The Wirecard parliamentary inquiry commission presented its final report to Wolfgang Schäuble on 22 June 2022 in the German parliament.
Interested investors can retrieve the report here
Paul Koster, CEO of European Investors-VEB, said:
“Not only does the report confirm our worst fears, but it exceeds them. On behalf of our investors we relentlessly followed the proceedings of the inquiry commission in Berlin on-site through our German representative Dr Andreas Zubrod, insofar as EY and thus our claim for damages were dealt with. From the outset, we were also clear about the extent to which EY has failed, on the basis of other documents leaked to us. The commission’s report (and the special vote of the opposition parties FDP, BÜNDNIS 90 / DIE GRÜNEN and Die Linke) describes the failure in the years 2015 to 2020 in a condensed way. The report states, among other things:
“Without anticipating an upcoming examination by the civil and criminal courts it should be noted that serious shortcomings in the audit of Wirecard AG were found in our discovery proceedings. The Commission is convinced that the audit would have enabled EY to identify the accounting fraud. The Munich I public prosecutor’s office is conducting an investigation against the partners responsible for the audit, Andreas Loetscher and Martin Dahmen. The Commission also identifies shortcomings from the employees involved in the audit and in the responsible management of EY Germany, namely the long-standing EY Germany boss, Hubert Barth, and Dr Christian Orth, the head of quality control at EY.
Upon the result of our discovery proceedings it is clear to the Commission that EY understood Wirecard AG’s business model. Thus, the Commission rules out a lack of understanding as a reason for the existence of the serious flaws.
(…) At the core of the founding of our convictions is the so-called ‘Concurrence Memorandum’ of 3 March 2016. (…) In this paper EY comprehensively and accurately presents the third party acquiring (TPA) business and proposes the gross accounting of the TPA business, which is one of the causes of the inflation of the balance sheet. The Commission concludes from this that EY was largely responsible for accounting for the TPA business and, as a result, could and should have checked the actual implementation.
Based on our discovery proceedings the Commission concludes that essential audit procedures by EY were seriously neglected. The Committee bases its conviction essentially on the report (‘Wambach report’) (…) drawn up by special investigative officer Martin Wambach.
At the moment it cannot be ruled out that beyond the audits at Wirecard AG there could be systemic weaknesses at EY regarding the proper execution of audits in general. The concern of systemic weaknesses at EY regarding the proper compliance with audit standards also applies particularly because EY, at the Commission hearings, was categorical and unswerving that it had performed its audit work properly, despite the disaster at Wirecard. EY’s position appears to be solely guided by its interests. The admission of an incorrect application of the IdW audit standard 302 (new version) would – from the point of view of EY – have fatal effects on the chances of success of the lawsuits brought by investors.”(Page 1725)
By referring to an examination by civil and criminal courts, the commission indirectly makes it clear that it classifies EY’s behaviour as intentional within the meaning of Section 826 of the German Civil Code (BGB). A criminal charge would not come into question without sufficient suspicion (and thereby implying mens rea which is essential for a crime or misdemeanor).
This is European Investors–VEB’s impression which has become ever more solidified over the course of time since mid 2020 and is backed up by facts. Interested investors can read about this on pages 328 to 445 of the report.
An important step for all investors will be the complete and unclassified publication of the Wambach report, which, although European Investors–VEB is partly acquainted with it, may only be introduced into our civil proceedings before the DC Munich I in a legally secure and undisputable manner if it is obtained from an authorised source. European Investors-VEB appeals to the Commission to command this publication before the Federal Civil Court of Justice – in spite of the flimsy argument from EY that trade and business secrets would be disclosed (cf. p. 1715 of the report). At themost, this would be the case if behaviour that could possibly be described as criminal were held to constitute proprietary know-how. Apparently, this is EY’s position.”
In general, European Investors-VEB is convinced that the civil procedural legal framework for group or class actions in Germany urgently needs an overhaul so that such entities responsible like EY can be held to account quickly and effectively. An EU directive pending implementation offers the opportunity for lawmakers for a contemporary renovation of the legal framework.