The Wirecard Accounting Scandal in Germany, and How the Financial Industry Failed to Spot It

[...]we look at law enforcment and its complex questions about the correct level of regulation, and the intradisciplinary interaction of criminal, private and public law (Part III). [...]participants of the SdK were convicted of market manipulation because they had bet on falling share prices without declaring this conflict of interest. For a five-year period from April 2015, the reporters Dan McCrum and Paul Murphy of the Financial Times (FT) published more than sixteen articles in which they meticulously exposed untraceable payment flows and balance sheet entries at various Asian subsidiaries in the expose' they called The House of Wirecard. Their information was supported by whistleblowers at Wirecard,and German national magazines also reported on the issue. Other actors also warned of incorrect accounting, such as in the 100-page Zatarra Report, but that stated demonstrably incorrect facts and was also unlawful because the authorship remained hidden. Numerous short sellers repeatedly raked in high profits when the share price plummeted. As the rumours of false financial entries did not cease, in 2018 Wirecard appointed the law firm Rajah and Tann in Singapore to check the accounting. Wirecard AG consistently rejected all allegations of false accounting, and a criminal complaint for defamation was filed against the FT journalists. In numerous Tweets, CEO Braun emphasised "that everything will be fine" and that there was "no truth" in the accounting allegations. This was confirmed by further ad-hoc notifications issued by Wirecard in May and June 2020. When EY refused to certify the Wirecard 2019 annual financial statements in June 2020, Wirecard filed a criminal complaint for fraud against unknown persons. The Munich Public Prosecutor's Office investigated the short sellers, and there were a few convictions. In early 2019, BaFin issued a two-month ban prohibiting the short selling of Wirecard shares, and it also launched a criminal complaint against the FT journalist McCrum. But BaFin also sought cooperation with several foreign authorities and, in February 2019, commissioned the German Financial Reporting Enforcement Panel (DPR) to audit the Wirecard 2018 financial statements. After all, pursuant to Section 319a of the German Commercial Code (HGB) there is an Auditor Oversight Body (APAS) in the Federal Office for Economic Affairs and Export Control (BAFA). The FT allegations were dismissed as fake news. Until mid-2020, financial analysts were still fo