial due to the fact that if the BGH upholds the lower court’s ruling, it could significantly limit the scope of the class action and the potential for investors to recover their losses. Liebscher warns that “delayed justice is no justice.”
Expanding Scope of the Investor Lawsuit
The Bavarian Higher Regional Court recently expanded the scope of the investor class action in late January, focusing on the alleged misrepresentation of Wirecard’s “third-party business” in its financial statements from 2014 to 2018. This expansion comes after the court rejected numerous requests from co-plaintiffs to broaden the scope further. According to Liebscher, the plaintiffs have until the end of March to present 53 points of detailed argument to the court regarding the alleged misrepresentation of the third-party business and its impact on investors. He emphasized that these arguments will not only address the liability of former Wirecard CEO Markus Braun but also the role of EY in the alleged accounting fraud. Liebscher believes that claims against EY are of greater economic significance than those against Braun.
The legal arguments surrounding the alleged misrepresentation of the third-party business could potentially be used to support the original damage claims, even if the BGH ultimately rules that auditor confirmations are not admissible in the class action. The timing of the BGH’s decision on this matter remains uncertain.
Looking Ahead
The Wirecard scandal continues to reverberate through the German financial system, prompting increased scrutiny of auditing practices and corporate governance. The BGH’s decision to allow the Raiffeisenlandesbank to proceed with its lawsuit against EY is a significant development, but This proves just one piece of a much larger and more complex legal puzzle. The outcome of the investor class action, and the BGH’s ruling on the admissibility of auditor confirmations, will have far-reaching implications for both investors and the auditing profession.
The next key step in the investor class action is the submission of detailed arguments by the plaintiffs regarding the third-party business by the end of March. The BGH’s decision on the admissibility of auditor confirmations is also eagerly awaited. The ongoing legal battles surrounding Wirecard serve as a stark reminder of the importance of robust financial oversight and the potential consequences of corporate fraud.
Key Takeaways:
- The BGH has allowed Raiffeisenlandesbank Oberösterreich to pursue its lawsuit against EY independently of the larger investor class action.
- The investor class action remains suspended pending a BGH ruling on whether auditor confirmations qualify as public capital market information.
- The scope of the investor class action has been expanded to include allegations of misrepresentation of Wirecard’s third-party business.
- The legal battles surrounding Wirecard highlight the require for greater scrutiny of auditing practices and corporate governance.
What are your thoughts on the BGH’s decision? Share your comments below and let us know how this ongoing saga impacts your view of financial regulation and corporate accountability.