On the night of June 18, Wirecard AG’s new compliance chief stayed up late at his office in the company’s low-rise headquarters in the Munich suburb of Aschheim to pore over the payment firm’s books.
It was James Freis’s first formal day on the job after his start date had suddenly been accelerated by the refusal that morning of Wirecard’s auditors to sign off on the 2019 accounts and the company’s suspension of its COO.
As Freis, a former financial investigator at the US Treasury, scanned the books he was struck by Wirecard’s unusual practice of relying on a third party to hold large sums of money in escrow on behalf of its subsidiaries present in countries where it does not have its own operating licenses, according to a person with knowledge of the matter.
The evidence that fraud had probably been committed was obvious to anyone with financial market experience, this person said. The next day, Wirecard’s long-time CEO resigned and Freis became interim CEO.
Over the following week, Fries was involved in a rapid wave of decisions that culminated in Wirecard filing for insolvency. In the end, the process left creditors with scant hope of recovering $4bn (R67.28bn) they were owed and investors holding shares that were nearly worthless.
Prosecutors are now investigating Wirecard’s other senior managers on suspicion of fraud, breach of trust, false accounting and market manipulation.
They have arrested former CEO Markus Braun, have a warrant out for the former COO and have widened the field of suspects to include all management board members except Freis. No charges have been filed.
Wirecard and its supervisory board chair declined to comment on events in the week leading up to the company’s insolvency filing and the accounting issues.
It has said the decision to file for insolvency was because Wirecard was over-indebted and not in a position to meet its financial commitments.
Braun, who has been released on bail, has denied wrongdoing.
The former COO, Jan Marsalek, remains at large and his whereabouts are unknown. His lawyer declined to comment.
The company fired Marsalek on June 22.
Freis moved to Frankfurt from Washington six years ago to become head of compliance at Deutsche Boerse, which runs the Frankfurt Stock Exchange.
Wirecard announced Freis’s appointment as chief compliance officer on May 8, 10 days after forensic accountants at KPMG had publicly raised red flags about Wirecard’s accounting for the three prior years, saying they had been unable to verify the existence either of revenue from the third-party partners or the balances held in escrow.
Freis started work after Wirecard announced audit firm EY could not confirm the existence of €1.9bn (R36.2bn) supposedly held in trust at two Asian banks — a quarter of its balance sheet.
Freis continues to oversee day-to-day operations at the company while the administrator sells off the remnants of Wirecard. — Reuters