Former Wirecard Boss Markus Braun Arrested

Wirecard's former boss has been arrested on suspicion of falsifying its accounts, after the German payments firm disclosed a US$2.1 billion financial hole and questioned whether trustees had actually held money on its behalf.

Markus Braun turned himself in on Monday night after Munich prosecutors issued a warrant for his arrest. A judge ruled on Tuesday that the 50-year-old Austrian could be released as soon as he posts 5 million euros in bail.

As the wheels of justice turned, more than a dozen banks hired restructuring specialist FTI Consulting to advise them in talks with Wirecard, amid growing concern they may only recover a fraction of the 1.75 billion euros they have lent.

In his 18 years in charge, Braun transformed an offshoot of the dot.com boom, known for handling payments for online gambling and adult entertainment sites, into a US$20 billion-plus 'fintech' that won a place in Germany's blue-chip DAX index.

The former consultant traded in a suit for a black roll-neck and portrayed himself as a tech visionary, telling New York investors last autumn that Wirecard would increase revenues by six times by 2025 as digital payments boom.

Wirecard's meteoric rise was, however, accompanied by repeated allegations from whistleblowers, journalists and speculators that its revenue and profits had been pumped up through fake transactions with obscure partners.

Braun, who will have to report to police once a week, said last week in a video statement that Wirecard may have been the victim of fraud, without giving details.

He now stands accused of misrepresenting Wirecard's accounts and of market manipulation by falsifying income from transactions with so-called third-party acquirers, the Munich prosecutor's office said earlier.

Two people familiar with the matter said state prosecutors were also considering issuing an arrest warrant for Jan Marsalek, a board member fired on Monday. Lawyers for Braun and Marsalek were not available for comment.

Wirecard's implosion was described on Monday as a "total disaster" by Germany's financial regulator, which has come under fire for pursuing its critics and not the company.

Finance Minister Olaf Scholz told Reuters on Tuesday that lawmakers should decide quickly how to tighten regulation following the Wirecard scandal, which had exposed lapses by both auditors and regulators.

An external audit by KPMG in April could not verify cash balances, questioned Wirecard's acquisition accounting and was unable to trace millions in reported cash advances to merchants.

Braun, who said at the time that the allegations were not confirmed "in every point", quit on Friday after in-house auditor EY refused to sign off on Wirecard's 2019 accounts.

Wirecard's shares have since shed more than 80 percent and its only listed bond is trading at 26 cents on the euro, indicating that investors expect to lose most of their money.

New CEO James Freis, a former financial investigator at the US Treasury and compliance chief at the Frankfurt Stock Exchange, has opened urgent talks with its 15 creditor banks.

With Wirecard having failed to file audited financials, the banking consortium led by Germany's Commerzbank could call in the loans at any time.

Lenders have mandated FTI Consulting as financial adviser, people close to the matter said, bringing in an experienced restructuring specialist that is advising US car rental firm Hertz on its Chapter 11 bankruptcy.

Some of the banks have signalled that they do not for now favour cancelling their loans and sending Wirecard into insolvency, but have demanded full transparency as they seek to recover their money, these people said.

Wirecard is being advised by investment bank Houlihan Lokey and the creditors by law firm Allen & Overy. Both declined to comment, as did FTI. (Reuters)